Construction Contingency Budget? What’s That?
“A construction contingency budget? Why should I need one? I mean, what can be so hard about this? It’s four walls, a floor and a ceiling?” our client asked in disbelief.
Then the contractor opened up the walls…
CONTROL WHAT YOU CAN CONTROL
As I wrote in our most recent post, a proper set of construction documents, schedules and specifications goes a long way in helping you ease your concerns and fears about your renovation project, because you’ve documented all your decisions.
In addition, I encourage you to have your contractor and his subs walk your project, giving them an opportunity to inspect existing conditions prior to their preparing and submitting a price for your review and acceptance.
Essentially, you need to make every effort to control what you can control.
UNFORESEEN CONDITIONS: WHAT YOU CAN’T SEE
What you and your contractor have no control over in a renovation or remodel is what cannot be seen. Those little surprises hidden in the walls, under the floor boards and above the ceiling. They are called “unforeseen conditions”.
Your contingency budget is intended to cover the costs of these unforeseen conditions (plus any additional work you might ask the contractor to do.) In a home remodel or renovation, we recommend at least a 20% contingency budget. For example, let’s assume your construction budget is $100,000. Your actual build budget is $80,000. Your construction contingency budget is $20,000.
Right now, you may be thinking, “But the budget is $100,000, not $80,000.” My response is, “do you have another $20,000 available to cover the cost of possible unforeseen conditions?” If you do, terrific! What this tells me is you can afford an overall construction budget of $120,000 including the contingency.
Part way through construction, we like to avoid the conversation that starts with, “But I can’t afford this! I don’t know where the money is going to come from.” It’s rather unpleasant for everyone…
OUR OWN BATH: THE GOOD, BAD AND UGLY.
In our mind’s eye, we had the wishful thought of $50,000 as our overall budget. Based on our experience, in our hearts we knew if we watched our P’s and Q’s, $60,000 was a far more realistic overall budget, giving us a construction contingency budget of $12,000 with a build budget of $48,000.
We retained Premier Builders Inc., a builder with whom we had worked on a number of projects over the last several years. Based on our drawings, schedules, specs and walk through, they submitted a construction estimate of $45,270.
We were feeling pretty good. We were already “under budget”. On the other hand, we were feeling anxious. What would our contractor find after demolition was complete?
Our biggest fears were:
- Would there be any rotten structural framing in the floor and tub surround walls? (Notorious in bathroom renovations.)
- We have knob and tube wiring throughout the house, discovered during the walk through. How much knob and tube ran through the bathroom other than the bathroom lighting and switching? How much more might we have to replace and upgrade?
- Would there be other surprises??? Our fingers were crossed.
There was no structural rot in the walls or the floor. YES!!!
Eliminating/replacing the bathroom’s knob and tube wiring was covered in our base contract. Unfortunately, the knob and tube wiring that ran through the walls and to the attic, adjacent closet, bedrooms and stair hall lighting, including the hall’s switching in the foyer below that was uncovered during demolition was not. It would all have to be upgraded per Code, since it was now exposed. More than half the house! OUCH!!! (Note, if you are planning to sell or purchase a house with existing knob and tube, today most banks/lenders will not finance the mortgage nor will insurance companies insure the home.)
The framing around the chimney did not conform to today’s Codes. Since we were touching the framing to install the tub, we were obligated to create the proper amount of air space between the chimney and the combustible framing. On occasions such as this, where the chimney was in obvious good condition and there was no evidence of charring or the existing framing having been exposed to excessive heat, our contractor spoke with the local building inspector and he allowed us to keep the framing as is.
During a previous renovation someone had cut the jack studs to the left of the window. This was an obvious necessary repair.
It’s called “scope creep” in the industry. It can happen easily and quietly, usually with a conversation that starts something like this. “While you’re here, can you…..” Your contractor is ALWAYS happy to accommodate you. Sally and I were no different. But at least we had a list beforehand…
- Asbestos abatement in the basement and attic. (With grandchildren in the house on a regular basis, we are taking no chances.)
- Repaint all kitchen cabinet doors. They were long overdue…
- Re-caulk the joint between the kitchen countertop and tile backsplash.
- Install two new soap dispensers by the kitchen sink. (Dispensers provided by us.)
- Replace three timer switches for outdoor lighting with new.
- Replace three motion activated security lights. (Lights provided by us.)
- Repair large cracks in wall in walk-in closet on second floor.
OUR Construction Contingency BUDGET REVIEW
Okay, the contractor has been here a month. Let’s see where we stand with the budget.
|Original budget estimate by Contractor:||$43,170|
|Knob and tube wiring: We decided to do the entire house.||$7,500|
|Repaint kitchen cabinet doors||$4,900|
|Re-caulk between countertop and tile backsplash||$100|
|Install two new soap dispensers by the kitchen sink.||$150|
|Replace three timer switches for outdoor lighting with new.||$200|
|Replace three motion activated security lights.||$200|
|Repair large cracks in wall in walk-in closet on second floor.||$375|
NOTE: We got written quotes on all of this work for our review and approval, prior to authorizing the additional work.
Let’s add our original budget estimate and unanticipated costs and see where we stand.
We’re now almost exactly at our anticipated costs. Considering that most of these additional costs are elective and not work necessary to complete the bathroom, we’re quite pleased. Every decision we made was an informed decision.
The warning shot across your bow should be very clear. Watch out for scope creep! It can easily eat up your contingency budget!
THE TAKE AWAYS
- Control what you can control with excellent documentation.
- In a renovation, carry and additional 20% as your construction contingency budget.
- The Good: Your worst fear may not be realized. (No rot.)
- The Bad: Unforeseen conditions will happen. (Knob and tube.)
- The Ugly: Manage your scope creep. (It can eat you alive.)
- ALWAYS get written quotes on any additional work for your review and approval, prior to authorizing the additional work.
If Sally and I can help you with any aspect of the design of your home, please don’t hesitate to contact us via the contact form on our website, here:
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