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How Much of a Contingency Should You Have in a New Home Construction Budget?
Whenever you are getting bids for a new home construction process, you should be sure to ask how the builder accounts for unexpected expenses during the building process. Many contractors “pad” their bids, and this padding provides a contingency for unexpected delays, material waste, and other unforeseen issues that can come up during the construction process. At ESTATA, we typically add a contingency of 5% on all of our budgets.
A builder who doesn’t include this contingency will often offer the lowest bid in an attempt get the job, but at the end of the project, the client may well be surprised by all the extra costs. It is our belief that if a builder does not include this contingency in their budget proposal, it will be too easy to go over budget, which makes the original bid’s construction cost totally unrealistic. Clients should consider that a higher bid on paper is actually better than a lower bid without a contingency.
A contingency is critical because there are always a number of unexpected issues that crop up during the construction process. In practice, the contingency usually only accounts for the inflation of costs through the duration of the project—but for our purposes, we want to have a line item for unexpected expenses, because realistically, there is no such thing as a perfect project. For example, the cost of supplies or delivery costs may be higher than anticipated. There could be extreme cold weather and heating costs will go up. As most of our building products are closely linked to the US dollar, product prices tend to fluctuate. Additionally, economic factors here in Calgary can have an effect the cost of labour.