Contingency Isn't Profit. It's Flexibility.
Why experienced landscape contractors plan for the unexpected—and the everyday realities of getting the job done.
Years ago, I worked for a very successful landscape design-build firm in Pennsylvania. The owner had an interesting practice: on every project of $5,000 or more, he offered the customer a $500 discount.
And do you know what the first item in his estimate was?
Five hundred dollars.
He had already accounted for the discount before he ever presented the proposal. It wasn't a last-minute concession. It wasn't money he suddenly decided to take out of his profit. It was a planned part of his pricing strategy. He understood that discounts, incentives, and other sales considerations are part of doing business, and he budgeted accordingly.
Now, a planned discount is not the same thing as contingency. One is an anticipated sales incentive; the other is an allowance for uncertainty. But that experience reinforced something I've believed throughout my career:
A good estimate should reflect the realities of doing business, not simply the quantities required to complete the work.
And that brings me to contingency.
What Is Contingency?
Contingency is an allowance included in an estimate to account for reasonable uncertainties that may affect the cost of completing a project.
It's not profit. It's not overhead. And it certainly isn't a substitute for poor estimating or poor management.
It's a recognition that even the most carefully planned project rarely unfolds exactly as expected.
You can calculate the quantity of pavers required for a patio. You can estimate the number of labor hours needed to install them. You can determine the equipment you'll need and obtain accurate material prices. But you can't predict everything that will happen between the day you begin work and the day you finish.
And anyone who has spent much time in the landscape contracting business knows that some of the things that affect production have very little to do with landscaping.
Sometimes It's the Customer
I once had a customer who allowed her children to play in our active construction area. She even encouraged them to "help" with the work.
Now, I have nothing against children being curious about construction. But an active jobsite is no place for them to play. I wouldn't allow anyone into our work area while construction was underway. It was dangerous, and it presented an unacceptable liability risk.
On several occasions, I had to stop production until the children were safely out of the area. The crew was still being paid. The equipment was still committed to the project. And our schedule was slipping.
We weren't doing anything wrong. In fact, stopping work was the responsible thing to do.
But it cost us money.
On another project, I had a very nice older gentleman who loved to talk. He was genuinely interested in what we were doing.
"What's that machine for?"
"How do you install that?"
"Why are you doing it that way?"
He wanted to know everything. And he wanted to talk about it. All the time!
He wasn't being unreasonable or unpleasant. Quite the opposite. He was a nice fellow who enjoyed watching the work and visiting with us. But those conversations interrupted production. Five minutes here. Ten minutes there. Before long, a surprising amount of productive time had disappeared.
Two very different customers. One created a safety concern. The other was simply friendly and curious.
Both affected the cost of completing the work.
Good project management can help address these situations. We can establish jobsite safety rules, communicate expectations, and set reasonable boundaries around interruptions. But we can't always eliminate them, and sometimes the costs associated with those interruptions are simply part of the realities of doing business.
That's one reason I believe in contingency.
Estimating the Work Versus Getting the Work Done
There's an important distinction here.
When we estimate a project, we calculate what we reasonably expect it will take to complete the work. But the work doesn't take place in a controlled environment. It takes place in the real world — on someone's property, around their families, pets, schedules, expectations, and daily activities.
Sometimes the homeowner wants to talk. Sometimes a neighbor has questions. Sometimes access to the site is interrupted. Sometimes another contractor gets in the way. And sometimes you spend half an hour dealing with something that wasn't remotely part of your original estimate.
An experienced contractor learns to anticipate these possibilities — not necessarily the specific event, but the likelihood that something will interfere with production.
Contingency isn't an admission that you don't know how to estimate. It's an acknowledgment that experience has taught you what an estimate cannot always predict.
Equipment Breaks. People Leave. Weather Happens.
Of course, customers aren't the only source of uncertainty.
Let's say you've scheduled a skid steer for three days of work. On the second day — it's always the second day — it breaks down, and the repair shop can't get to it until next week.
What do you do?
You might rent another machine to keep the project moving. That's an additional expense.
Or perhaps one of your key employees unexpectedly quits in the middle of a project. Now you're paying overtime, rearranging crews, or bringing in temporary help. Your original labor estimate may have been perfectly reasonable, but circumstances changed.
Then there's the weather. A few days of heavy rain might not only delay a project but also leave the site muddy, requiring additional cleanup, soil stabilization, or material handling.
Materials can arrive damaged. Suppliers can miss deliveries. Prices can change between estimating and purchasing. Unexpected underground conditions can complicate an installation.
None of these possibilities automatically means the contractor prepared a poor estimate. They're simply risks associated with doing the work.
And risks have costs.
Some can be reduced through planning, maintenance, insurance, good contracts, and sound management. Others can't be eliminated entirely. That's where contingency becomes useful.
How I Include Contingency in an Estimate
My approach has generally been to include a contingency allowance within the individual direct-cost categories of an estimate. These typically include:
Labor: Additional hours, reduced productivity, overtime, or unexpected crew disruptions.
Equipment: Breakdowns, additional rental time, or unexpected operating expenses.
Materials: Waste, damage, replacement materials, or price fluctuations.
Subcontractors: Reasonable uncertainty associated with coordinating or completing subcontracted work.
I commonly use 10% as a starting point, although the actual percentage may vary depending on the circumstances.
Consider a project with the following estimated direct costs:
Direct Cost | Base Estimate | 10% Contingency | Budgeted Cost |
Labor | $5,000 | $500 | $5,500 |
Equipment | $3,000 | $300 | $3,300 |
Materials | $6,000 | $600 | $6,600 |
Subcontractors | $2,000 | $200 | $2,200 |
Total | $16,000 | $1,600 | $17,600 |
In this example, we've included $1,600 in contingency. That doesn't mean we're planning to spend an additional $1,600. It means we've budgeted for the possibility that our actual direct costs may exceed our original expectations.
And remember, this is only part of the estimate. We still need to recover our company's overhead and establish an appropriate selling price that provides our intended profit.
Contingency is not a replacement for either overhead or profit. It's a separate consideration within the financial structure of the project.
Not Every Project Needs the Same Contingency
Ten percent is a useful starting point, but I don't believe every project should automatically receive the same allowance.
Consider a relatively straightforward planting project. The property is accessible. The soil conditions are familiar. The materials are readily available. And your crew has completed similar installations many times.
Now consider an older residential property with a narrow side-yard entrance, questionable drainage, uncertain underground utilities, and an owner who has already demonstrated a tendency to change direction frequently.
Those projects don't present the same level of uncertainty, and they probably shouldn't be estimated as though they do.
A contractor might reasonably apply a lower contingency to a predictable project and a higher one to a more complicated installation. The percentages might even vary between cost categories. Perhaps labor presents the greatest uncertainty because of difficult access, while materials are readily available at confirmed prices. Or perhaps a project involves specialized materials with long lead times, making material costs more uncertain than labor.
The point isn't to apply a percentage mechanically. It's to consider where the risks exist and allow for them accordingly.
There is one distinction worth making. If you already know that a narrow gate will require every material to be moved by wheelbarrow, those additional labor hours belong in your base estimate. They aren't contingency.
Contingency addresses the reasonable uncertainty that remains after you've properly evaluated the work.
What Happens When You Need It?
Suppose the project in our example runs into an equipment problem, and you need to rent a replacement machine for $250. You've already included a $300 equipment contingency, so the additional rental expense falls within the allowance you've established.
Or perhaps customer interruptions result in several additional labor hours. You've included a $500 labor contingency, and that allowance can help absorb the production shortfall.
Of course, some projects will exceed their contingency. Others won't use much of it at all. That's the nature of estimating uncertainty.
The objective isn't to predict every possible expense. It's to make a reasonable financial allowance for the things experience tells us are likely to happen from time to time.
And there's another benefit.
Contingency Creates Flexibility
Let's return to that Pennsylvania design-build company for a moment. Remember the $500 discount? The owner planned for it before the project was sold. That was a deliberate sales strategy, not contingency.
But both practices reflect an important business principle: financial flexibility is most useful when you've planned for it.
Now imagine you've estimated a project, included appropriate contingency, recovered your overhead, and established a selling price that provides a reasonable profit. The customer likes your proposal but is hesitant to commit. Meanwhile, another project has been postponed, leaving an unexpected opening in your schedule.
You might decide that offering a modest scheduling discount makes good business sense.
And you don't have to make that decision blindly. You understand your estimated costs, your contingency allowance, your overhead requirements, and your intended profit. You can evaluate the opportunity and decide whether the revised selling price works for your business.
That doesn't mean contingency and discounts are the same thing. And it doesn't mean you should automatically offer a discount simply because you've included contingency. It means that a well-structured estimate gives you the information and financial room to make deliberate business decisions.
There's a difference between giving away money because you're desperate for work and making a calculated decision because you understand your numbers.
What If Everything Goes Right?
Here's another situation. You finish a project, and everything has gone remarkably well.
The weather cooperated. Your employees were productive. The equipment performed without problems. Materials arrived as expected. And the customer was a pleasure to work with. (It happens. Not often, but it happens.)
You complete the installation on schedule, and your actual costs come in lower than the amounts you budgeted. Some of your contingency remains unused.
That money can contribute to additional profit, and there's absolutely nothing wrong with that. You accepted the responsibility and financial risk of completing the project for the agreed price.
But perhaps you decide to do something else.
Maybe you give the homeowner a beautiful ornamental tree. Perhaps you add a decorative planter, a small garden feature, or something else that complements the finished landscape. Or maybe you offer a modest credit on the final invoice.
Not because the customer demanded it. Not because you made a mistake in your estimate. But because the project went well, your financial position allows it, and you'd like to do something extra.
A thoughtful addition that costs you a couple hundred dollars might mean a great deal to the customer, and that customer may remember the gesture long after the project is finished.
I've always believed that the experience a customer has working with a contractor is nearly as important as the finished product. Sometimes a small gesture can make that experience memorable. And sometimes that goodwill leads to referrals, repeat business, and relationships that last for years.
Naturally, any such decision should be made after considering the project's remaining costs and obligations. But the point is that you have a choice.
Contingency can protect you when things go wrong and provide additional opportunities when things go right.
It's a Cost of Doing Business
Every successful business operates within a budget. And every successful business must anticipate expenses that don't fit neatly into the obvious cost of producing its product or delivering its service.
Retailers plan for damaged merchandise and returns. Manufacturers account for waste and production losses. Service businesses anticipate scheduling disruptions and inefficiencies.
Landscape contractors are no different. We work with people, equipment, living materials, weather, and unpredictable site conditions. There will always be variables beyond our complete control, and a reasonable contingency allowance is simply one way of accounting for those realities.
It isn't an invitation to be careless. It isn't permission to estimate poorly. And it isn't a substitute for proper contracts, employee training, equipment maintenance, or good project management.
In fact, the better you manage your projects, the more likely you are to preserve some of that contingency.
But good management doesn't make uncertainty disappear. And a good estimate should acknowledge that.
Learn From Your Projects
There's one more thing I'd encourage contractors to do. When a project is complete, compare your estimated costs with your actual costs.
Did you use your labor contingency? Why?
Was the equipment allowance sufficient?
Did material costs exceed expectations?
Were there customer-related interruptions that affected productivity?
Did you include too much contingency in one category and too little in another?
Over time, those comparisons can tell you a great deal about your business.
You may discover that your labor estimates consistently run over because you're not accounting for setup, cleanup, travel within the site, or customer interruptions. If so, some of those recurring costs may belong in your base estimates rather than in contingency.
You may discover that your equipment contingency is rarely used. Or that certain types of projects consistently involve more uncertainty than others.
Use that information. Refine your estimating process. Adjust your contingency allowances. And become more accurate as your experience grows.
The goal isn't simply to add 10% to everything forever. The goal is to develop an estimating system that reflects how your company actually operates.
The Bottom Line
One of the lessons I've learned over the years is that there's a difference between knowing how to perform landscape work and knowing how to operate a successful landscape contracting business.
A good contractor understands how the work should be done. A good business owner also understands what it takes to get that work done profitably.
That includes the unexpected equipment failure. The employee who doesn't show up. The rainstorm that turns the jobsite into a mud pit. The customer whose children wander into the construction area.
And yes, even the very nice gentleman who wants to know how everything works!
These are the realities of contracting. We can anticipate many of them, manage some of them, and occasionally prevent them. But we can't eliminate them all.
That's why I recommend including a reasonable contingency in your estimates.
Not because you expect things to go wrong. Not because you're uncertain about your abilities. And certainly not because you want to disguise poor estimating.
Because experience teaches us that the cost of doing the work and the cost of getting the work done aren't always the same. Contingency gives you room to respond to that difference.
Sometimes it protects your profit. Sometimes it helps you make a smart business decision. And sometimes it gives you an opportunity to do something extra for a customer.
Contingency isn't profit. It's flexibility.
And in the landscape contracting business, a little flexibility can go a long way.
~Eric
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