Contingency Budget
Contingency budget is money reserved beyond the estimated project cost to cover unexpected expenses, unforeseen conditions, and changes during construction.
Contingency budget protects against the inevitable unknowns in construction: hidden damage discovered during demolition, code compliance upgrades required when permits are pulled, design changes during construction, and material price fluctuations. Standard practice allocates 10-15% of project budget to contingency—higher for older homes or complex projects. A $100,000 kitchen remodel should include $10,000-15,000 contingency. This isn't extra profit for contractors; it's your protection against budget overruns.
Why Every Project Needs Contingency
Even meticulously planned projects encounter surprises. Opening walls reveals outdated wiring requiring upgrades, removing flooring exposes subfloor damage, or supply chain issues force material substitutions. Without contingency, these issues force: eliminating planned features, compromising quality, or going into debt. Denver's older homes frequently hide knob-and-tube wiring, galvanized plumbing, or asbestos—discovery during renovation triggers contingency use. Plan for contingency from day one; you'll likely use at least part of it.
Common Contingency Uses
- Hidden damage: Rot, termites, water damage discovered during demo
- Code upgrades: Bringing old systems to current code when work is done
- Design changes: Owner-requested modifications during construction
- Material substitutions: Specified products unavailable, alternatives cost more
- Unforeseen site conditions: Difficult soil, underground utilities, rock
- Unused contingency: Returns to owner or applies to final payment if not needed
Related Terms
Change Order
A change order is a formal written document modifying the original construction contract, detailing changes to scope, materials, price, or timeline.
Scope of Work
Scope of work is a detailed document specifying exactly what work will be performed, materials used, quality standards, and deliverables included in a construction project.
Allowance
An allowance is a predetermined budget amount included in construction contracts for items not yet selected, such as fixtures, tile, or appliances, with final costs adjusted when items are chosen.