This article about how to estimate budget contingency is based on a recent Q&A in the Irish Examiner with a reader from Ovens, Cork.
At this stage we are all aware that during a build, with so many moving parts, that things can go wrong.
And when they go wrong it is usually the client (you) who ends up footing the bill in terms of cost but also the likely delays these issues cause.
Let’s have a look at how typical issues arise and what you can do to prepare in terms of estimate budget contingency planning.
Your new home build estimate budget contingency is dependent on how the build is structured
Firstly, your estimate budget contingency amount depends on your risk exposure. Your risk depends on what way you have structured your building project. Broadly speaking there are three types;
- Direct Labour Builds, where you employ all the contractors yourself.
- Hiring a Main Contractor, where the contractor looks after most of the build but you still have a separate engineer on site monitoring the building construction and signing-off on building regulations and planning permission.
- Turnkey Design & Build, where one company looks after all the building but has also employed an engineer on your behalf to sign-off on the required elements above.
These all perform very differently in terms of risk and therefore contingency so lets look at each of them in turn.
Direct Labour Builds: 15% Contingency
When it comes to Direct Labour builds you are essentially both the client and the building contractor. You will have also appointed an engineer separately so there is no-one in your project taking any amount of risk between all the various moving parts.
You could argue here that you are saving money because you are using your time instead of employing a builder or project manager, but similarly you are taking all this risk on your shoulders. Anything that goes wrong on site will fall back to you.
If there are complex junctions that the engineer needs to further develop and detail on site following discussion with you and contractors in terms of practical buildability you will foot the bill on any increases. If a product is not available and you need to source a similar but more expensive product to keep going, again this is your risk. If the plasterers are delayed in starting and the scaffolding needs to stay up for another 3 weeks, this again is your problem.
It is very hard to know how much risk exists here because it depends on your ability to manage a complex project with little or no previous experience. It could certainly be 15%, maybe even higher if things go badly wrong.
Hiring a Main Contractor: 10% Contingency
Now let’s look at a more typical project set-up. Here you will have a main building contractor and separately an engineer appointed. Now at least a good portion of the building works are now being managed and paid for by the builder. In most cases they will be responsible for executing the building works in line with the drawing and specifications they received by your engineer and that have been priced.
You do, however, still have the risk of errors and omissions on these drawings. Given that these drawings were effectively commissioned by you (your engineer) the builder will state that they priced what was on the drawings. There may be a series of debates on site as to what the builder should have foreseen that may not be on a drawing but that is the risk gap you are managing. It will come down to the accuracy and experience of your engineer and the competency and bonafides of your builder. Here banks typically look for 10% contingency.
Turnkey Design & Build: 0-5% Contingency
Finally, you can opt for the holy grail in terms of customer experience and risk mitigation which is design & build.
This style and process of building, which KMC specialises in, isn’t as well known in Ireland – but in terms of risk exposure is by far the lowest. Here your design and build company takes on all the risk of the design and the build save for the risk of what is underground.
Normal foundations assume a standard concrete footing arrangement and this will work fine in most situations where you have normal building ground. In cases of rock, clay or uneven conditions underfoot you may need to opt for more elaborate foundations. Your risk here is much lower again and if the ground conditions are normal, which is the case about 80% of the time, then the risk is minimal though there are some purpose increases of late to keep in mind.
In fact, your biggest risk in this style of construction may be getting too cozy in your risk insulation blanket and overspending on your finishes!
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