Beyond the Measurables: Accounting for Professional Fees, Risks & Other Hidden Costs

Author: Bart Kolosowski
Published: October 13, 2023

Introduction

This article delves into the often-overlooked non-measurable costs in construction projects, a critical aspect of elemental cost planning. While we have discussed cost planning extensively in other articles, we focus on costs like professional fees, site acquisition, and risk allowances, which are not immediately quantifiable. These costs, albeit hidden, significantly influence the project budget and timeline.

Following guidelines from reputable bodies like the Royal Institute of British Architects (RIBA) and the Royal Institution of Chartered Surveyors (RICS) ensures our cost-planning methods align with industry standards. By acknowledging non-measurable costs, we pave the way towards more accurate and comprehensive cost planning.

 

Understanding Non-Measurable Costs in Construction Projects

Regarding construction costs, the focus often lands on physical materials and labour, leaving non-measurable costs overlooked. However, these costs represent an integral part of any elemental cost plan.

Non-measurable costs include various hidden costs, which aren’t directly related to the physical construction of a project but are essential to its completion. These can range from the professional fees of architects and engineers to risk allowances that account for potential project setbacks.

By omitting these key costs in the early stages, the project can suffer from budget overruns and timeline extensions, putting strain on stakeholders. To avoid these pitfalls, an understanding and estimating non-measurable costs are paramount.

Guidance from RIBA and RICS offers valuable insights into how to account for these costs, ensuring a more accurate, comprehensive, and realistic cost plan.

 

Professional Fees

Delivery of construction projects is a complex process, requiring numerous professionals with distinct roles to play. These individuals and companies, from quantity surveyors and architects to structural engineers and project managers, all charge their own unique professional fees. These costs are a crucial component of any elemental cost plan, and their omission can lead to gross underestimations of construction costs.

To offer a clearer picture, here are some professional roles and their typical fees to consider:

  • Consultancy Fees
  • Specialist Fees (archaeologists, ecologists, flood specialists)
  • Architect Fees
  • Structural Engineer Fees
  • M&E Engineer Fees
  • Project Manager Fees

The determination and negotiation of these fees vary, influenced by factors such as project complexity, the professionals’ experience, and market rates. Regardless, ensuring these professional fees are factored into your cost estimation is a step you cannot afford to skip.

 

Local Authority and Statutory Undertaker Costs

Further to professional costs, construction projects are governed by a network of regulatory frameworks and statutory requirements, necessitating interactions with local authorities and statutory undertakers. These interactions often entail costs that are indispensable to the seamless progression and compliance of the project. Incorporation of these costs is vital in any elemental cost plan to avoid any financial surprises down the line.

Here’s a glimpse into some of the local authority and statutory undertakers costs to consider:

  • Planning Permission Fees
  • Building Regulation Charges
  • Highway Authority Charges
  • Water Authority Charges
  • Utility Connection Fees
  • Landscaping Approval Fees
  • Fire Authority Charges
  • Discharge of Conditions Fees

The quantification and settlement of these costs can be influenced by various factors including the project’s scale, location, and the stipulations of the local authority. Similarly, rates might vary between different statutory undertakers. Despite the variables, securing an accurate estimation and allocation for these costs in your cost plan is paramount to ensure compliance and smooth operational flow of the construction project.

 

Site Acquisition and Relocation Costs

Site acquisition, often labelled as the first step in a construction project, carries a significant load in the cost estimation process. Site acquisition is typically associated with land purchase, including costs related to purchasing rights, legal services, and necessary surveys. However, the cost of acquiring a site can be influenced by factors such as the location, size, and current market value of the land.

In addition to the upfront land purchase, there are also relocation costs to consider. These are often hidden costs that can include moving expenses, temporary housing for displaced employees, and potential business interruption. It’s critical to consider these in the initial cost estimation to ensure a more accurate Elemental Cost Plan.

Spotting these costs in advance can be tricky, but asking the right questions and thorough due diligence can help to shine a light on these hidden aspects of the project’s budget.

 

Managing Risks in Cost Estimation

Cost estimation in construction projects is akin to navigating a ship in stormy seas. Much like the unforeseen waves, construction risks and employer change risks often emerge unexpectedly, causing significant disruptions to budget and timeline. These risks, along with design risks and external risks, must be accounted for in the elemental cost planning.

  • Design risks: These risks relate to complications or changes in the project design that could increase costs.
  • Construction risks: These are potential complications during the construction process itself, such as unforeseen ground conditions, labour shortages, or materials’ price fluctuations.
  • Employer change risks: This term refers to changes initiated by the employer or client that could lead to increased costs.
  • External risks: External risks are those outside the control of the project team, such as changes in legislation or adverse weather conditions.

Incorporating a robust risk allowance into the cost estimation can act as a buffer against these unforeseen challenges. This allows for a more flexible and adaptable budget, ensuring smoother project execution.

 

Other Employer Costs

In addition to the more tangible construction and professional fees, it’s essential not to overlook the other costs that an employer may incur. These include the often overlooked finance costs and marketing costs.

  • Finance costs: These are the costs associated with securing the necessary funds to finance the construction project. This could include interest on loans, bank charges, and insurance costs.
  • Marketing costs: Depending on the nature of the project, an employer might need to allocate funds for marketing. This could be to advertise the project, promote the sale or rental of the completed construction, or maintain brand visibility throughout the project duration.

Understanding and accurately estimating these costs can greatly contribute to a more comprehensive and realistic cost plan and can make a big difference in ensuring the financial success of a construction project.

 

Estimating Techniques for Non-Measurable Costs

Estimating the construction costs beyond the tangible, measurable elements requires employing a diverse set of techniques. These include benchmarking, usage of historical data, and expert judgement.

  1. Benchmarking allows the cost manager to compare the project to similar projects previously undertaken, providing a baseline for building costs.
  2. Historical data aids in predicting future costs by examining past trends. It’s a practical tool for estimating the potential risk allowances and consultancy fees.
  3. Invoking expert judgement is often crucial in formulating accurate predictions. This could involve the expertise of a quantity surveyor or a structural engineer to assess the potential design risks or construction risks.

While each technique has its strengths, it’s important to note that they also have limitations. Therefore, using a blend of these methods often leads to a more comprehensive and accurate cost estimation.

 

Hidden Costs and Their Impact

Navigating through hidden costs, these unexpected expenses can significantly upset a project’s financial equilibrium. Their effect on the overall cost of construction projects can be substantial.

Typical hidden costs encompass marketing, finance, and unknown site conditions. Each can incur significant expenditures if overlooked in the initial cost estimation.

For example, marketing costs might cover promotional materials to grand opening events. Finance costs include interest payments, loan fees, and other financial obligations. Unknown site conditions, like archaeological finds or ground contamination, may also result in unforeseen costs.

It’s critical in elemental cost planning to identify and account for these hidden costs. Including a contingency allowance in your cost estimation is advisable to tackle such unexpected expenses and lessen their potential impact on your project’s budget.

 

Conclusion

In construction and building cost analysis, recognising non-measurable costs in elemental cost planning is crucial. These include professional fees from architects, structural engineers, M&E engineers, and project managers, as well as site acquisition costs and risk allowances, all significantly impacting accurate cost estimation.

Efficiently managing construction, design, and employer change risks is as vital to a project’s success as the physical construction. Employing various estimating techniques helps uncover these costs, leading to a more thorough and realistic cost plan.

Lastly, it’s essential to identify and account for hidden costs, ensuring they don’t derail your project’s budget.

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