Contingency isn’t a safety net. Managed correctly, it’s the mechanism that delivers maximum value for every dollar spent.
In most capital project budgets, contingency is a number at the bottom of the page. A percentage applied to the construction cost, set aside for surprises, drawn down when things go wrong. If you spend it all, you had a hard project. If you spend more than you have, you have a problem for the board.
That framing isn’t wrong, but when handled that bluntly, it does not return good value to the client. Think of contingency not as a single pool but as three distinct reserves that are metered at different rates through the project duration:
- Design contingency, which covers unknowns and things yet to be documented during the design phase;
- Construction contingency, which covers field conditions and reasonably foreseeable items that were missed by the contractor;
- Owner contingency, which covers decisions the owner will make during construction, costs caused by factors outside of the contractor’s control, township-driven changes, and unforeseeable existing conditions.
The risks that exhaust contingency are almost always predictable in category if not in exact form. A well-structured contingency anticipates the categories.
A well-managed project will be set up so that as risk milestones are passed, contingency is returned to the owner, giving them the option to buy from a structured “wish list” of project wants (not needs) that were not initially included. The risk timelines for each flavor of contingency vary greatly.
Many PM’s point to projects delivered under budget; Pandion commonly works with our not-for-profit clients to maximize their budget. When a capital campaign or bond financing provides funds for a major improvement, it is frequently desired to leverage every dollar available to advance a client’s mission. By offering expert insight into risk navigation and early structuring of “wish lists,” we frequently help clients maximize the return on their investment. The project doesn’t exceed contingency and importantly, it doesn’t leave a lot of resources on the table that could have helped residents or students. The ability to do that comes from years of experience. Call Pandion.
