Contingency Reserve

What it is for.

Every budget is an estimate, and the contingency is the honest line that says so. It is not the builder's profit and not a slush fund; it is money reserved for cost the plans could not foresee: a lumber price jump between bid and framing, a soils problem under the pad, a change order the borrower wants, a stretch of rain that idles the site, a correction notice from the municipal inspector that has to be fixed before the next stage.

Where the draw inspection fits.

A contingency release is a draw like any other, and the inspection documents the condition behind it: the rework done after a failed municipal inspection, the change order built, the materials delivered after the price change. Without that documentation the line is drawn on a sentence in the request; with it, the lender funds a cost it can see. What are stored materials in a construction draw? covers the related question of funding materials before they are installed.

Why it matters for lenders.

A budget without contingency is a loan that goes out of balance on the first surprise, and the cure then comes from the borrower's pocket or the lender's. Supervisory guidance on construction lending expects the lender to review the budget for adequacy at underwriting, including a reasonable contingency, and to monitor it through the build. A contingency drained in the first third of the project is an early warning that the rest of the budget is tight, and administrators watch the line as closely as any hard cost.

How RAZE handles it.

RAZE documents what is on the site at each visit, including rework and change-order work, with photos tied to line items. Whether and when to release contingency stays with the lender.