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Construction Contingency: How Much to Hold Back, and When You Are Allowed to Spend It
Costs and financing Ontario, 2026 From a builder
Construction Contingency: How Much to Hold Back, and When You Are Allowed to Spend It
Every budget I have ever seen has a line for contingency. About half of them have spent it before the foundation is backfilled. Here is how much to hold, what it is for, and the three rules that keep it alive.
Short version: Hold 10 to 15 percent of the construction cost on a serviced lot with a complete set of drawings, 15 to 20 percent on a rural lot or an older house, and more if the drawings are thin. Spend it only on things nobody could have known, never on upgrades, and never in the first month.
What a contingency is, and what it is not
A contingency is money set aside for the things nobody could reasonably have known when the price was set: rock where the test pit said sand, a water table that came up in spring, a change in the Code between the drawings and the permit, a supplier that goes under mid-order. It is insurance against the unknown.
It is not a slush fund for a bigger kitchen. The moment a contingency gets spent on a choice rather than a surprise, the budget has lost its shock absorber, and the surprise is still coming. I have watched families upgrade to the quartz counters in week three, hit clay in week five, and finish the house with a line of credit they did not plan on. The counters were lovely.
It is also not the builder’s allowance for being wrong. If the builder’s price was fixed and the builder misjudged the labour, that is the builder’s problem, not yours. If the price was cost-plus, read how cost-plus invoices work first, because on cost-plus the contingency is doing a different job.
How much: the honest ranges
The right number depends on how much is known. The less you know, the more you hold. This is what I use when I price a job, and what I tell clients to hold on top of my price:
| Situation | Contingency on construction cost | Why |
|---|---|---|
| Serviced lot, complete drawings, fixed-price contract | 10 percent | Most unknowns are priced; the risk is changes and Code surprises |
| Rural lot with well and septic, complete drawings | 15 percent | Ground, water and hydro connection are where rural budgets break |
| Sloped, rocky or waterfront lot | 15 to 20 percent | Excavation, retaining walls, engineering and conservation conditions |
| Renovation or addition on an older house | 20 percent or more | You do not know what is in the walls until the walls are open |
| Drawings not finished, or allowances carrying a lot of the price | 20 percent | You are not holding a contingency; you are holding the unpriced part of the house |
Those percentages are on the construction cost, not the whole project. The lot, the design fees and the HST are known numbers; they do not need a cushion. The site servicing on a rural lot is the exception: hold a separate cushion for the well, the septic and the hydro connection, because each of those can double. The hidden costs list is a good place to see where the surprises come from.
The three rules that keep a contingency alive
- Nothing comes out in the first month. The first month of a build is excavation and foundation, and it is where the real unknowns live. If you spend contingency on anything else before the foundation is backfilled and inspected, you are betting that the ground is fine. Sometimes it is.
- Every draw from it is a surprise, not a choice. Write the rule down and hand it to your spouse. Rock, water, a Code change, a trade that walks off: surprises. A bigger window, a better tile, a second sink: choices. Choices get paid for by cutting something else or by writing a cheque, not from the cushion.
- What is left at the end is yours. This is the rule that makes the first two bearable. Unspent contingency at substantial completion is the landscaping, the deck, or the money you did not borrow. Treat it as the prize for discipline, because that is what it is.
Where contingency actually gets spent in Ontario
From the jobs I have run and the ones I have been called to fix, the money goes to the same places over and over:
- Ground. Rock that needs breaking or blasting, soft soil that needs engineered footings or extra excavation, a water table that needs a different drainage design. A geotechnical report before you price is the cheapest contingency you will ever buy; see soil conditions on a building lot.
- Servicing. A well that goes deeper than the neighbour’s, a septic bed that has to be raised because the soil failed the percolation test, a hydro connection that needs a pole or a transformer. Well drilling cost and hydro connection cost show the ranges.
- Approvals. A conservation authority condition you did not expect, a zoning detail that forces a redesign, a minor variance with a hearing and a fee.
- Prices. Material that jumped between quote and order. A fixed-price contract protects you from most of it; an escalation clause does not, and you should know which you signed. The price escalation clause explains the difference.
- Changes. The honest answer is that changes eat more contingency than ground does, because people change their minds more often than the ground changes its. This is the category the three rules exist for.
How to carry the contingency with the bank
Lenders financing a construction mortgage want to see a contingency in the budget and will often insist on one; some will not advance the last draw until the house is complete regardless. Show the contingency as its own line in the budget you give the bank, keep it in your own account rather than the builder’s, and release it against documented surprises with a change order for each. That paper trail is what keeps the lender calm and the relationship with the builder clean. Construction financing in Ontario and the draw schedule cover how the money moves.
A worked example
A 2,000 square foot bungalow on a rural lot in Simcoe County, construction price 650,000 dollars on a fixed-price contract, drawings complete. The owners held 15 percent, 97,500 dollars, plus a separate 25,000 dollars against the well and septic.
The well came in 40 feet deeper than the neighbour’s and the septic needed a raised bed: 18,000 dollars from the servicing cushion. The excavator found a clay seam under one corner and the engineer called for a wider footing and extra drainage stone: 9,400 dollars from contingency, with a change order. A Code interpretation on the garage fire separation added drywall: 1,800 dollars. Everything else was a choice, paid by trimming the trim package. They finished with 86,000 dollars of the contingency unspent, and a deck.
That is a good outcome, and it was not luck. It was a complete set of drawings, a geotechnical report, and two people who agreed on the rules before the shovel went in.
Related guides on this site
Sources and further reading
Questions people ask
How much contingency should I have to build a house in Ontario?
Ten to fifteen percent of the construction cost for a typical serviced lot with finished drawings, fifteen to twenty on rural, sloped or waterfront lots, and twenty percent or more on renovations of older houses. Hold a separate cushion for a well, septic and hydro connection on an unserviced lot.
Is a contingency the same as an allowance?
No. An allowance is a budget for a known item you have not chosen yet, like flooring or light fixtures, and it is part of the price. A contingency is for unknowns outside the price. Mixing them is how budgets quietly lose their cushion.
Does the builder hold the contingency or do I?
You do, in your own account, released by change order against documented surprises. A contingency inside the builder's price is just a higher price; you will never see what was left.
What happens to unspent contingency?
It is your money. Most people put it into the deck, the landscaping or the driveway they deferred, or simply borrow less on the final mortgage. Finishing with contingency in hand is the sign the job was run well.
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Reviewed and updated October 2026. Costs are Ontario ranges, not quotes; code references are to the Ontario Building Code in force at that date.
