CONTINGENCIES

Have you ever heard of a residential construction job where something didn�t go wrong?  Neither have we. 

It�s smart to protect yourself and your relationship with your clients by allocating a small percentage of each project�s budget for contingencies.  These are unforeseen expenses a contractor�s responsible for - not those frequent, mid-stream changes clients pay for with change orders. 

 �If you or one of your subs overlooked something, it�s not fair to go back to the owner and ask for the money, but you need to pay for that item,� says John Piazza, Dr., a custom builder in Mt. Vernon, Washington.

 From replacing wasted or stolen materials, to waiting out bad weather to dry in a house, to tricky custom molding that takes your finish carpenter an extra day to install and boosts your labor costs, there�s no telling what unexpected things might cost you.  However, you�ll pay a lot less in time and gray hairs if you budget for them.

 Sometimes called the �oops� or �oh no� fund, contractors generally designate contingency budgets as allowances in cost-plus contracts or as line items in fixed-fee contracts.

 �I tell the owner, �I�ve budgeted 5 percent for mistakes.  If I don�t use it, I�ll give it back to you,� says Piazza.  He suggests builders allocate separate contingency budgets for certain phases that carry extra risk of things going wrong.  For Piazza, that�s groundwork.

He�s twice had to pay about $2,500 to tap into sewer mains after discovering houses in two subdivisions didn�t have their stub-outs installed.  The second time, Piazza was able to charge the expense back to the developer, who in turn charged the expense to a civil engineer who�d screwed up.

Paul Sulivan, a remodeler in Newton Highlands, Massachusetts, sets aside extra money for materials.  �If it�s a small job with $200 worth of material, we�ll add another $50 for materials, �he says.  �If we�re buying $10,000 of stock, we�ll add another $1,000 so we don�t have to go back to the homeowner if we miss something.�

One of the worst glitches Sullivan experienced involved a young painter on his staff who scratched six custom oval windows while sanding the trim.  �He wasn�t being managed the way he should have been,� the remodeler recalls.  �It cost us about $2,000 to replace each window.  We ate that. �Ouch!

Jim Tunick is communications manager for NAHB�s Business Management Department.

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