A council report has warned that plans to revamp Hereford Museum and Art Gallery could cost £21.8m instead of the £19.2m budgeted, partly due to the unexpected discovery of asbestos in the building.
Higher scaffolding fees and a new electrical substation have also contributed to the increased predicted spending.
Herefordshire Council's progress report said that the anticipated costs “can be reduced through working with a contractor" but that the project will only proceed if it is “deliverable and within the approved budget”.
The project will add six new galleries and display spaces to the grade II-listed building, as well as a temporary exhibition space, a fifth floor, and new commercial and retail space.
The local authority is contributing £8.4m while a further £10.8m has been secured from government, the National Lottery and Arts Council England with other funding bids "also being explored".
Councillor Harry Bramer said the council would probably adjust where and how the available budget is spent at the final design stage.
“We won’t get final costs until we work through the detailed elements of the design with a construction partner, which is the next phase of the project," he said.