Contingency Sums – what are they and tips for success

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When it comes to construction, while the design is important, the money side of things is just as important, if not more important. If there isn’t enough money to pay for it to be built the design is worthless; if costs are not controlled and spiral out of control then this suggests the project is not being managed very well.

We sometimes hear architects / designers say that they are not responsible for the cost of a project and the associated control of that cost. However, the cost is a major constraint of any project, this needs to be discussed and a budget agreed from the outset. One of our very first questions when meeting a potential client is, ‘What is your budget?’ This is quickly followed by, ‘What is your timescale?’ Money and time often break a project and these constraints need to be understood very early on. We will publish another article on Time in the near future.

A recent case heard in the Technology and Construction Court involved Riva Properties Ltd and others v Foster + Partners Ltd [2017]. Foster and Partners were fined £3.6m after the judgement handed down stated that Foster + Partners had failed to establish the project’s budget; and had also indicated that the scheme could be value-engineered down to the £100m budget when it couldn’t. Stephen Homer of Ashfords LLP, who acted for the claimants, said: “This case serves as a warning to designers that they cannot design in a vacuum. Cost and budget is a key constraint and should always be identified and considered when designing any project, even when the provision of cost advice is expressly excluded from the designer’s obligations.”

One of the ways we help to control costs is to advise clients on the necessity for a Contingency Sum. This is a sum of money that is set aside [held in reserve] and is available to deal with various unknown costs that usually crop up on any project. In an ideal world a Contingency Sum would not be required but the reality of construction projects is that issues are often discovered that weren't reasonable to know about before the project started. We usually recommend about 10% as an average for most projects, but often more, about 15%, for example, if the project is dealing with an old listed building with stripping out required or if the project has suspect ground conditions. Sometimes this sum is reduced to about 5% if it is considered the risks are slightly lower, for example, a new build project with detailed site investigations completed.

From experience we have established a few tried and tested methods to reduce unknowns and the likelihood of having to spend the Contingency Sum. Some of these are:

  • Conduct decent site investigations before the work is priced or construction started, no matter how small the project, even extensions. The site investigations will help establish existing ground conditions, drainage and other buried services. This information will inform the final design and should reduce the chance of expensive and time consuming last minute design changes when construction starts.
  • Ensure you have fully detailed and comprehensive construction packages of information, including a decent Specification. This reduces the chances of things being missed off or ambiguous double meanings. This will also reduce the time required to build something.
  • Ensure you have a full price for everything up front, this is agreed before work starts and provision is made of variations during the building work on site. Ideally, have the work broken down into separate trade packages.
  • Ensure you have a 3D design model [3D CAD or possibly BIM] that is reviewed and also generates the majority of the design and construction information, this will reduce the chances of clashes or of items missed off.
  • Do not under value Provisional Sums and then make up any shortfall by taking out of the Contingency Sum.
  • When you have agreed a design try not to change it [unless essential] when building work has started.

A recent project where the Contingency Sum was needed was for an extension to an existing building on a steeply stepped site. Early site investigations established the existing building that we wanted to build on top of didn’t have any foundations. This meant a significant design change was made to the foundation design very early on. The Structural Engineer advised that we used specialist metal screw piles, but at about c£18, 000 extra cost. This cost was taken out of the contingency sum and we also had to value engineer some other parts of the scheme to ensure the scheme was delivered on budget. This avoided delay and extra costs when on site as the Client had full control of these costs before building work started.

These are just a few tips for controlling the cost of a project. There are many other methods we use to help deliver projects on budget. If you want to find out more please do get in touch.

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