Teal House, Neil Kahawatte Architects
Defining ‘Construction’ vs ‘Project’ Cost
When planning a project and engaging in the project process there are two key definitions of cost that need to be clearly defined and understood: the ‘Construction Cost/Budget’ and the ‘Project Cost/Budget’.
Construction Cost
The construction industry tends to refer to the value of a project using the ‘Construction Cost’, which typically includes the following:
Any site preparation, demolition & enabling works.
All building materials & construction equipment.
All fixtures, fittings & finishes (including any purchased directly by the employer).
Any utility connections and building services.
Any landscaping works or boundary treatments.
All temporary works & site establishment (skips, scaffolds, welfare facilities, etc).
All construction labour & management costs.
The contractor’s costs, attendance, overheads & profit.
The key point to note is that ‘Construction Costs’ are calculated exclusive of VAT, professional fees, statutory costs, contingency, and other costs (see below), so is not an illustration of total expenditure.
Another point to be aware of is that any quotations for products, materials, professional services, etc will often be listed exclusive of VAT, so always check any figures that are provided to you by your contractor, suppliers, consultants and others.
Project Cost
When commissioning a project you will want to understand the full ‘Project Cost’, which might include the following:
The ‘Construction Cost’ (as described above).
All professional costs for designers, consultants, surveyors & specialists.
Any surveys & reports.
All statutory approvals (planning applications, building control, party wall notices, etc).
Any VAT and other taxes.
Any other charges, levies, financial contributions that may be applicable.
Site acquisition and associated costs where applicable.
An appropriate contingency sum.
Depending on the nature of your project, you may also need to make allowances for other costs such as:
Temporary storage & accommodation.
Costs of finance.
Legal costs.
Marketing & sales costs.
Cost Contingency
It is very important to allocate an appropriate contingency sum for any project. You will often hear suggestions of a notional 10% for contingency, but the sum required can vary significantly and should be considered in detail by you and your project team. With lower project risk, skilled project management, rigorous design and specification, and a robust project process, it can be possible to keep contingency spend significantly below 10%, often saving considerable sums overall. Unfortunately, you will also come across many examples of contingency spend far exceeding this level; particularly on projects that lack skilled teams, accurate forecasting, appropriate site investigation and effective project practices.
In Situ House, Neil Kahawatte Architects
Understand Your Construction Cost
Architects are not able to provide detailed cost consultancy, however we can assist you to engage a Quantity Surveyor (QS) for this work. A Quantity Surveyor can prepare a cost estimate at various stages in a project. As the design is developed and more detailed drawings and specification are available, the QS can calculate their estimate with greater certainty and accuracy. There is generally a balance to be struck between commissioning cost estimates early in the project process so that they can inform the design process and allow sufficient adjustments to the scope of work if required, versus awaiting sufficient design information to provide the required degree of accuracy of the cost estimate.
There are two common points in a project when a cost estimate would typically be commissioned, firstly at feasibility stage to understand the general scale of budget likely to be required for a particular project, and secondly following development of the general arrangement scheme when specific areas and elements of the proposal can be measured. A QS can also provide a much more detailed cost breakdown once detailed design has been carried out, but this may not be required if the project is being put out to competitive tender at that stage.
Pre-Design Feasibility Estimate
A Pre-Design Feasibility Estimate can be a useful way to begin your understanding of the potential Project & Construction Costs. This estimate can take place as part of a Feasibility Study at the beginning of Phase 1 and prior to any design work taking place. An estimate at this stage uses lump-sum assumptions based on the Quantity Surveyor’s experience and can help give indications of where sums are allocated against various packages of work within the scope. Following a review of the estimate, the Architect can work with you to efficiently direct the project to better align the scope of work with your desired project budget. Inevitably, an estimate at this stage is high-level but having an overview of indicative costs is beneficial prior to proceeding with more involved design work. Once a clear scope has been defined following the progression of design work, a subsequent more detailed Quantity Surveyor estimate can be undertaken to further breakdown the allocation of sums within the Project & Construction Cost.
Design Scheme Estimate
With a defined scope and general arrangement drawings, it can prove very useful to commission a Quantity Surveyor to provide a more detailed estimate. A ‘Design Scheme Estimate’ usually correlates with the submission of a planning application (if required) and the beginning of Phase 2 of the Architectural Service. This estimate provides a far greater breakdown than the Pre-Design Feasibility Estimate, demonstrating where sums are allocated against different items within the scope. The ‘Design Scheme Estimate’ can pre-empt the Detail Design phase, so offers an additional moment to assess the scope against the budget. With this analysis the detail package can be further directed to better correlate with the Project Budget. The estimate can help reduce the requirement for scope adjustments after Tender returns, minimising the chances of any disproportionate impacts to time and cost at a later date.
Tender Stage Estimates
With a full Detail Design package of information at the end of Phase 2, a Quantity Surveyor can be commissioned to price the scheduled work. They will have all the written and drawn specifications of the proposed work so the estimate will more accurately reflect the construction cost. Before beginning Phase 3, this estimate can be useful to provide a more complete understanding of the costs of the works. With a standard competitive tender process, the tendering contractors should provide a fully costed quote which is a very similar package of information to the estimate that a Quantity Surveyor can provide.
Inclined House, Neil Kahawatte Architects
Understand Your Project Cost
In addition to your Quantity Surveyor’s estimate of ‘Construction Cost’, you will also want to estimate your overall ‘Project Cost’.
Appraisal & Feasibility Study
The process of projecting your likely ‘Project Cost’ should start right at the outset of the project, so that you can start to understand your overall expenditure including costs that might otherwise be unexpected at this stage. We undertake an ‘Appraisal & Feasibility’ process at the start of every project, within which we help you to consider any consultants, specialists, surveys and approvals that you may require for your project, and also the likely timeframe from concept to completion. We then help you to understand the relationship between your ‘Construction Cost’ and ‘Project Cost’, helping to give you an essential overview of your likely project expenditure. If you would like to understand more about the value of the ‘Appraisal & Feasibility’ process, we would be happy to arrange a call to talk it through and answer your questions.
Neil Kahawatte Architects
Project Management Service
Projects evolve over time and estimates of cost will need to be adjusted accordingly. Any projections of both ‘Construction’ and ‘Project’ cost should be monitored and updated as necessary at key stages throughout the process of design development and later construction. We can assist our clients with this process of monitoring and review through our Project Management service, and help our clients to keep the cost of their project in clear focus from concept to completion. To understand more about our Design & Project Management services and how these can save you significant time, money and help you to avoid compromises and stress please get in contact and arrange an initial call with an Architect.