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How to keep building costs down

Managing the cost of Building Projects

Building projects inevitably end up costing more than was orginially planned. By careful preplanning and insisiting on sticking to the orginal plan considerable cost can be saved. Here we look at the steps to take to manage the costs.

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Managing Building Costs

For many people building a house becomes very expensive. A steady drip feed of money into the project can end up being far more expensive than was ever imagined at first. Builders and contractors like an arrangement when they can take their time and know that will be paid regardless of how long the work takes to complete.

Do not build without predefined costings.

Unfortunately this dribble of money is common when you are building a house without having first obtained predetermined quotations. Many people decide to build a house cheaply. They dispense with the professionals and so they don’t get a Bill of Quantities or a fixed price quotation before they start. The builder thinks all his Christmas’s have come at once, he is on the gravy train and manages to keep the job going for months endlessly asking for yet a bit more money until one day the bank rings you to tell you have a problem. When you finally bother to work it all out you find you have paid out 4 times what the house should have cost.

This drip feed of money is particularly common when people are designing as they build “oh I’ll just add another room on here” or if they are endlessly making changes. It is also a common reason why so many people overcapitalise on a building, spending far more on the construction than they will ever be able to get back when they come to sell.

Define what you are going to build before you start and don't make changes.

When building it is a good idea to make a plan. Professionals in the building world do it all the time. The trick is to make sure everything is covered before you start so there are no surprises along the way. Collect information, check everything, create a design, get the costs assessed, make adjustments then go back and check everything again. For example it is wise to investigate the land and have soil tests done so when the contractor starts building your foundations he isn’t going to come back and ask for more money because the land was found to be unstable.

‘Changes as you go’ provide the chance for variations to the contract price which unfortunately always have a way of being in the upward direction.

“Oh just a minute” (work stops but workers are waiting and being paid)

“I think....” (ah some doubt and the clock is ticking)

“I want the bath over there.” (Ooh goody, goody changes will be needed to the plumbing, that toilet will have to be moved and all at uncontrolled rates.)

“Certainly madam, a good idea. We’ll have to take up the marble floor to move the drain but don’t worry that’s easy, that light is in the wrong place we can move that and the water pipes in that wall will have to be moved. May I also suggest you might like to remodel the .....”

Do I hear the distinctive sound of nice large blobs of thick brown gravy dripping into a porcine feeding trough.

Negotiate fixed prices for the work and stick to them

It is also important to negotiate prices for completion of a job rather than paying labour on a day rate basis. Many people start by employing tukangs on day labour rates and then have problems as time passes and nothing seems to get done. Hours are lost walking around trying to find where people are and what they are doing. Negotiate a fixed price job and suddenly you’ll see people move much faster, not only that they’ll be there till midnight and weekends won’t exist. The only problem then is that they may move so fast that, mysteriously, you will miss seeing the foundations being poured or that septic tank installed.

How to control building project costs:

If you wish to build within a tight budget or to a predetermined cost you might consider the following:

  1. Design the building completely before you start.
  2. Make sure EVERYTHING is included and is fully described in the contract documents both in the drawings and the Bill of Quantities. Do not forget to include the costs of the building permit, the connection to the electricity supply, water connection, etc.
  3. Avoid making changes after construction has started. Variations should only be in exceptional circumstances
  4. Get an independent fully comprehensive Bill of Quantities prepared by someone who is not going to bid for the job. This will make sure everything is included, will tell you how much the construction should cost and will also allow you to go through the itemised list and reduce costs by cutting out or reducing excessively expensive items.
  5. Get fixed price quotations for the work and hold the builder to them. Negotiate the contracts yourself.
  6. Make sure that the payment schedule is set in such a way that you have not paid too much up front or at each stage of progress.
  7. Get an independent progress assessment done before making progress payments. I have come across plenty of people who had a 60% completed house having already paid out 80% of the money and the builder has gone off to visit a distant relative who is seriously ill and won’t be back anytime soon.
  8. Buy expensive items such as air conditioners yourself to avoid commissions paid to intermediaries.

Don't pay the cheapest price, pay the right price

A couple of things to think about in this process. You need to pay the right price and not necessarily the cheapest price and this is what the independent Bill of Quantities will help you with. There are roofs collapsing all over Indonesia at the moment because people are saving money on cheap galvanised steel roof frames that are either not strong enough or poorly constructed. Remember you get what you pay for.

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Copyright © Phil Wilson July 2012
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