How Much Contingency Should a Building Budget Carry?
Why a fixed-price contract still needs a contingency, how much to hold for a new build versus a renovation, and the costs outside the contract people forget.
A fixed price is not your total cost
The most common budgeting mistake is treating the building contract sum as the project cost. It is the largest component, but a meaningful number of real costs sit outside it.
Add the costs outside the contract, add a contingency for the things inside it that can move, and you get a project budget. Skip either and you get a shortfall at the least convenient point.
How much contingency
On a new build with a genuine fixed price, complete drawings, a documented selections schedule, a soil test and a survey already done, a contingency of around five per cent is reasonable. The investigation has removed most of the unknowns.
On a new build where the site investigation has not been completed and site works sit behind provisional sums, hold considerably more — ten per cent or above — because the largest variable in the project has not been measured.
On a renovation, hold more again. Fifteen to twenty per cent is realistic on an older house, because the condition behind the walls cannot be fully known until it is opened. On a pre-1950s character home, the higher end of that range.
If your builder's contract carries no contingency at all on a renovation, that is not reassurance. It means the risk is either hidden in the margin or waiting for you as a variation.
The costs outside the building contract
Design and consultants: architect or building designer, engineer, surveyor, town planner where a development application is required, energy assessor, and the building certifier.
Approval and authority fees: development application, building approval, plumbing approval, and any infrastructure charges the council levies, which on a dual occupancy can be substantial.
Searches and investigations: soil test, contour survey, council property report, sewer plans, and a bushfire assessment where required.
Legal and finance: conveyancing, contract review, loan establishment, valuation, and construction loan interest during the build — which on a twelve-month program is a real number people routinely omit.
Then the items after the contract ends: landscaping, fencing, driveway where excluded, window furnishings, appliances if not included, and moving costs.
And where you are rebuilding, the cost of renting somewhere for the duration.
What contingency is actually for
It is for genuine unknowns: rock encountered during excavation, a service connection further away or more complex than expected, an asbestos quantity above what was identified, structural condition worse than the inspection suggested, or a required authority condition that was not anticipated.
It is not a budget for upgrading your tapware. Once a contingency becomes a discretionary spending allowance, it is no longer available for the thing it existed to cover.
Keep it separate, mentally and ideally in your finance structure. Money you cannot easily reach is money that is still there when you need it.
How to need less of it
Do the investigation before the contract. A soil test, a contour survey, a council property report and sewer plans together cost a small fraction of what they routinely save, and each one converts an unknown into a fixed number.
Complete your selections before signing, so provisional sums are few and specific rather than broad.
Resist changes during construction. Variations are the most expensive way to buy anything, because you pay for the change plus the disruption plus the margin on both.
And read what the provisional sums cover before signing rather than after. Our guide to provisional sums explains how to tell a reasonable allowance from a deferred increase.