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    Collaborative pricing software for construction

    Category: Blog

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    Blog

    Why construction costs vary – Part 3 (Natural variability in price)

     

    In our final post of our three part series of why construction costs vary per project, we will be discussing the final contributing factor to varying costs, “Natural variability in price”.

     

    Reason 3: Natural variability in price.

    Having created a relatively fixed scope, and even chosen relatively similar contractors, we know that the prices people receive can still vary. Quite simply this is because prices vary, both through time and between suppliers. We touched upon margin in the previous section, but to add some more detail, a project usually breaks down into five main sections: 

    –   Building materials 15%

    –   Fittings and finishes 20%

    –   Labour 40%

    –   Prelims 10%

    –   Overheads and Profit 15%

     

    Construction materials

     

    These are the core building materials that go into the construction of your project. Such as steel, timber studs, tiles, insulation. Key things which impact their cost are:

    –   the area of the works

    –   the demand for particular materials

    –   the availability of particular materials

    –   the quality of the materials purchased.

    Their prices can vary due to supply and demand, as indeed we’re seeing at the moment but even when they do vary dramatically, say by 10% across the board, that would only be 1.5% of the overall budget, so in our area, it is of little impact. 

     

    Fittings and finishes

     

    These are the items that are installed in your project that you can see. These might be anything from your timber flooring, to your cooker or bathroom taps. It can be affected by:

    –   Quality

    –   Scope

    –   Organisation

    Here we can see much more variability because there is more scope for personal choice. It is easy to spend £1,000, £10,000 or £100,000 on a kitchen as it is to make comparable price increases on tiles, plumbed and wired appliances. This is a common cause of price variability between quotes. Builders will include different allowances or sometimes none at all.

     

    Labour

     

    This part of the construction budget is what gets paid to the people working to build your project and is usually the most bulky part of the overall cost.

    Labour costs commonly vary in price by between 5-15% and will depend on;

    –   location

    –   demand

    –   availability

    –   efficiency

    –   quality

    As in most markets, more experienced and qualified professionals are paid more. Therefore price variability here, which can be as much as 20-40%, is usually reflective of the standard of the building company you’re working with. Or indeed the standard of work they are used to providing.  

     

    Prelims

     

    Prelims or preliminary costs are the site specific overheads that your contractor will pay to set up and keep your site operational. This might be the cost for a portable toilet for the contractors to use, or skips to clear site debris.  Another item that might be included is the cost of a project manager or foreman who’s fees to oversee the works would not be covered in the labour costs of the works to be completed.

    This section does not vary wildly, if it does it will usually be reflective of 

    –   The builders specific standards

    –   Access

    –   Additional health and safety requirements

    –   Surrounding areas

    –   Working hours and amenities

    Most important is not to miss things out. Prelims are not always itemized separately in the quotes you will receive from contractors. Sometimes they will be covered in overheads and profit, but it is important to clarify these and who will be carrying the cost for parking, site specific insurance etc. 

     

    Overheads and profit  (OHP)

     

    To remain a viable business every contractor will need to include an amount of money which will go towards the costs of running their business and create profit for the company.

    Business overheads might be items such as insurance, office rent, their admin team.  Profits are necessary for every company to allow them to weather fluxuations in their work and to be able to invest to improve their services such as paying for training new team members and investing in new equipment or practices.

    Every contractor will include overheads and profit in their quotes but this will very rarely be explicitly named. It is usually added on as a percentage to individual items of the scope of works and within the labour rates or handling charges provided for additional work.

    This is the area which is tweaked according to company specific factors such as

    –   the risk

    –   location

    –   desirability of the project. 

    –   the size of the contractor

    –   their interest in getting the job

    It can be subject to negotiation as can all prices but is perhaps not as flexible as customers might like. Construction is a competitive business so most contractors know their position in the market and stick to a standardised system. If you want to negotiate, think about what value you can provide them that might lead to a change in price. For example if you’re not in the house things might be easier, if it’s a desirable project for their portfolio or near to their office. These things can be useful and worth reminding your contractor of.

    The result is that we see a a during quote variability of 20-30%

    At the point at which you have your contractors quoting on your confirmed scope of works at ‘tender’ you will still see a variability in price of between 15-30% based on the natural variability between rates and margins of the contractors. They also can be seen as provisioning different services themselves and so you are now picking one and narrowing down yet again.

     

    Conclusion

     

    So you can see that when your contractor prepares a price for your project there are lots of aspects to the work that they must consider.

    There are several different ways in which contractors can prepare their quotes and strengths and weaknesses to each.

    –   Some will use an independent estimator or quantity surveyor to value the price of materials and labour on their behalf. This will likely result in a detailed and accurate quote but is often hard to make changes to and their knowledge of the work may need to be checked.

    –   Some will prepare their prices based on their own calculations and spreadsheets often using a word or excel document, these can be a bit thin on detail as builder’s time is short, they can also be hard to compare as each builder will have a different format.

    –   So if you’re going to collect quotes yourself, we suggest you use your own list of tasks and specifications. Of course the risk there is that you miss things out so we suggest you use BuildPartner which will guide you through the process, giving you average prices early on, and ensuring you are asked the right questions and can compare quotes easily.

    Overall, the most important thing is that your grasp of the scope of work is clear and complete. That will enable you to manage the interdependencies and possibilities.

     

    P.S Did you know in Buildpartner you can compare quotes line by line between builders and benchmarks?

    Simply click on the quoter page invite builders and view and compare all of their submitted quotes in one place.
    Want to know how? Click here

    Categories
    Blog

    Why construction costs vary – Part 2 (Different building companies and cost bases)

     

    In our previous post we discussed the first reason why construction costs vary between projects, being different scopes and assumptions per project.

    In this post we will be discussing the second reason why project costs vary per project.

     

    Reason 2: Different building companies and cost bases.

     

    Within construction, in particular residential construction, there are really three types of contractor and they should be viewed as providing effectively different services.

     

    1. Sole traders (1 - 3 partners)
    2. Small companies (3 - 10 team members) 
    3. Large companies (10 - 20+ team members)

     

    Sole traders (1 - 3 partners)

    These are informal individuals or groups of individuals who sometimes run projects and sometimes work for lead contractors. The lead(s) will usually run one or two projects at a time and often continue with a particular trade as this will not take up all his or her time.

    Because of this more informal and low turnover approach these groups will often not be VAT registered or ask you to pay some team members directly to avoid going over the threshold.

    This can mean a significant cost saving as VAT is usually 20%, they will also not be charging much of a margin, usually less than 10% on top of their team members work as their wages are mostly covered by their trade. But bear in mind that it means they may not take responsibility for the entire project. They will also not see management as their core function. They will have lower overheads which means a lower cost base, but as a result they will also struggle with complex or unique elements. So this type of contractor is best for low risk, low complexity projects and situations in which you’re happy to be more hands-on with the organisation.

    Because the VAT threshold is only around £90,000. Any group specialising in projects over £10,000 will reach this threshold quickly and so you should approach with caution anyone in this group taking on projects of that size or above. They would have to be either very creative with their accounting or inexperienced. 

     

    Small companies (3 - 10 team members) 

    These are usually formed when a sole trader or group of traders decides to go one step further than informal ad hoc projects and form a limited company. Usually because the project sizes have become such that the financial risk is best kept in a limited company.

    Usually at least one team member will have the sole function of ‘management’ and won’t do much site work but will instruct and arrange. This means their costs and any other overheads associated with more complex projects will need to be covered in a margin. Usually 20 - 30%.

    They will need to be running 2 - 4 projects at a time to finance this and therefore are likely to have developed an increased marketing presence. They will be more comfortable with appropriate insurances and contracts and therefore lend an additional degree of security to their clients.

    There are few drawbacks to this kind of contractor and indeed they are seen as the traditional ‘builder’. If you can find an organised and experienced contractor managing no more than 2 - 4 projects at a time, that’s the ideal for any project between £20,000 and £250,000.

     

    Large companies (10 - 20+ team members)

    Large companies still have an important role to play, naturally in projects which require a varied and sizable team. But these are usually commercial or development projects. So for the moment we’ll focus on their relevance to the residential sector.

    There are some residential projects around £250,000 - £1m which can’t be handled by most contractors and therefore large businesses have to be created. However, sometimes these businesses will need to or want to take on smaller projects to keep their teams busy or for particular specialisations, for example lofts or listed buildings. 

    These companies will inevitably have larger overheads, offices, vans, customer support etc. which can increase their margins to 30 - 50%. However, the level of construction risk with them is lower as they will be heavily insured and usually dealing with larger projects, however they can go spectacularly bankrupt so make sure to pay after rather than before work is complete. Indeed this general principle will serve you well with all contractors.

     

    P.S Did you know in Buildpartner you can actually see the costs/quotes associated by these types of builders for your project?

    Simply click on the quoter page and you will be able to see the price difference between a small scale builder vs a large scale builder. Want to know how? Click here

    Categories
    Blog

    Why construction costs vary – Part 1 (Different Scopes and Assumptions)

    BuildPartner is an estimation software that helps homeowners and professionals manage pricing for construction work. Specifically by enabling users to check benchmark prices, create detailed cost plans, and collect comparable quotes.

    Our platform has been built using data from thousands of projects over many decades by a large group of architects, builders, and quantity surveyors but with a particular emphasis on residential work under £1m, which is particularly useful for homeowners. So today we’re going to share with you some insights which we’ve built up and how they can help you manage your renovation costs. We’ll cover first why construction costs vary and then what to do to mitigate it:

    Why construction costs vary

     

    Pricing for construction is often seen as an opaque process, easily subject to abuse, and indeed it is. But that doesn’t mean it’s actually as complicated or as abused as you might expect.

    Many people on our team have run building companies and pricing companies and we can promise you, it’s extremely rare that anyone is actually trying to game the system or take advantage of you. In fact we are often shocked how regularly builders take financial hits for their clients.

    However, that does not mean that prices are not variable. They can vary enormously. Which leads to uncertainty. It is fair to ask, if quotes can vary by 30-50%---as they do very regularly---how can they all be right!?

    Well the answer to that is actually quite simple and we will explain it. The main cause of the variability is that they are simply quoting for different things. So we will explain a little bit more about what that means and what to do about it in three a three part series:

    1. Different scopes and assumptions
    2. Different building companies and cost bases
    3. Natural variability in prices

    1. Different scopes and assumptions:

     

    Renovating a house is not like buying a pair of shoes. It is more like designing them, you are literally building your product. This is both part of the joy and part of the complexity.

    There are millions of different products and service providers and hundreds of millions of different combinations which you are putting together in your specific way and your specific location. Exciting as it is, this is the heart of the complexity, you cannot know how much something will cost until you know what you want. However, you cannot know what you want until you know how much it will cost.

    We could go round and round like this but then we would never get anything done. So we have to work with assumptions, and therefore it’s very common, if not the norm, to collect quotes without all the details of the project being confirmed. This is one of the main causes of variability.

    As a result of variations in scope we see a pre - quote variability of around 80 - 100%

    This is largely due to specification alteration. At the beginning of a project the scope of the works you want to carry out and the specification of those works aren’t confirmed. Therefore any estimate or quote at this early stage will have a natural variability. You may want to do the loft extension another time or you may not get planning permission for the basement.

    This means that the sooner you can confirm the exact scope and specification of your project the sooner you can reduce the uncertainty and variability of your project costs.

    Of particular importance is that if you are aware of the scope of your work, you can more accurately pick appropriate companies to quote. Certain companies are suited to certain types of projects and the closer you can match the two the more competitive and appropriate your tender will be.

    Tune in next week where we walk through the second part of why Building costs vary, "Different building companies and cost bases".

    Categories
    Blog Case Study

    Case Study, Zebra Property Group – “BuildPartner saved us about two days of work on this project”

    Location: London, England
    Project: Cipher House
    Industry: Construction

    Zebra Property Group is a construction team that provides high-end, bespoke residential and commercial transformations to clients based in London and Edinburgh. Using BuildPartner for the first time, they submitted a quote for the Cipher House project, a modern two-bedroom new-build in Putney, and were selected.

    Three facets of their BuildPartner experience particularly impressed the Zebra team: the efficiency and accuracy of creating the initial quote, the client’s clear understanding of the value of Zebra’s services, and the strength of the client relationship as a result. Here’s what Jamie Menzies, Managing Director of Zebra Property Group, had to say about his team’s first BuildPartner experience:

    Fast, Accurate Quotes

    “I spent very little time actually putting the quote together which was, of course, very helpful. I’d say BuildPartner saved us about two days of work on this project. That’s a huge help for us and it was bizarrely accurate.”

    Clear Understanding of Value

    “I was worried its level of price transparency would mean that clients would always just go for the cheapest option. But we were the most expensive and the client chose us so, clearly not.”

    Stronger Client Relationships

    “I was really pleased by how much trust this client had in us. Most of the time, we experience a certain amount of hesitance and caution from clients; it's usually just the nature of the situation when no one really knows how much the project’s final cost will be. But this wasn’t the case with the Cipher House client. I have no doubt this was because they had a clear understanding of what they were actually paying for.”

    At the heart of Zebra Property Group’s work is the commitment to stay hyper-focused on providing exceptional service for their clients. Now that the Zebra team can save days of work using BuildPartner, they have more time to focus on business development and ensuring clients feel confident and comfortable throughout their projects.

    Give BuildPartner a try

    Join the hundreds of other UK architects who are using BuildPartner to save time on schedules, empower their clients, increase their revenue, and more.

    Start your free 30-day trial of BuildPartner today!
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    The Partnership Overview

     

    We based BuildPartner on the simple principle that we could use recent technological advances to increase information exchange in the industry, in particular with regard to pricing. Therefore we are building a collaborative product which enables users to quickly and accurately create budgets, compare prices, and track the progress of their projects.

    The initial version of the product is live. However, there’s a lot more to do, in particular prioritising and testing new releases, managing the data and planning the roadmap. We think that the same technological advances in information exchange which have made this business possible can be used to improve the process of building the business itself.

    It is now possible for a wide range of people to collaborate on projects at a low cost. So we are asking users if they would like to join as partners on the project. This group will become owners of the product in principle and practice. They will provide feedback as a user, direction for the business as a team member and resources as an investor.

    Information on the process is below. The hope is that this will enable us to build a better product, more efficiently, together.

    In Principle

    The current corporate structure:

    Currently, businesses are owned by team members and investors. As a result, capital and control then tend to consolidate in those groups. This is associated with certain problems. Growth in capital tends to be accompanied by growth in inequality and volatility, a slowdown in innovation and collaboration and blindness to wider social externalities.

    However, now is perhaps the right time for a different approach. Recent technological advances enable information to be distributed almost instantly at a dramatically lower cost. The result is an opportunity for more decentralised yet efficient and equitable companies.

    The Partnership Model:

    The partnership model makes it possible, even the default, for a wide range of customers, team members and suppliers to become shareholders in the business. This is done by making it easy, even the norm, to invest their spare time, resources and connections at any point in the business.

    Benefits:

    To the partners:

    • Passive capital creation resulting in equity growth and long term reward
    • A more efficient business which will increase revenue streams and lower costs
    • Governance rights on the key strategic decisions enabling greater control

    To the business:

    • More efficient practices resulting in lower costs and higher revenues
    • Lower capital requirements resulting in a more stable, efficient company
    • An increasingly innovative and socially-minded business

    To society at large:

    • More efficient, less volatile, more socially conscious businesses

    How it works

    The partnership approach involves customers in the development of the business. To that end, we are enabling users to invest their spare time, resources and imagination and repaying them with share capital. Examples of which include:

    • Product design and feedback (hourly or daily rates)
    • Sales and marketing introductions (commission)
    • Governance and management (retainer)
    Payment:

    Any time spent advising, marketing or governing the business will be valued at a quarterly valuation. These payments, for feedback, commission and advisory time can be invested in the company according to the Partner Scheme terms.

    Governance:

    As a shareholder you will have rights to business information. However, on top of your codified rights we emphasise the spirit of total transparency and equality. As a shareholder, you will be able to take up the right to information and vote at any point.

    Reporting and tracking:

    Business reporting will be consistent and transparent. Every quarter, metrics will be sent out, results analysed and valuation tracked.

    An example

    1. Monthly advisory payments paid at a per hour rate - £100
    2. Commission on an introduction of 10% first year revenue - £2,600
    Over 12 months: Net equity - £3,800
    Company valuations

    The last investment round closed at a valuation of £3.2m in April. Partners can invest at any time at the previous valuation or quarterly benchmark.

    Tax relief

    Tax relief is available to personal investors. Therefore we recommend that investments are made personally rather than by companies or partnerships due to the tax relief available:

    EIS relief offsets 30% of your investment against tax. So £5,000 of invested time would result in a rebate of £1,500. And up to 45% again if there is no return on your investment. So a maximum of £1,925 is at risk.

    There is also no capital gains tax on any profit if the shares have been held for three years.

    Possible scenarios

    With early-stage investments the range of possible outcomes is wide. So investments should only be made out of free time, margin or cash, ideally subject to tax.

    Here are some examples, ranging across, zero, poor, medium, good, and excellent outcomes based on a £5,000 equity stake at a £1.4m valuation:

    The level of uncertainty is high but you can help bring it down. That is the point of the scheme. If they work, early-stage tech investments tend to return large multiples. If they don’t, don't expect much back. But tax relief ensures you only lose 25%. 

    FAQs

    In the case that I take the shares, would they be in my name specifically? Do you issue some monthly statements to this effect?

    Yes, ideally shares are in your name as that has tax advantages, however companies can own shares as well, the amounts are totalled and valued quarterly.

    How do the shares that accrue from advice work with tax? Do I need to 'invoice' you for my time and then you 'pay' via shares such that I can demonstrate to HMRC that I have income which went towards an EIS investment?

    Yes, for example we would pay you £100 which you reinvest in the company.

    When would be the starting point for my advice accrual? Would we go all the way back to the beginning?

    Yes, all time to date is included. 

    Would you see the time spent on introducing architects as captured by commission or amalgamated into this new advice-for-equity arrangement

    Sales time doesn't count as it's commission-based but you can invest the commission at the market value. If the intensity of the sales work increases we can do what's called a 'drawdown' which is paid upfront in advance of the commission.

    How do I track how much time has been done

    We track the time for you and provide a portal for you to check the progress.

    How is the company valued?

    Either by external investors or in the interim periods by a valuation committee. 

    How can I sell my shares?

    The natural point is a buyout, but to avoid reliance on that we will cultivate secondary markets to match buyers and sellers.

    Do I have any ongoing responsibilities as a shareholder?

    Other than filing your tax return when the investment is made, no, there are no other responsibilities. You will have opportunities to vote, and buy or sell shares, which you can take up as you please.

     

    Any questions are more than welcome, we're extremely grateful for your support and very excited about the coming years.

    All the very best,

    Hugo and The BuildPartner Team
    Categories
    Blog

    Case Study, Collective Works – “We became better architects” and “increased revenue 5%” by using BuildPartner

    Location: London, England
    Project: Commercial Architecture and Design

    Collective Works is an architectural firm based in London. They received a brief to renovate Summit House, a commercial office space, with the aim of increasing its desirability and rental income. The Collective Works team used BuildPartner as their ‘digital quantity surveyor’ to generate benchmark costs, create a detailed schedule, and collect comparable quotes. Here is an overview of how BuildPartner impacted the Summit House project, and their overall business, the headlines are:

    ● Created an additional revenue stream and increased practice income by about 5%
    ● Saved up to 8 hours per schedule created
    ● Enabled more freedom to pursue architectural creativity and deepen client relationships

    When Khuzema Hussain, partner at Collective Works, and his team began using BuildPartner in2018, he expected it would save his firm a lot of time when it came to putting schedules together. But he was surprised to find that using the platform came with a host of unanticipated benefits as well. “The best way to illustrate BuildPartner’s impact on our business is by looking at our Summit
    House project. It neatly reflects the various ways in which Collective Works has benefitted from BuildPartner: having cost information upfront, creating schedules faster, more creative freedom, and the ability to deepen relationships with clients,” Khuzema says.

    1) Quick, Accurate Cost Planning

    “With BuildPartner we can tell clients exactly how much ‘the best idea’ will cost, and it works. BuildPartner helps us sell these ideas to our clients.”

    During the initial design phase, the discussion focused, in particular, on how to address the ceiling space. So the Collective Works team generated three ideas at three different price points:

    ● Option A, the high price: remove a suspended ceiling over the floorplan and take advantage of the vaulted structure of the roof
    ● Option B, the medium price: retain a flat ceiling
    ● Option C, the cost-saving option: leave the existing ceiling as is

    It was obvious that Option A would be the most beautiful option. But, without concrete numbers, the client would have struggled to decide if a more expensive ceiling was worth the investment. So, using BuildPartner, the Collective Works team quickly generated precise estimates for each option so the client could compare them.

    After that, the decision was simple. The client felt that it made sense to invest in the ceiling since their overall goal was to make the space more appealing to their prospective occupants. With the exact prices in hand, the client enthusiastically chose Option A.
    Khuzema believes that being able to provide his clients with this kind of confidence, especially so early on in the project, enables him to be a better architect. “I can give them exactly what every client wants,” he says, “and that’s an understanding of how much their project will cost before it even begins.”

    2) Quick, Accurate Scheduling

    “The benefit isn’t just in how much time is saved, the quality of the schedules has also improved greatly.”

    Putting a schedule together has always been a heavy lift for architects and designers. It’s a labour-intensive task that takes days to put together and, even with the best efforts, the accuracy of these documents is still variable.

    This is exactly how Creative Works described their experience prior to working with BuildPartner’s scheduling platform. “It was just onerous,” says Khuzema. “It was this big, long list that took days to put together and then did nothing for us once the project was completed.”

    BuildPartner provides users with a database of templates and tasks which users can select from. So Collective Works estimated that they saved at least 4-8 hours in creating the schedule for the Summit House project. This amount of time-saving has become standard for their team when they use BuildPartner. But the benefit is not just in how much time is saved, Khuzema says the quality of their schedules has also improved greatly.

    Collective Works quickly realized that their ability to provide these precise estimates, and thus provide this deep confidence, was, in fact, a new line of service that they could also charge clients for. “Architects don’t usually have the confidence to produce an itemized cost plan but it's now possible with BuildPartner,” says Khuzema. “So you can now charge clients for part of the time spent on building that schedule.”

    3) Increasing Client Confidence and Revenue

    “If you credit BuildPartner for its ability to help us land work, it has a pretty substantial impact.”

    Zooming out from the Summit House project and looking at Collective Works’ business more broadly, Khuzema says BuildPartner allowed his firm to increase its revenue by about 5%. This revenue increase happened in two ways. First, they were able to create an additional service, cost management, which now generates an additional stream of revenue. Second, they were able to dream big and design more creatively because they could put exact numbers to their unique ideas. In turn, bigger clients were more willing to choose Collective Works as their architecture firm.

    With BuildPartner as part of their toolkit, Collective Works now has the accurate data they need to help sell their most creative ideas. “No one is after best quality at no cost,” Khuzema says,

    4) Deepening Client Relationships

    “When you look at it from the big picture, BuildPartner is not just saving us time, it’s also allowing us to do our core job better and more easily, while generating income. Now that’s a powerful tool.”

    When it comes to spending money, nobody likes surprises. And yet, many homeowners are forced to start build projects knowing they have little control over how much it will ultimately cost. When architects use BuildPartner to generate precise project estimates, their clients feel confident and in control of their projects. This, in turn, allows for deeper, and better, client relationships.

    Collective Works now uses BuildPartner on all of its projects. “This was a logical and important transition.” The firm’s mission is to design for the future in a beautiful and responsible way. This means working more sustainably, supporting diversity in the industry, and working collaboratively with new partners to positively impact their communities. BuildPartner has provided a stepping stone for the Collective Works team, which now has more time and more revenue, to continue to work towards their mission.

    Give BuildPartner a try

    Join the hundreds of other UK architects who are using BuildPartner to save time on schedules, empower their clients, increase their revenue, and more.

    Start your free 30-day trial of BuildPartner today!
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    Blog

    How to manage residential construction costs during volatile times

    COVID and Brexit have sent residential construction costs on a roller-coaster ride. We break down what is causing the pricing volatility and how to manage it.

    How much did construction costs increase in 2021?

    Over recent decades, labour, materials, and margin components have been fairly stable which made it easy to manage changes. However, in the last few years, all three of these components experienced significant shocks:

    • MATERIALS PRICES: Global supply and transport issues, which were predominantly caused by COVID, have now been compounded by UK-based supply chain issues. This has reduced supply and increased key materials prices by an average of 20-30%. 
    • LABOUR PRICES: There has been a reduction in labour supply mainly caused by Britain leaving the EU. As a result, labour prices have increased by around 2 - 5%. 
    • MARGIN: The complications with material supplies and labour have created difficulties for construction companies and reduced their actual profit margins in the short term. As a reaction against this volatility, overall margins are being increased. Both due to the increased operating costs but also as a contingency against future price increases, generally around 2 - 10%. 

    If you put these price increases together the fundamental (long term) cost of carrying out a project is likely to increase in price by around 5 - 10%. If we apply this to the average project on our platform, which is £250k, this would equate to an increase of £12.5 - £25k. Though this is a significant amount, it is actually less than the current sentiment might suggest. 

    This is because volatility itself creates price changes that are higher than the fundamental increases because contractors are increasing their margins further to guard against future volatility. 

    This is a move that has been somewhat enabled by the higher than usual demand and limited supply. The impact is harder to calculate but anecdotally has been seen to increase margins by another 10 - 15% and therefore overall 15 - 25%. 

    Will construction costs continue to rise or go down in 2022?

    This is of course difficult to predict. However, we’ve spoken to a range of materials suppliers, contractors, and quantity surveyors. 

    • MATERIALS PRICES will continue to be affected by shortages for perhaps another six to twelve months, hopefully decreasing in severity over that period. 
    • LABOUR PRICES may remain higher, it is difficult to predict how much of the increase is a result of COVID versus leaving the EU but we think probably will stay for the long term. 
    • MARGIN will reduce relative to the material supply issues over the next six months and also reduce as labour supply and construction demand normalises. 

    However, these are the fundamental supply-side costs, as mentioned above, psychology and demand have the potential to cause even more dramatic swings. These are harder to predict although, we would expect them to similarly reduce over time. 

    How BuildPartner can help manage volatile pricing

    BuildPartner creates price transparency in small construction work. To do this, it provides a pricing platform for project managers, contractors, and homeowners. The product provides benchmark costs based on a series of templates, a scheduling tool showing live average prices, and quote creation and comparison functionality.

    Therefore, since it collects live price information, it is in a unique position to provide help during this volatile period.

    At its heart, BuildPartner is a big database of tasks and prices which can be selected, viewed and analysed in different ways at different times. The price information for which comes from three sources: 

    • Project managers input materials and their prices.
    • Contractors input labour, materials, and margin.
    • Quantity surveyors and estimators research and check all of the above.

    We monitor changes within these accounts, compare them to other market sources such as materials suppliers then aggregate those changes. Any major deviations we manually update in our average prices and suggest that builders make these changes in their accounts. 

    Project cost management: What to do about it

    From our point of view

    Our core responsibility to clients is to provide accurate price information for budgeting. Since project lifecycles from ideation to completion range from a few months to several years, we must take at least a medium-term view. If we were to react too dramatically to short-term shifts, we would end up skewing peoples’ plans unnecessarily. 

    We think labour and margin are subject to some infrastructural shifts as we have seen this reflected in our builders’ accounts. Therefore we have slightly increased the default labour rates and margins in our benchmark prices by 3-5%. However, we would recommend a 10% contingency to handle short-term changes, especially in materials prices. 

    From the architects’ and contractors’ point of view 

    There is no doubt this is a difficult period. For those who have a time horizon shorter than 6 months, the answer might be to grin and bear it. But for those who have a longer time horizon, consider waiting for prices to stabilize. 

    However, we are seeing certain patterns being repeated which we recommend avoiding: 

    1. If you shop around and miraculously find a cheaper than expected quote, both from main contractors and subcontractors, beware, it is likely to be a mistake or an inexperienced business. 
    2. Budget additional time and therefore money for lead times on materials. Do not trust the lead times materials suppliers give you. Though it is not their fault, they cannot say with reasonable certainty what will happen. So double your lead time and assume an effect on preliminary costs and overheads as a result. 
    3. Collaborate and be open with your pricing. Homeowners and builders will have different appetites for risk so finding the right balance will result in the right price. For example, you could consider advising homeowners to accept provisional sums for certain materials. This way a margin for risk will not need to be added to the quote, but instead, advise a personal contingency of 10 - 15% which may or may not be needed. 
    4. If anyone you’re working with is looking unusually stressed, offer support. This is a difficult period for everyone.
    5. And of course, use BuildPartner. The process will be significantly easier.