Contingency Fee...

December 14, 2016      General Business

If you have ever been a part of a large construction project then you have surely noticed the "Contingency" line near the bottom of the estimate that allows for a 15% overage for "unforeseen circumstances". Does this concept also apply to IT projects? Based on years of experience I can argue that it does; but does that make it acceptable? Therein lies the rub.

Virtually every project I have worked on has encountered "unforeseen circumstances" from corrupt data to vague specifications to last-minute design changes. These have always been handled with verbal or written changes allowing for a cost adjustment that is mutually agreeable with the client. The discussion of the cost change almost always puts both parties at ease as it allows both sides to express their desires and concerns and negotiate a bit - a win-win.

So should this type of increase just be rolled into the"Contingency Fee"? On one hand I can see that as being a way to keep the budget within what is contractually written. On the other, I can see this as being a convenient way of hiding cost increases that may surprise the client when it comes time to pay the final invoice.

Another way of looking at this is that so long as any changes do not exceed the amount of the contingency then everyone should be happy since the client should have budgeted for the cost plus 15%, right? Maybe.

My mental debate continues. I suppose there is no right answer here. but whatever path is chosen communication is paramount - without it the relationship is guaranteed to deteriorate.

For now I will continue to not include a contingency fee when quoting out my projects but I would love to hear your thoughts...