Cost overruns are common, but they are rarely inevitable. Here are five practical strategies that clients and project teams can adopt to keep construction projects on budget.
Ask any property developer about their biggest project challenge and the answer is almost always the same: staying on budget. Construction cost overruns are so common that they are often treated as inevitable - a fact of life in an industry plagued by surprises, delays and scope creep.
But they are not inevitable. With the right approach and the right team, projects can and do come in on budget. Here are five strategies that make the difference.
1. Invest in Cost Planning Early
The cheapest time to change a design is before it is documented. A detailed elemental cost estimate at concept and schematic stage, prepared by an experienced quantity surveyor, allows the project team to identify and address cost issues while there is still full design flexibility.
Clients who engage a QS only at tender stage - when the design is complete and the documents are issued - have very little room to manoeuvre if the prices come in over budget. Costly redesign, abortive work and schedule delays are the result.
The lesson: bring your quantity surveyor on board early.
2. Define Scope Before You Tender
Poorly defined scope is the single biggest cause of cost overruns on construction projects. When the tender documents are incomplete or ambiguous, contractors price risk - either by building contingencies into their rates, or by pricing low and recovering through variations.
A complete, thoroughly documented set of bills of quantities, prepared in accordance with the Standard System of Measuring Building Work, eliminates ambiguity and enables genuine like-for-like comparison of tender prices.
3. Manage Variations Rigorously
Variations are unavoidable on most projects, but uncontrolled variations are a budget killer. Every variation instruction should be:
- Assessed for cost and programme impact before it is issued
- Formally instructed in writing
- Valued and agreed as promptly as possible
4. Use Value Engineering Strategically
Value engineering is sometimes misunderstood as simply "cutting costs." Done properly, it is a systematic process of reviewing design options to identify alternatives that deliver the same or better functional outcome at a lower cost - without compromising quality or programme.
The best time to apply value engineering is early in the design process. By the time construction has started, most of the significant value engineering opportunities have been designed out.
5. Choose the Right Contract
The form of contract you use has a direct impact on cost certainty, risk allocation and the behaviour of everyone on the project. A fixed-price lump sum contract, properly documented, gives the client the greatest cost certainty. Cost-plus or provisional sum-heavy contracts transfer more risk back to the client.
The right choice depends on the nature of the project, the completeness of the design at tender stage, and the client's risk appetite. Qualified advice from a quantity surveyor at this stage is invaluable.
At JS and Associates, we have been helping clients protect their construction budgets since 1996. If you would like to discuss your next project, get in touch.