This piece about how to keep control of construction costs is written by Michelle Lowe, founding director of Redshell Consulting.
Michelle shares with us her top 4 tips for how to control construction costs on a development project.
How can a developer such as Watermark Homes control the construction costs of a scheme, whilst maintaining quality and timescale of the project delivery?
The cost of the final construction of any development can be volatile. Of course, this is a major concern to developers and property investors alike. When the cost of the build increases, the profit margin inevitably decreases.
The full construction cost budget is set in advance of the procurement of the project and certainly in advance of the delivery of the scheme. So just how can developers give funding partners some comfort that:
- they can maintain cost certainty
- borrowings and funding levels are both correct and robust
I have outlined a few headline steps and measures below which would give developers such as Watermark Homes, some control over the construction cost during project delivery.
Four ways to keep control of construction costs
1. Correct Procurement Strategy
There are a myriad of procurement strategies and options for any scheme and a few bespoke ones do arise! To control the eventual outturn cost of the project the most suitable and robust procurement strategy should be considered early on in the lifecycle of the project.
For example, a traditional JCT Contract would give the developer the most scope and opportunity for controlling design intent and finishes, if these are not decided upon early in the scheme. However, any drawing or specification information issued would give rise to a fluctuation in construction cost. Post procurement of the contractor, these can be an expensive (and not commercially tested) cost change.
2. Early Design and Specification
Clarify the full and detailed design early on in a project. This is the only way to gain real cost certainty. Cost fluctuations can be eradicated with cost certainty and a fixed, specified scheme. And who wouldn’t feel more comfortable with that?
Spend your time and money at the start, on detailed investigative surveys and the full compliment of designers’ input to specify the scheme. This is always money well spent.
3. Correct Level Contractors and Trades
Avoid corrective or abortive works by ensuring that any contractors, trades persons and artisans are of the correct experience and professionalism level suitable for the project and the required level of finish. Trying to overcome incorrect, defective or low quality works always has a cost complication. This may also affect the quality outcome of your scheme. Really put thought into who you are employing or utilising on the project to establish that they are the right person for the job. Take this seriously, otherwise costs to correct could be sizeable.
4. Don’t. Change. Anything.
Client or developer led changes during the construction process always have an adverse effect on the construction or build cost. Always. A little tweak here and there, a change of finishes, a move of a wall.. Add in this and that and the actual cost of the change will be much higher than if the changes were designed in from the start. Changes may also give rise to additional time allowances to the contractors, along with the additional costs that result from these. Carefully consider any change during the delivery, with the full implications understood before instructed and agreed.
Only when the complexities of any development scheme are fully and robustly understood and full design details are established early on, can construction costs remain entirely stable and fixed. This gives the project cost certainty and (depending upon the market) guaranteed profitability.
Redshell Consulting are an independent construction consultancy practice offering Project Management and Cost Management services. They deliver prime and super prime construction projects in and around London. Michelle has been a Quantity Surveyor in the industry for some 25 years. She has vast experience in both on site and client side project delivery.