How Do You Keep Your Building Project Costs On Budget?

24 Apr How Do You Keep Your Building Project Costs On Budget?

Starting any building project can be an exciting time, but it can be a stressful one too, especially for first-time home builders or renovators. And one of the biggest fears is that costs will spiral out of control as soon as the project starts. Unexpected expenses, price increases, and delays can quickly add up, leaving you with a project over budget and behind schedule. While there are always risks with any building project, careful planning and preparation can go a long way towards controlling costs. In this article, we’ll look at how to minimise this risk to ensure your project stays within budget.

Managing spiralling costs on building projects

Anyone involved with a building project of any size will know that overspending is a reality. Expenses and materials will often exceed the original budget – sometimes hugely – leading to delays and financial stress. And being so common, the worry of costs spiralling out of control as soon as the project gets started is often at the forefront of people’s minds, especially for first-timers.

One of the easiest ways to stop costs from spiralling is to ensure your original budget is realistic. In most cases, the key to getting this right is to work with a reputable, trusted building contractor who’s prepared to minimise the risk of spiralling costs on your behalf by providing cost reassurances upfront. This process is easily overlooked as many people decide on a contractor based on the figure of the original quote.

Unfortunately, not all building contractors are honest. Some contractors go out of their way to give cheaper quotes at the outset, then make money on all the extra work and materials they didn’t initially specify or include in their original quotation. As a result, your costs will start to spiral.

Why do building costs spiral?

Spiralling costs have always been typical in the building industry, especially for self-builders and home renovators. Costs can often get out of control due to bad project management, delays, or unexpected issues during the build, especially when additional or replacement materials are required. But events over the last 3 or 4 years have added further challenges – increased labour and materials costs.

For many building contractors, volatile market conditions and supply chain issues have made it more difficult to have confidence in the material prices needed to give clients cost certainties. Up to 2019, we could price materials knowing that they might increase by around 2-3 % over the year. Whereas now, we’re having to second guess the level of cost increase we’re likely to have to absorb.

Many common materials essential to any building project have increased beyond expectations. Materials, such as plywood and chipboard, have almost doubled in cost. Cement-based products have recently increased by 35%, and insulation products have seen five price increases over the past 15 months alone, taking them to a 35% increase in cost.

How can you prevent spiralling building costs?

Your building project will likely be one of your most significant investments – emotionally, physically, and financially. So ensuring you spend your money wisely is crucial to controlling costs, getting the maximum return on investment, and delivering a smoother process. Here are some things to consider before tackling your project.

Start early engagement

Often people start dialogue early with their chosen qualified architect to talk them through the process of building their project. This dialogue will give you valuable information about the planning process, how to manage builders, surveyors, engineers, and costs, and help you realise your project’s size and configuration. An established and trusted building contractor, like Unicorn Construction, can help you with this, too – see our approach to projects.

Establish your budget

When you know your project requirements, your architect or building contractor can help you work on a realistic budget for what you need. This budget will include costs for traditional materials, labour, and plant needed for your build, plus services installations and added costs to supply and install the finishing touches to your project, like a new kitchen or bathroom.

Any non-traditional building methods will likely cost more. And you may have to budget for planning costs (if your build is outside permitted development rights), architects, specialist consultants, and building regs fees.

Control your costs

Controlling costs might be easier said than done in certain circumstances, but there are still things you can do to ensure costs don’t spiral, including:

• Be realistic about the scope of work and your budget
• If you can, allow a 10-15% contingency budget to cover any unforeseen issues
• Get higher spend items (windows, kitchens etc.) agreed and paid for early
• Manage your available funds, as financial delays will have a knock-on effect
• Remember to account for 20% VAT on costs unless the build qualifies for reduced or zero-rated VAT

Signing your contract

Signing a formal agreement between all parties involved in your build can specify the suppliers or contractors involved, outline the project details and any payment arrangements, insurance details, and even completion dates. But it can be difficult to factor which party shoulders the risk of costs, especially in the current materials and labour market. In this case, people can choose Cost-Plus or Fixed Price contracts.

Cost-Plus contracts

A cost-plus contract is where the building contractor agrees to undertake the project because they’ll be paid for both direct and indirect costs relevant to the build, plus overheads and a fixed percentage of profit on top. This rate would be pre-agreed before the project starts.

While cost-plus contracts can have certain advantages, such as lowering the risk for contractors, they can also lead to higher costs for the client. With more contractor costs associated with the build, the more they can charge, so there’s no incentive to keep costs to a minimum unless a spending cap is in place.

Fixed-price contracts

A fixed-price contract means the building contractor and client agree to complete the project at a set price for all building services and materials. Again, this price would be pre-agreed before the project starts.

Fixed-price contracts have advantages for the client because they know how much the project will cost, including realistic material cost increases – if they happen. Because the costs have been pre-agreed, including a provision for potential material price increases, the contractor can buy materials without adjusting the fixed costs.

Stop your building costs from spiralling out of control with Unicorn Construction

At Unicorn Construction, a fixed-price contract is exactly that – fixed. We’d never ask you to pay extra for things which were completely forseeible from the outset. To stop your building costs from spiralling out of control, and give you complete peace of mind, we guarantee to complete your project at the agreed price without any hidden extras.

Our approach is transparent, and we encourage early engagement before making any decisions – or signing any contracts. This way, we can work with you to understand your needs, expectations, budget, and property limitations to finalise the finer details of your project together.

Call us today on 01626 364 521, email [email protected], or send us a message to find out more, ask us anything, and get your project started.