The Secret is Out About Budget Contingencies
I hate secrets, but the owners of building construction projects apparently believe in them.
Deep within one of my company's most important recent publications, a SmartMarket Report on uncertainty in building construction, is a fascinating series of findings about whether owners establish contingencies in case their project costs run over budget.
Owners, it turns out, often keep the information secret from other members of the project team.
"Which may explain," say the authors at Dodge Data & Analytics, the parent of ENR, "the disparities in the frequency with which firms report that their projects have contingencies."
It turned out that 81% of owners said they had projects with contingencies built into the budget all the time, while only 42% of architects and 32% of contractors said the same.
On average, according to the report, almost all owners, 97%, have contingencies on at least some portion of their projects and most owners have contingencies on every project.
Which raises the question of whether secret contingencies are healthy or unhealthy for projects.
Dodge, which back when the report was produced in the fall was still called McGraw Hill Construction, surveyed 315 construction pros. They included employees of 155 owners, 82 architects and 78 general contractors. The chief author was Dodge's Steve Jones.
The American Institute of Architects' Large Firm Roundtable was the key sponsor. Other groups, including the Associate General Contractors, also supported it.
Here's the part I like the most of many interesting parts in the SmartMarket Report, called Managing Uncertainty and Expectations in Building Design and Construction.
The report says 51% of owners always tell their architect about the existence of a project contingency fund, but only 37% always tell their general contractors.
Conversely, 25% of owners say they never tell their architect about the contingency fund that has been established, and 37% say they never tell their contractor.
On average, owners share contingency information with their architects a little over half the time (58%) and with their contractors 43% of the time.
I'd bet that sharing information about contingencies is a lot healthier than keeping the project team in the dark. But I understand the worry that the knowledge could be abused.