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

BuildPartner is a product 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".