How should a Home Owner Builder handle contingencies in the project budget?

• A. Include a contingency reserve (commonly 10-20%), track all changes, and avoid diverting funds from critical safety or code-required items.
• B. Eliminate contingency to maximize flexibility.
• C. Use contingency funds only for cosmetic upgrades.
• D. Wait to address changes until after project completion.

Answer: (A)

A contingency reserve is money set aside in the budget to cover unexpected costs, changes in scope, or price fluctuations that come up during construction. For a home-owner-builder, including this cushion is essential because you can’t predict every detail of a project. A common range is 10-20% of the budget, though the exact amount should reflect project complexity and risk. Along with the reserve, it’s important to track every change order and budget adjustment so you know exactly how costs are moving and can approve changes deliberately rather than letting costs creep. Importantly, funds should remain available for safety-critical and code-required items; sacrificing those for other expenses can create safety or compliance problems. This approach is preferable to eliminating the contingency, which leaves you vulnerable to overruns, and to using the cushion for cosmetic upgrades, which wastes the buffer and can leave you unprepared for real risks.