You must plan for the unknown as inevitably there are surprises in every construction project. One of the few things all home owners commiserate about, regardless of whether they have been through a construction project or not, is the idea that projects always go over budget. That being the case, you would think it would become standard practice to plan ahead for those inevitable overages. Be the first to get bragging rights for staying within your budget by following one of the two options below!
If you’ve already read the title of this blog, my hunch is that you’ve also already concluded that there are two ways of minimizing said overages. However, do you know one of the main reasons why projects go over budget and why these two things can help?
Owners want to hear that they can get what they want for the budget they happen to have available. Who wouldn’t? Contractors strive to make clients happy by giving them what they want, or rather, a version of what they want. It is human nature to try to please others, and contractors are no exception. As a result, contractors will comb through their years of experience and bag of tricks to determine the least expensive way to get the project to work within the given lean budget. It is literally impossible for any contractor (or human for that matter) to write down every assumption he or she is making to ensure the project works for the limited budget. The disconnect happens when the contractor reveals his or her version of the details throughout the process, and if clients don’t happen to like the newly discovered assumption, they change it. This is the definition of a Change Order, and that is one of the main reasons projects go over budget.
How do you avoid this? You can do one of two things:
1. Pay your architect to include as much information on the drawings as possible to alleviate situations where the contractor is making assumptions. I know you are thinking, “Didn’t she just state that no human can possibly get every detail down on paper? If everything cannot possibly be included, what then, should be included?” YOUR PRIORITIES should be included. If the entire team is clear about what your priorities are, then any assumptions made can be made within those parameters.
2. If you decide that you don’t want to pay for an architect to provide that kind of detail, then you need to INCREASE the contingency, so you have the budget available to pay for the surprises when they arise. Either way, if you decide that you want to upgrade to a fancy faucet instead of purchasing the non-fancy faucet originally included in the estimate by the contractor, because no faucets had been selected yet, you are going to have to pay for it, right? The difference is whether or not you knew about it in advance.
Broken down into simplified terms:
- If you are a plumbing fixture aficionado and you express to your architect that having fancy fixtures is one of your priorities, such that she includes your preferred fancy faucet in the construction documents, you will know about the added fancy faucet cost ahead of time. If another surprise allowance the contractor includes is low budget light switches, (but you, being the plumbing fixture aficionado, are fine with these switches) then you only paid for the perfect amount of information (your priorities) to be included on your drawings.
- If there are no faucets selected, then your contractor, who we already determined is human, includes allowances for all unselected items to ultimately comprise a total project cost equaling the low budget that you asked for. IF YOU ARE LUCKY, the change order for the upgraded faucet will only cost you the difference in price between the two faucets. If you are unlucky, it might require that you change the vanity, sink, backsplash height, or other similarly related items to get it to work. If you have a sufficient contingency, crisis averted.
Notes on contingency amounts:
- In general, I typically recommend a contingency of 10% on most projects.
- You should discuss with your architect what would be common for your project type. The complexity will determine your basepoint, and you increase from there as necessary; I’ve even seen people relieved that they went with a contingency as high as 20%.
- If there is a portion of the project that is more unknown than others, consider using the higher contingency on the allowance provided for that specific portion and only a 10% contingency on the rest of the project.
- Your 10% contingency is for surprises only, and you increase it based on knowledge that your contractor will have extra work to do on something that isn’t quantifiable yet. For example, if you happen to know your roof leaks and there will be water damage somewhere, you don’t plan to use your 10% contingency for that. You increase the contingency (amount TBD per conversations with your architect and contractor) and leave the 10% for unknowns. Make sense?
- You need to condition your brain to believe that the contingency is money already spent. It isn’t money that you should try to save in a piggy bank for vacation, or you will hesitate to use it when you need it most. If you believe that it is already slated for something, you are more apt to use it wisely when it really matters. There is nothing more satisfying that when a surprise comes up, you have the resources available to get what you want rather than convincing yourself that you should get the alternative because it is cheaper. Gratification at its best!
In the end, what ultimately ensures a successful project is not feeling like you made compromises on your priorities. After the construction is complete, no one wants to see something every day that they hate, that reminds them of some compromise they wish they would have done differently. You are the only one who knows if you prefer to plan ahead with more complete construction documents or be a bit more involved and take some risks. If the latter best describes you, just boost that contingency to save yourself some heartache.