What is Construction Contingencies and Why It is Required?

What is Construction Contingencies and Why It is Required?

What is Construction Contingencies and Why It is Required?

While planning any construction project, finalizing a budget is one of the major steps in planning a successful project. Designing and planning to project considering where to spend money and budgeting for all the work takes both attention to detail and complete scope of the project. However, all estimate is correct and accurate there is some unforeseen issues or items that come up where additional work will be needed. This is where a contingency budget becomes critical.

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What is Construction Contingencies?

The term `contingencies’ represents any incidental or miscellaneous character that cannot be classified under any distinct item sub-head, yet pertain to the work as a whole.

What is the Amount of Contingencies Added?

To meet such unforeseen expenses an additional amount of 3 to 5% of the estimated cost of the work is provided in the total estimates. Miscellaneous incidental expenses that cannot be classified under any subhead item, are met the amount provided under contingencies.

For example, there is an item of work cement plastering in a 1:3 mix ratio with neat cement finish, but during execution, it is desired to provide nosing at the end of steps. As there is no allocation of funds for this small work, the cost of sub work may be met up from the contingency fund.

In case when expenditure is required for any intermediate design change or due to an increased volume of work, and who cannot be covered from the contingency fund, supplementary or revised estimate submitted for its sanction before taking up the work.

If there is any saving against the amount provided under contingencies amount may be utilized with the sanction of the competent authority, to meet expenses of extra items of work.

The provision for contingencies may not be diverted to ray new work or repair which is not provided in the estimate and of which cost exceeds Rs. 2000 without the sanction of superintending engineer.

Types of Construction Contingencies:

Contractor Contingency:

A contractor contingency is a fund into the contractor’s anticipated price for the project to account for various risk factors that cannot otherwise be accounted for in a schedule of values. This money is set aside to account for any errors that occur on behalf of the contractor. Accordingly, contractors consider these funds spent money.

 Adding this extra fund in the estimated cost of the project is the contractor accepting the fact that unpredictable costs are all part of the construction biz.

Owner Contingency

An owner’s reserve is an amount set aside for additions or modifications of the scope of the work. Owner contingency main utilized in guaranteed maximum price (GMP) contracts. Changes and mistakes are not always the contractor’s fault. Any changes that are not included in estimate or bid will have to be paid by the owner funded contingency. Incomplete plans or owner directed changes are the leading causes of dipping into an owner contingency fund.

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