Introduction
Any construction project starts with a figure. That figure, so painstakingly arrived at in an estimate, so agreed upon in a contract, is the plan–the perfect course between ground breaking and ribbon cutting. However, things seldom go smoothly in construction. Hidden in the background, behind the walls and in the broader market are the silent budget killers; the hidden costs in construction, unanticipated issues that can make a profitable project into a fiscal nightmare.
These unseen expenses are the major causes of disagreements, delays, and frustrations to both the contractors and homeowners. To a house owner, they may be a cause of aggravation and distrust. As a contractor, not being able to expect them may mean disastrous losses.
But what would you give to be able to illuminate these dark hazards before they attack? This is what this guide is meant to do. We are going to reveal the most typical and the most expensive unexpected costs in construction and renovation works. To the contractors, it is a guide to defensive estimating and risk management. It is a critical lesson to homeowners about the realities of the construction process and the imperative nature of a healthy contingency fund.
Where Do Hidden Costs Come From?
The problems you can not see are often the most costly, beginning with the ground your project rests upon. Problems that are below grade are destructive and expensive to repair as they involve the underlying foundation of the building.
Unforeseen Foundation Issues
Renovating an older home you simply do not know what you are going to find out about the actual state of the foundation until you start excavating or demolishing.
- Cracks and Leaks: Hairline cracks are easy to fix, but more serious structural cracks could be costly to fix by underpinning or carbon fiber wrapping.
- Lack of Footings: In really old buildings you can find that the foundation was constructed without footings and that it would take a great deal of work to get the building up to code.
- Water Damage: A long-term moisture problem can require the excavation of a complete French drain and sump pump system, which can easily run over 10,000 dollars. This is a critical consideration in any basement renovation.
Bad Soil Conditions
In the case of new construction or major addition, the soil quality is an immense consideration.
- Poor Compaction: The soil which is too loose cannot sustain the weight of a foundation and this necessitates a lot of excavation and importation of engineered fill.
- Expansive Clay: Certain types of clay soil expand and shrink dramatically with moisture changes, which can heave and crack foundations. This may require specially designed (and more expensive) foundation systems.
- High Water Table: When the natural ground water level is high it may exert sustained hydrostatic pressure on your foundation and may need permanent dewatering systems.
Otherwise known as a geotechnical survey, or soil report, it is a smart investment to make on any new build, as it locates these risks before a shovel even touches the ground.
Behind-the-Walls Killers: Surprises in the Structure
As soon as a renovation project starts to be knocked down, walls, floors, and ceilings are likely to keep a number of costly surprises. This is the primary reason that renovation projects carry more inherent risk than new construction. Read out New Construction vs. Renovation to Master the Estimates ad mitigate risks involved in it.
Hazardous Materials: Asbestos and Lead Paint
Houses constructed prior to 1980s have a high likelihood of having asbestos and lead paint.
- Asbestos: This proven cancer-causing agent was a frequent component in insulation, flooring tiles, so-called popcorn ceilings and pipe wrap. In the event that it is found, work should come to a halt. Abatement means bringing in a licensed specialty contractor and observing strict safety precautions, which may cost weeks and thousands of dollars in schedule and budget. You can find more information on this from the Environmental Protection Agency (EPA).
- Lead Paint: Like asbestos, the disturbing lead-based paint can form poisonous dust. Remediation should be done with proper containment and cleaning procedures which increase the labor cost.
Outdated or Failing Systems
The invisible is usually the thing that will sting your budget the most.
- Plumbing: Behind a wall you may discover corroded old galvanized steel or cast-iron pipes that are ready to burst, and you may need to do a whole repipe, which was not included in the initial budget.
- Electrical: In older homes it is common to find knob-and-tube wiring, undersized electrical panels, or ungrounded outlets. Upgrading electrical system to current safety standards can be a big, unexpected cost.
- Structural Deficiencies: You might encounter unsupported beams, joists eaten by termites or past remodeling job that was not up to code and will have to be fixed before you can continue with your new work.
Market & Logistical Killers: External Forces
Hidden costs are not necessarily all job site related. The market and the supply chain are exposed to external forces that can dramatically affect your budget and schedule.
Construction Supply Chain Issues
Global supply chain has emerged as a significant cause of project risk in the recent years.
- Material Price Volatility: Price of major materials such as lumber, steel, and copper may change drastically between project estimation and material purchase.
- Long Lead Times: Items that are custom ordered such as windows and doors, and high-end appliances can have lead times measured in months. A windows delay can stop the whole project in its tracks resulting in an expensive domino effect of delaying other trades.
Building Code Changes
Every few years building codes are revised, to require more safety and energy efficiency. You can design and estimate a project under one code, then when permits are pulled after adoption of a new code, you find out you have to make costly modifications, like increasing the insulation, or changing the wiring, or installing a fire sprinkler system.
Labor Shortages
Skilled labor shortage may indeed be a problem in a busy construction market. Losing a major subcontractor (your regular and reliable plumber or electrician, say) can mean you have to pay top dollar to find another competent company to stay on top of your schedule.
Fusion Assist Spotlight: Proactive Estimating to Mitigate Risk
What do professional contractors do to guard against these silent budget killers and their clients as well? They strategize about them. They construct defensive, transparent estimates that take note of the risks that could occur and establish a clear course of action in addressing them. This is the area that Fusion Assist will be of absolute value.
We do not simply do a takeoff off clean set of plans. Our Estimators are veterans who have been trained to reason like old project managers. We are familiar with the red flags we should watch out and how to structure a bid that predicts issues.
- Identifying Potential Risks: When we are looking at plans to remodel an older home, we can be pretty sure to ask the contractor, “Have you allowed testing for possible asbestos? How is the electrical panel?
- Building in Allowances: For items with high price volatility or unpredictable scope (like decking repair or foundation work), we help contractors build clear “allowances” into the bid. This creates a pre-approved budget for a specific quantity of work, with a clear price for any overages.
- Creating a Contingency Dialogue: Our line-by-line estimates automatically demonstrate the intricacy of a project, and a contractor will find it simpler to have a serious talk with the homeowner about why a 15-20 percent contingency fund is necessary.As we discussed in our guide for homeowners, this fund is the #1 tool for a successful project.
With the help of Fusion Assist, contractors will have an opportunity to become not just reactionary to an issue but actually plan ahead and anticipate the problem, a trait of a real professional.
Case Study: The Renovation with Red Flags
Client
A residential contractor who is proposing on a full-gut renovation of a 1950s bungalow.
Challenge
The contractor had seen enough red flags during his first visit to the site: the so-called popcorn ceiling, some of the knob-and-tube wiring visible in the unfinished basement, and a musty odor that indicated the possibility of moisture problems. He was well aware that a mere lump-sum bid would be hazardously incorrect.
Fusion Assist Solution
The contractor submitted the project plans together with his site visit notes and photos. My team developed a multi-level estimate. The prime bid included all the familiar work as per the plans. We also had individual, distinct allowance sections on:
- Testing of the ceiling texture to determine asbestos and possible abatement.
- Upgrade of the entire electrical system, panel to outlets.
- A buffer to fix the subfloor and possible mold remediation.
Result
This is a detailed proposal that the contractor submitted to the client. The client was grateful by the foresight and honesty of the contractor rather than being frightened by the possible expenses. They believed they were contracting a professional who was saving them of surprises. They entered into a contract, with the entire contingency fund. Of course, there was asbestos, and all the house had to be rewired. However, since these eventualities had already been factored into the budget as allowances, they were treated as anticipated processes, rather than budget-busters. This was a successful project to both the client and the contractor.
Conclusion: Turning the Unseen into the Foreseen
It is a reality that there will be hidden costs in construction, however, it does not need to be a disaster. Through proper planning, defensive estimating, and clear communication, you can turn unknown issues into predictable challenges. To the homeowner, this translates into awareness of the risks and the development of a solid budget with a good contingency. To contractors, it entails developing proposals that are candid in regard to the intricacies of construction. When cooperating and looking ahead, both can make sure that the only thing that will come as a surprise at the end of the project is how everything worked out so well.
Don’t let hidden costs sabotage your next project. Build with confidence by starting with an estimate that plans for the unexpected. Contact Fusion Assist for a comprehensive, risk-aware takeoff.
FAQs : Hidden Construction Costs
How can one distinguish between allowance and contingency fund?
An allowance is a budgeted sum of money estimated to be spent on a known item whose actual price is still unknown (e.g., “$5,000 allowance on kitchen appliances”). A contingency fund is a discrete slush fund (usually 15-20% of the project budget) that is held in reserve to deal with totally unanticipated issues that are out of the scope of work (such as finding termites behind a wall).
Who covers the unexpected expenses?
The bottom line is that the owner of a property is expected to maintain the state of the property. In case an existing issue such as asbestos or decayed framing is found, it becomes the responsibility of the homeowner to fix it. It is the work of a professional contractor to recognize the prospect of these costs in advance and provide a change-order process in the contract to deal with them in a fair manner.
What can I do to reduce the risk of having hidden costs?
When doing renovations, it is possible to pay professionals to do investigative work prior to completing the budget, e.g., have an electrician look at the panel or call in a hazardous materials testing firm. In new constructions, a geotechnical (soil) report is the most effective measure that one can invest in to mitigate below-grade risks.
Do supply chain delays and price increase lie at the door of the contractor?
This ought to be well outlined in the contract. The majority of contemporary construction contracts contain the provisions that save the contractor in the situations that are beyond their control, i.e., act of god, pandemic, or significant issues in the supply chain. A good contract will also state what happens with delays and substantial increases in material prices (e.g. an increase of over 10%), and this will typically be a change order.
Can a good architect or designer prevent the hidden cost?
Yes, immensely. Skilled architects and designers produce more detailed construction drawings that allow less scope of ambiguity. They also excel in foreseeing possible issues and developing solutions to them prior to the actual construction which is much more economical than resolving issues in the field.
