Contingency Amount?

samccard

I am working on an estimate and got down to the contigency line and started wondering what other use as the percentage for contigency.
If i put to small a percent I could lose money, if I put to large a percent I could overprice the job. I usually bid 3% to 5%. Any opinions?

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thom

If you're selling jobs based on price, your future looks dark.

Learn to really sell. Sell your company, sell your employees, sell your work. Don't be embarrassed by a higher price.

People are willing to pay more, you need to give them a reason to pay you more.

samccard

My work speaks for itself, but I still need to be competitive when bidding. Pricing is what more and more consumers are looking at no matter how good the quality. I am not cutting my profits just looking to be competitive on the contingency aspect. If that make sense.

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thom

If you are losing work over the difference between 3% and 5% you are pricing way to tight.

Assuming you are remodeling and working directly for the owner, your margins should be around 50% of sales price. On small jobs (less than a days work) your margins should be much larger. On large jobs, a month or more, your margin could be a little less.

samccard

Mostly custom homes, but not on your average lot.

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Heritage

You build custom homes on fixed price

3-5 is small, but most of my jobs are management/cost-plus. Fixed jobs I've never bid less than 10%.

On management/cost-plus I explain the significance of the contingency to the owner/client and they are aware of when we have to dip into those funds, it's never lost me a job and if it did then it worked out for the best I guess.

10% is my standard

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macatawacab

I have built custom homes for several customers on an open book basis plus stated fee. This is a construction management approach.

before hard contracts are signed w/ subs I keep a 5% contingency.

after contracts are signed, I reduce the contingency to 2.5%

Darwin

eleventy-seven%

that way you cover your costs!

brooklynite

Contingency is usually 10%

You can negotiate to have no contingency for certain items like separate your material and say no contingency on that. Also your overhead and profit should have no contingency. Plus on the first items you complete you should have a sunset kind-a clause to bill half or some of your contingency after the job is 70% done.

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Subbill Construction - Los Angeles Home Remodeling and Construction

bconley

Make sure it is clear in the contract whose contingency it is, yours or the clients. I feel it is best to "hide" your "contingency" in your overhead and to be clear to the client when and what "their" contingency will be used for.
People feel better not spending the whole contract amount, and having a realistic budget that will get the job done without having to dig unexpectedly into their pockets.
If the job runs smooth you're a hero and everyone is happy... if job has problems there is money there and everyone happy.

bconley

Unforeseen site conditions should be addressed in the contract, and material price changes from time of estimate to time of signing contract should be documented and then locked in

jimmys

Are you required to include contingency money in the contract? I've never done so, though I always recommend people budget 5-7% less than they can spend, since there's always extras.
I agree with the poster who said to be sure you say whose contingency it is. If it's part of the contract price, then do you have to prove each expenditure that is posted against the contingency amount? What a headache! If it's stated but not included in the contract figures, everyone wins. Or maybe these are contracts I'm not used to, since I wrote my own.
Jim

brooklynite

Entry corrected:

On most of my projects, change orders that were issued as a result of lack of clarification on the drawings came out of contingency. Change orders as a result of owner requested upgrades came out of owners pocket and were added to the price of the job. At the end, whatever is left from contingency is usually split between the owner and the general contractor.

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Subbill Construction - Los Angeles Home Remodeling and Construction

bconley

I think that you are confusing contingency with retainage?

bconley

This will help...
I haven't done many AIA contracts and the ones I have I was the superintendent working for the GC so my understanding is limited, and yes the projects were smaller-- high end residential and light commercial

Attached Files

aiap026970.pdf (77.9 KB, 125 views)

macatawacab

let's not confuse contingency and retainage.

A contingency fund may be line itemed in an overall budget, may be required in an individual work category for a sub, or there are jobs run with no contingency set aside in the documents. Project owners are always asked to have an additional source of funds available in case of problems or hidden conditions.

On jobs using the AIA 702/703 there is a retainage line and retainage is defined by contract. Typically 10% is held back until the close out of each subcontractor's work. The retainage is a hold back on the set contract price. Retainage has nothing to do with a contingency. An additional claim against the job by a sub has nothing to do with retainage.

Many jobs have no contingency line on the AIA 702/703. There is not a line item on the AIA form for contingency but there is for retainage.

On the 702/703 there is a line for change orders that add to the contract totals. Those change orders would have a contingency as the source of funds.

Allowance contingencies are another topic but again these do not show on the 702/703 unless they are imbedded in a subs individual contract. If the allowance contingencies are imbedded, then the unused allowance dollars would be a deductive change order lowering the sub's contract and benefitting the owner.

but I digress. 5 - 10% before buying out the job. 2.5 - 5 % after buy out