Beware of Latent Conditions or Undocumented Scopes

Latent Conditions

ARE YOU AWARE of your latent condition or scope of work costs? If you are investing or developing you should have contingency funding set aside for these expenses.

Latent Conditions

Latent conditions can take many forms. You should know what kinds of latent conditions exist so you have a better picture of the possible rectification costs of these issues.

A typical type of latent condition is hazardous materials including:

  • Asbestos
  • Lead paint
  • SMF (synthetic mineral fibre)
  • Spilt oil (contained on or in the ground)
  • Drums of oil or other chemicals (that require disposal by a licensed contractor)

Latent conditions can also include unexpected works. For example, demolition or stripping back work may present setbacks — as-built or existing drawings are not always 100% accurate.

Missing footings within old buildings, unstable ground conditions after demolition work, contaminated soil, and poor structural conditions are some of the possible circumstances that you might find yourself in.

Generally, until you start work and expose these latent conditions, you cannot know if you will suffer unforeseen expenses.

Contingency Funding

Contingency funding is money you put aside to cover you in case of unexpected works. It can be costly but you should also spend money upfront to uncover or test for latent conditions — because it will save you more in the long run.

On top of that, contingency funding can minimize your exposure to risk and demonstrate to your funding institutions that your project is viable (if not fully funded).

If you manage latent conditions appropriately, you are also more likely to stay on budget throughout construction — and avoid over-capitalisation your property.

How Much Contingency?

From the project feasibility stage, you should have an understanding of the latent conditions and expected contingency funding required. Unless you are fully funded, the contingency should become part of your lending facility.

If your project lacks contingency funding and something unforeseen happens, it may mean sacrificing finishes or quality to stay on budget.

BOTTOM LINE: Unfortunately, there is no easy answer to the question “how much contingency is enough?”. But you can be sure that you will always require some contingency funding.

Latent or unknown existing conditions, or even client driven variations mean that you will always need the safety of a project contingency.



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