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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:




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.




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;






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 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


  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


  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.




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


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


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".