Contingency Contingencies

As we were nearing the end of mechanical work (plumbing and gas) and electrical work, we had a Big Money Conversation with Shaun. But before we get there, let’s start with a little budget summary. Our working budget is here; basically we had a build budget of $630k with another $60k in contingency money to account for overages etc. Unfortunately, we blew through lot of that contingency with dirt work, which was significantly more expensive than we expected due to groundwater issues. On the whole, that process ate up about $45k of our $60k contingency fund.

Since then, broadly speaking, things tracked pretty well on-budget. Lumber prices were already on their way up thanks to COVID-related lumber mill shutdowns and other associated factors by the time we started framing, but we got out in front of the biggest COVID-related spike. Some stuff was over-budget (framing), other stuff was under-budget (concrete). But generally things were tracking all right.

The Money Call

That brings us to the money call. Our last post mentioned that we were getting push-back from the crew that was doing the siding – they wanted more money for narrower batten spacing. Shaun reported that this was part of a larger trend. At this point (late winter/early spring 2021), Shaun was still pushing for bids and work based on 2019 bids and dollar figures. So far that had worked reasonably well. But as of early 2021, that wasn’t going so well – subcontractors were pushing back with new, higher bids, and all around us the price of construction (and houses!) was all shooting up.

As I mentioned above, lumber had skyrocketed in the meantime, but we were done with most of our lumber-heavy components of the house. The only remaining big line-item, material-wise, was our 650+ square feet of exterior decks. We had already planned on using a composite, like Trex, but it was starting to look like our $15k deck budget might need to be doubled.

Meanwhile, our excavation and other dirt work blew a $45k hole in our contingency fund. Our electrical bid had been for a code-minimum house, and we wanted lots of outlets and smart switches, so that ate up some contingency as well. Overall, we had about $10k left of our $60k, and there was a decent chance it wouldn’t be enough to cover future expected overages. The tongue-and-groove siding, for example, that would complete our glass box corner had doubled since Shaun priced it in January.

Trimming Fat

We also didn’t have a lot of fat to trim out of the budget. If we had penciled in $50k for custom cabinets, we could find $35k of margin by switching to off-the-peg options. But our budget already accounted for off-the-peg cabinets. And we weren’t particularly interested in other design changes that could find significant margin, like cutting deck space in half or going from quartz countertops to Formica.

Another potential concern, as we moved towards the finish work, was the availability of materials. The price of other interior materials, like tile, hadn’t spiked like lumber prices had. But there was a lot of building going on, and it was tough to find stock of certain things (Shaun had to hunt pretty hard for our garage and crawl-space insulation, for example).

Possible Solutions

So we couldn’t do much on the material side of things. What about labor? One way Shaun offered to find some margin was to do more of the work himself. He was taking on insulation, for example, with the help of one of our neighbors (who he hired). But he cautioned that he wouldn’t be as fast as a full crew. So how important was our timeline?

Our oldest daughter would be starting school in Summit County in the fall. So our timeline was pretty important – we wanted to be into the house so she could start school on time.

Another way to find some labor margin was through owner work. I’m no finish carpenter, but I can run a miter saw and chop deck boards for a weekend.

Or we could pay more money. Pretty simple.

On the whole, it was tough to make these time vs. money determinations in a vacuum. If it would cost us $10 per day out-of-pocket to bring the project in on time, then yes, absolutely, we would just pay the money. If it was going to cost $10,000 per day, then we would need to find another way to get this done. But, of course, the real number was somewhere in-between. While we hammed out broad principles on the call with Shaun, we asked him to come back to us with more definite figures if we needed to make any firm time vs. money decisions.

Owner-Purchased Finishes

In light of the expected difficulties sourcing some of the finish materials, we also decided to take over purchasing a lot of the interior finishes. Shaun promised to get us a big ‘ol spreadsheet of the various things we needed and our allotted budget for each item. So, for example: “Master Bath Floor Tile; 45 sq. ft., $3.00 per sq. ft.”

Then, if we found something we liked that was in-budget, instead of sending it to Shaun and waiting for him to order it, we would just purchase the item ourselves and get reimbursed out of the next bank draw. We would send big materials to the build site, but some smaller items used later in the process, like faucets or light fixtures, to Shaun’s house so they didn’t get lost. It would be a fairly big project, but it gave us something productive to do and it freed Shaun up somewhat to focus on the build itself.