By Trish Drew

Miscellaneous? Just another word for wild guessing. Owners need to pin costs down.

I hate to see the word 'miscellaneous' used in any cost estimate. The 'thing',-whatever it is - is either a line item or it is not. I guarantee that there is no construction science determining the value behind a miscellaneous line item. It is a random number that the estimator essentially 'guesses' will cover everything he doesn't know about in the project. This is rarely an accurate number and no one really knows how it was meant to be used. If your building design is not fully developed, your budget definitely needs something to fill the voids.

Many estimates I have seen use a single line item called 'Contingency' which is also supposed to cover all things unforeseen. As the project owner, how can you know what is included in this budget item? Does it cover site problems, increases in material costs, overtime and what about those zippy, yet-to-be-designed light fixtures? How does anyone quantify that vast array of undetermined factors? As far as I'm concerned, if the term 'Contingency' as a single line item is used in an estimate, you might as well use the term 'Miscellaneous' or 'Guess'.

For your protection, every budget needs to carry three contingencies. As separate entities, these budget items provide a more accurate accounting of changes as the project progresses. As an added feature, it allows for an earlier release of contingency dollars as the project becomes more defined.

This is what you should see in your budget:

Contingency 1: A Design Contingency is held in the MACC (Maximum Allowable Construction Cost) until the building and interior designs are fully developed and time has been given to the contractor to evaluate the actual costs against the MACC. The design contingency is usually carried at seven to ten percent and progressively diminishes as the design develops.

Contingency 2: A Construction Contingency is provided for any unforeseen conditions shown to be clearly outside what would be normal construction circumstances. These can be site conditions, design revisions or municipality restrictions that were not known during the pre-construction phase. This contingency is usually carried at five percent and is held until the site work is complete and in some cases, until the building is enclosed.

Contingency 3: An Escalation Contingency offers the MACC an opportunity to incorporate the fluctuation in the materials and labor markets at the pre-construction phase to the mid-point of the project. This is typically a diminishing four to seven percent. The majority of the contingency can be released by the start of the project when the site work and substructure are underway. This contingency varies more than the others. A project's reliance on the local workforce and on availability of materials can elevate this to nine percent of the project costs or more. As your due diligence, check in with a national construction consultancy firm to research trends in escalation for your area.

Do not waste time negotiating these contingencies with your contractor. If your MACC budget fits your investment plan, that is all that matters. Simply know what percentage should be carried in the contingencies based on the progression of the project and its design development. A couple of phone calls and a Google or two should dial these percentages in for you.

Consistently discuss reducing the contingencies with your contractor as the project progresses. Ask for a full accounting of monies used from the contingencies at each budget meeting. Why take this hard line? You and your contractor will agree on one thing, nobody wants a surprise. Half the responsibility in reducing budget surprises belongs to you. Your contractor may have a budget problem that needs to be addressed and he may not be eager to discuss it with you right away. Taking charge and being upfront will at least bring the problem to the table. Great budget organization makes this a much easier task.