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Easy job bidding and costing for construction contractors just like you.

Using Contingencies to Cover Your A@# in Construction Job Bids

Apr 17, 2023 | Blog, Job Bidding

Construction projects are complex undertakings that involve a wide range of tasks, from planning and design to implementation and completion. While many construction projects are completed without incident, there are always unforeseen events that can arise during the course of a job. You can count on something going wrong! That’s why it’s essential for construction companies to build contingencies into their job bids, which can help them manage risks and minimize the impact of unexpected events.

Contingencies are essentially a reserve of funds that are set aside by a construction company to cover unforeseen costs that may arise during the course of a job. These costs can include things like unexpected site conditions, weather delays, changes in design or scope, and other unforeseen events that can cause a project to run over budget or behind schedule.

One of the biggest benefits of using contingencies in your job bids is that they can help you manage risks more effectively. By setting aside a reserve of funds, you can protect yourself against the unexpected and ensure that you have the resources you need to deal with any challenges that arise during the course of a job. This can help you avoid delays, minimize the impact of unforeseen events, and keep your project on track.

Another advantage of using contingencies in your job bids is that they can help you build stronger relationships with your clients. When clients see that you’re taking a proactive approach to risk management, they’re more likely to trust you and feel confident in your ability to deliver a quality product. This can lead to more repeat business and referrals, which can be a significant source of revenue for construction companies.

There are many different factors that can influence the size of a contingency that you include in your job bids. Some construction companies may choose to set aside a fixed percentage of the total project budget, while others may base their contingencies on historical data or industry benchmarks. Ultimately, the size of your contingency will depend on a variety of factors, including the size and complexity of the project, the level of risk involved, and your company’s overall risk management strategy.

To illustrate the importance of contingencies in job bids, let’s consider a few examples. Imagine that you’re bidding on a large-scale construction project that involves building a new office building for a client. As part of your bid, you include a contingency of 10% of the total project budget, which amounts to $500,000. During the course of the project, you encounter unexpected soil conditions that require additional excavation and foundation work, which cost $300,000. Thanks to your contingency, you’re able to cover these costs without impacting the project’s timeline or budget. This helps you maintain a positive relationship with your client and ensures that the project is completed successfully.

In another scenario, you’re bidding on a smaller renovation project for a residential client. As part of your bid, you include a contingency of 5% of the total project budget, which amounts to $10,000. During the course of the project, you discover that the electrical system in the home needs to be completely rewired, which was not part of the initial scope of work. Thanks to your contingency, you’re able to cover the additional costs without impacting the project’s timeline or budget. This helps you maintain a positive relationship with your client and ensures that the project is completed to their satisfaction.

Another approach to including contengencies is to just spread it throughout the bid items in your job bids. In this case, you’re not really presenting a separate line item for contengencies, but just covering your bases by slightly increasing the cost of many items. ProfitDig makes this easy.

In conclusion, using contingencies in your job bids is an essential part of effective risk management in the construction industry. By setting aside a reserve of funds to cover unexpected costs, you can minimize the impact of unforeseen events, maintain positive relationships with your clients, and ensure that your projects are completed successfully. While the size of your contingency will depend on a variety of factors, it’s important to take a proactive approach to risk management and build contingencies into your job bids from the outset.

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