Every backyard cottage project carries some unknowns, even with careful plans and a detailed estimate. The short answer is that a DADU contingency budget is a reserve set aside for costs nobody can predict at signing, such as hidden soil problems or required changes during inspection. A DADU, or detached accessory dwelling unit, is a separate home on the same lot as a house.

This reserve is not a cushion for upgrades. It protects the project from real surprises.

Details below reflect official Seattle pages checked in October 2026. Confirm with city staff for your property.

What a Contingency Covers

A contingency pays for necessary work that was not visible or knowable when the estimate was written. Typical examples include:

• Buried debris, old foundations or poor soil found during excavation
• A side sewer in poorer shape than a camera inspection suggested
• Corrections requested by plan reviewers or inspectors
• Material price changes on items not yet ordered
• Structural fixes discovered when connecting to existing structures

Owner requested upgrades sit in a different category. Mixing the two makes it hard to track whether the project is on plan.

Where the Line Falls

A reserve should not quietly fund choices that expand scope. Swapping to pricier tile or adding a skylight midway are change orders, and they deserve their own approval and pricing.

Keeping that line clear helps owners and builders talk honestly about money. It shows whether costs rose from surprises or from decisions.

Sizing the Reserve

No single percentage fits every project. Older lots, slopes, poor access and limited site research tend to justify a larger reserve. A flat lot with thorough testing and a complete plan set may need less.

Ask the builder how they size contingency on similar projects and what has typically used it. Lenders may have their own requirements. Check financing terms early. Your comfort with risk matters as well.

Who Holds the Money

Some contracts include a contingency line that the builder draws from with owner approval. Other owners keep the reserve in their own account and release it as needed.

Either approach can work. What matters is a written process: who can request funds, what documentation is required and how unused money is handled at the end. Fixed price and cost plus contracts treat contingency differently, which the post on DADU contract pricing explains.

Inspection and Review Requests

City review can add work that nobody planned for. Plan reviewers may ask for added engineering details. Field inspectors may require corrections before approving a stage.

Some projects need special inspections for items such as certain concrete, steel or soil work. SDCI describes when these apply on its special inspections page. Those inspections are typically arranged and paid for by the owner or builder, separate from regular city inspections, and they belong in the budget discussion early.

Tracking Draws During Construction

A simple log keeps the reserve honest. Each entry can list the date, the problem found, photos, the proposed fix and the approved amount. Builders often attach these records to change orders.

Reviewing the log at each payment milestone shows how much remains and whether the pace of draws looks reasonable. A reserve that drains quickly in the first weeks is a signal to revisit the remaining risks with the builder. Clear records help at closeout and with any lender that funds the project in stages.

A Hypothetical Contingency Story

Picture an example project, invented for illustration, with a reserve held by the owner. During excavation, the crew finds an old concrete slab buried under the lawn.

Removing it adds hauling and a day of machine time. The builder records the find with photos and a written change order, and the owner approves payment from the reserve.

Later, an inspector asks for added hold down hardware. That request draws a smaller amount. At closeout, the remaining balance stays with the owner under their agreement.

Common Contingency Mistakes

• Using the reserve for upgrades early and running short later.
• Skipping site research that could have reduced unknowns.
• No written process for approving draws.
• Forgetting agency charges that sit outside the builder contract.
• Treating the reserve as optional on an older or sloped lot.

Frequently Asked Questions

Is a contingency the same as an allowance?

They differ. An allowance holds money for a known category, such as flooring, where the exact product is not chosen yet. A contingency covers unknown problems that nobody can name in advance. Many budgets carry both, and keeping them separate makes it easier to see whether rising costs come from selections or from surprises on site.

What happens to unused contingency?

That depends on the contract and who holds the money. Owner held reserves simply stay with the owner. Builder held lines may return as a credit under the agreement terms. Read the contract language on this point before signing, and ask the builder to describe how they handled unused funds on recent projects.

Can site research reduce the contingency needed?

It can help. A geotechnical report, a side sewer camera inspection and a survey of trees and buried utilities reduce the number of unknowns. Some risk always remains, especially underground and on older Seattle lots. Research narrows the range of surprises rather than removing it, so a reserve remains wise even after thorough testing.

Does a contingency make a bid look more expensive?

It can, at first glance. A bid with a built in reserve shows a higher total than one that leaves unknowns to the owner. Neither is wrong, but comparing them directly can mislead. Add your own reserve to any bid without one, and compare the adjusted totals side by side.

Contingency Planning Checklist

• Decide who holds the reserve and how draws get approved.
• Separate contingency from allowances and upgrades.
• Ask lenders about their contingency requirements.
• Complete site research that lowers unknowns.
• Agree in writing on how unused funds are handled.

A clear DADU contingency budget keeps surprises from turning into stress. Site conditions are the most common source of unknowns, as the post on site work costs explains. The guide to estimate inclusions shows where contingency sits in a bid, and more topics live in the costs and budgeting section.