Construction Contingency - Need help

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    Joel Edwards (Edited )

    This website explains the difference between Hard and Soft Costs fairly well.

    "Hard costs are your “brick-and-mortar” costs to actually construct the building. Soft costs are not tangible and include expenses such as loans, permits, insurance, marketing costs and taxes."

    If I am understanding your question correctly, it sounds like you are trying to figure out why they list a contingency under Hard Costs and a contingency under Soft Costs. As the quote included above explains, Hard and Soft Costs are two completely different elements of the Construction budget. It is best practice for an Owner (and General Contractor) of a project to include contingencies in their Hard Costs and Soft Costs budget to cover unexpected costs that occur during the construction of a project.

    Another use of contingencies is when the Owner will want to include a specific item in the project, but not know the final cost yet. An estimated amount of money will be set aside in the budget as contingency for the construction item until the final cost is determined.

    Most contingencies I have seen are basically set aside in the budget as "insurance" to cover known or unknown costs during construction and are returned back to the Owner if the full amount is not used after construction has ended.

    Example of Soft Cost item covered by contingency:

    • While digging on site, the contractor finds an undocumented, underground fuel tank at the location of the new building's foundation. The Soft Cost contingency will cover the cost to test the surrounding soil for contamination and cover the cost of underground radar scanning to see if there are more tanks underground.

    Example of Hard Cost items covered by contingency:

    • While digging on site, the contractor finds an undocumented, underground fuel tank at the location of the new building's foundation. The Hard Cost contingency will cover the cost to excavate/remove the fuel tank and replace the void with good in-fill soil.
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    xixiao zhang

    Thanks very much Joel!! That is a really thorough explanation!

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