Overcoming Cost Escalation In Construction: The Success Story Of Multiproject SE Ltd
Introduction
At Multiproject SE Ltd, we pride ourselves on being a leading cost consultancy and Quantity Surveying (QS) brand based in London. Our reputation is built on the careful handling of complex projects, consistently striving to deliver value to our diverse base of clients and architects. We thrive when tackling the difficult aspects of the construction industry, applying our expertise to deliver workable solutions. This article offers an insight into our approach and demonstrates a successful intervention by us in a recent project.
In the face of escalating construction costs, we were called upon to provide our expert services. The client, a developer, sought our assistance for a residential construction project that was at risk of exceeding its budget due to increased quotations from the contractor. This case study outlines our strategic intervention and the value we brought to this project, underscoring the essential role of a QS in mitigating cost-related risks and ensuring cost efficiency, particularly in volatile markets.
The Initial Contact
In May 2021, Multiproject SE Ltd was approached by a developer embarking on a project involving the construction of four residential units in London. This initial contact was facilitated through a referral by an architect, who had the foresight to recognise the potential pitfalls associated with the escalating and unpredictable costs within the construction industry. The developer had earmarked a budget of £800,000 for this project, and it was the perspective of the referring architect that the developer would significantly benefit from the involvement of a Quantity Surveyor (QS) in preparing a tender package and contract, to control and regulate any potential cost increases during the build process.
Developer’s Initial Hesitation
The developer, however, was initially hesitant about involving a QS in their project. Their previous experiences in the field, with projects typically falling under the £500,000 mark, had not necessitated the use of a QS. They had been able to successfully negotiate costs directly with builders, and had always worked with a basic contract, without facing any significant issues. In their opinion, the inclusion of a QS in their operations was an unnecessary expense that offered little to no value.
For this particular project, they were already engaged in negotiations directly with a contractor regarding the full build cost. The contractor was already performing strip out and enabling works on-site, and the developer was confident of staying within their budget. Such confidence stemmed from the developer’s past experiences and the notion that they had a solid understanding of the construction landscape and costs involved – even amidst the ongoing cost volatility in the industry.
Despite our offer to assist in managing and avoiding cost escalation through the preparation of a tender package and contract, the developer remained unconvinced. They were certain that their established procedures, which had served them well so far, would suffice for this project too. As professionals, we respect the autonomy of each client in decision-making, and thus, with the developer’s decision not to utilise our services, we stepped back.
This initial encounter however, underlines the common misconception held by many developers; that the role of a QS is superfluous and merely a formality. As will be revealed in the subsequent sections of this case study, this conviction could not be further from the truth. The role of a QS in managing costs, particularly in an unpredictable cost landscape, is indispensable. They serve as a safety net, ensuring that projects run smoothly within their budget, and are not derailed by unexpected costs.
The Call for Help
In September of that year, our phone lines buzzed once again. The same developer who had initially dismissed our services was now on the other end of the line, reaching out for help. The situation had taken a grim turn. The contractor who had been tasked with the project, who had initially assured the developer that they would adhere to the set budget of £800k, had deviated from their initial promise. The construction drawings had been issued and with that, the contractor hiked the price to £1.09m. The justification provided included an increase in the cost of substructure detail, finishes, and a general increase in construction cost that had apparently not been accounted for in the initial budget.
The developer was thrown into a state of dismay. His project, which had begun with such promise, was now threatening to spiral out of control and out of budget. The developer was, understandably, contemplating pulling the plug on the project and selling the site undeveloped. This consideration was born out of the fear that the budgetary insufficiencies would result in a product of subpar quality, thereby tarnishing the developer’s reputation in the industry.
This was the situation presented to us when the developer reached back out to Multiproject SE Ltd. The developer was ridden with anxiety, their dreams of a successful project hanging by a thread. The initial confidence they had expressed in managing the project without a Quantity Surveyor was now replaced with desperation and the need for professional intervention.
The Multiproject SE Ltd Intervention
The initial review
Upon receiving the developer’s desperate call for help, our team at Multiproject SE Ltd undertook an immediate review of the situation. Our initial examination of the contractor’s quotes made it abundantly clear that certain figures were inflated. It seemed as though the contractor was attempting to exploit the developer’s urgency to meet the June 2022 deadline to increase their profit margin substantially.
Further probing into the details of the quote revealed an array of ambiguities that hinted at the likelihood of hidden costs, which if left unaddressed, could exponentially inflate the construction cost. It became apparent that the contractor’s unfamiliarity with the complexities of the detailed construction drawings had resulted in an overestimation of substructure costs and the inclusion of finish costs that were allegedly omitted previously.
The solution
Having identified the crux of the issue, we suggested that the developer re-tender the project. We advised that even though this move would delay the start on-site by approximately 6-8 weeks, it would be more beneficial in the long run. This advice was based on the fact that the developer had already lost three months in fruitless negotiations and was on track to lose money on the project if the inflated costs were not addressed.
Accepting our proposition, the developer allowed us to prepare a comprehensive tender pack which consisted of a Bill of Quantities (BoQ), contract conditions and detailed specifications. This task, although daunting, was accomplished within a short span of two weeks, showing our commitment and efficiency in handling such complex situations.
Upon completion, the tender pack was sent out to four different contractors. After a waiting period of three weeks, we were able to secure three fixed-cost quotes ranging from £880k to £1m. This demonstrated the effectiveness of our intervention, as we were able to significantly reduce the proposed budget from a staggering £1.09m to a far more reasonable range.
In summary, our intervention at this critical juncture not only saved the developer’s project from potential financial disaster, but also reinstated their faith in the role of a QS in managing project costs. Our actions underlined the effectiveness of our expertise in dealing with cost-related issues, further solidifying Multiproject SE Ltd’s reputation as a reliable cost consultancy firm.
The Successful Outcome
Our proactive intervention led to a significant turnaround in the project’s fortunes. Through rigorous negotiation with the two lowest contractors, a new contract was finalised at £840k in late October. Despite a slight delay, the construction works commenced by mid-November with a completion date, which was consequently achieved, in July 2022, only one month behind the original schedule. Through this strategic move, we were able to save the developer a considerable sum of £250k, a saving that gratifyingly validated our consultancy fee of £20k. This successful outcome serves as a testament to the cost efficiency that can be achieved through the expert intervention of Multiproject SE Ltd.
Conclusion
Taking a leaf from this case study, it is evident that engaging a QS in project management, especially in a volatile market, can be a game changer. By partnering with Multiproject SE Ltd, architects and potential clients stand to reap benefits including cost efficiency, management of project delays, and the mitigation of cost-related risks.
We cordially invite potential clients and architects to reach out to us for a consultation or further inquiries. Rest assured, our commitment remains unwavering: delivering value while assisting you to achieve cost efficiency in your projects. The success of Multiproject SE Ltd in overcoming the construction cost escalation in this case study is a testament to our expertise and dedication.
