Types Of Cost In Construction Projects: From Start To Finish

Introduction

Embarking on a construction project is a complex endeavour, with many costs to consider across each phase. The efficiency and success of the project hinge on a comprehensive understanding of these Types of Construction Costs. This article aims to illuminate the various costs involved in construction projects, from the initial preparation and brief costs to the final handover and closeout costs.

A thorough grasp of the Project Lifecycle is essential for the construction process and effective Cost Management. Thus, we will delve into the myriad costs inherent at each stage of construction. Stay tuned as we unravel the intricacies of construction costs and provide useful insights into managing them effectively to ensure the smooth running of your projects.

 

Understanding Construction Project Lifecycle

In succinct terms, every construction project undergoes a marathon of phases, each laden with unique costs. The journey typically starts with pre-construction and winds down with handover and closeout.

Let’s break it down:

1. Pre-construction: This phase lays the groundwork, involving all the necessary planning and preparation before construction starts.
2. Construction: This is the heart of the project, where designs turn into reality. It’s often the most visible and time-consuming phase.
3. Handover and closeout: The final lap where the project is completed and delivered to the client, with all requisite documentation in place.

Each phase carries weight in the overall project cost, stressing the importance of effective cost management throughout the project lifecycle. With a deeper understanding and careful stewardship, one can navigate the cost landscape more confidently.

We encourage you to dive deeper into each phase in our subsequent sections.

 

Pre-Construction Costs

Before a single brick is laid, a construction project incurs expenses. These Pre-Construction Costs set the foundation for the project and can be separated into three main categories: Site Acquisition, Pre-Planning Costs, and Planning.

1. Site Acquisition: This initial stage involves securing the project site. Costs may include:
   • Purchase price
   • Legal fees
   • Stamp duty
   • Site surveys
2. Pre-Planning Costs: This stage encompasses activities that determine project feasibility. Costs usually include:
   • Feasibility studies
   • Site investigations
   • Consultations
   • Outline proposals
   • Project viability – establishing a budget and securing funding
3. Planning: This stage involves obtaining necessary permissions and approvals. Costs can consist of:
   • Application fees
   • Professional fees (architects, engineers, consultants)
   • Section 106 payments
   • Community Infrastructure Levy

Understanding these Pre-Construction Costs is crucial to successful Cost Management and setting the stage for a successful construction project.

 

Site Acquisition

The first phase in the construction project lifecycle is Site Acquisition. This critical step involves selecting and purchasing a suitable plot of land for the construction project. Careful attention needs to be given to the costs associated with this phase, which include:

• Purchase Price: This is the cost of buying the land. Factors such as location, size, and potential for development can influence the price.
• Legal Fees: These are the costs associated with hiring a lawyer to handle the legal paperwork, contracts, and negotiations during the site acquisition.
• Stamp Duty: It is a tax paid to the government on the purchase price of the land.
• Site Surveys: Before purchasing, the site needs to be surveyed for potential issues such as environmental risks, topographical conditions, and boundary disputes. The cost of these surveys can vary depending on the project’s complexity.

Understanding these costs at the outset can aid in effective cost management and set a solid foundation for the forthcoming stages of the construction project.

 

Pre-Planning Costs

Stepping into the groundwork of a construction project, pre-planning costs pave the way. These initial outlays are fundamental to project viability and include:

• Feasibility Studies: These arm potential investors with crucial insights. They initially assess the project’s profitability and feasibility, shaping the road ahead.
• Site Investigations: Unearthing potential hiccups, site investigations are imperative for groundwork. They identify any underlying issues that could inflate costs down the line.
• Consultations: Conversations with architects, engineers, and other construction professionals underpin a strong foundation for your project. Their expertise guides the project in its nascent stage.
• Outline Proposals: Here, we encapsulate the project’s vision and requirements, aligning stakeholders with the project’s goals.
• Project Viability: At this juncture, we’re setting budgets and securing funding for the project. This critical step ensures the project is financially feasible.

Understanding these costs is the cornerstone of effective cost management, enabling more efficient use of resources and more predictable outcomes.

 

Planning

The planning stage of a construction project is critical and involves a myriad of costs. It’s a phase where you require professional advice from architects, engineers, and consultants and where you’ll need to consider application fees and the costs of complying with local regulations.

1. Application fees are obligatory payments made to local authorities when submitting your project plans.
2. Professional fees: Architectural, engineering, and consulting services are vital in this phase. Their expertise ensures your project is viable and compliant with regulatory standards.
3. Section 106 payments: This is a form of a planning obligation, mandating project contributors to mitigate the impact of their developments on local infrastructure.
4. Community Infrastructure Levy: A charge levied on developers to help fund infrastructure enhancements such as roads and schools in the local area.

Understanding these costs is a crucial aspect of effective cost management during the planning stage of construction projects.

 

Developed and Technical design

At the helm of construction planning lies the Developed and Technical Design phase. This encompasses a range of costs that are pivotal in shaping the final project.

• Architect Fees: This is the remuneration for the architect who breathes life into the building design. This cost is a cornerstone of the project budget.
• Professional Fees: Beyond the architect, other experts also grace the stage. This includes engineers, Quantity Surveyors, and project managers. Their skills don’t come free, adding to the project’s financial forecast.
• Planning Conditions: Adhering to planning conditions in a construction project isn’t just a requirement—it also comes with its own set of financial considerations.
• Building Regulations: Building regulations ensure that construction projects comply with safety and environmental standards, but this compliance comes at a cost.
• Specialist Surveys or Tests: Sometimes, a project requires a more in-depth look or specific tests, similar to a medical check-up. These special surveys or tests add another layer to the cost structure.

Although the Developed and Technical Design phase demands a substantial financial commitment, it is vital for the construction project’s success.

 

Tender Preparation and Choosing a Contractor

The tender preparation phase and contractor selection are critical junctures in every construction project. Adequate preparation and the right choice can impact cost management and project success.

• Tender Strategy Setting Out: Crafting a strategic plan to guide the tender process.
• Contractors Vetting: Assessing the capability of potential contractors to deliver on project specifications.
• Preparation of Preliminaries Document: This includes setting out the project’s logistics, management, and personnel requirements.
• Preparation of the BoQ and Benchmark Pricing: A bill of quantities (BoQ) is prepared with benchmark pricing to guide cost estimation.
• Tender Letting Out and Management: The tender is sent out to contractors for pricing, and responses are managed for evaluation.
• Contractor Negotiations and Appointment: Final negotiations are carried out with the chosen contractor before their appointment.
• Contract Preparation: A comprehensive contract is prepared detailing the project scope, cost, timeline, and other key elements.

Construction Phase Costs

The construction phase is a critical stage in the project where cost and time management are paramount. Several types of costs come into play at this phase, including:

1. The Contract Sum: This includes all agreed-upon costs for the project, with provisions for valuation and payment. It’s important to understand what’s included and what’s excluded and to account for Provisional and Prime Cost Sums and fluctuation clauses.
2. Professional Fees: These include architect and consultant fees, which require calculated adjustments, and costs for other professional services.
3. Risk Allowances: Contingency sums must be agreed upon, with procedures in place for reporting and managing drawdowns.
4. Other Project Costs: These can include statutory fees, planning obligations, enabling works, and finance costs.

The Contract Sum

In Construction Phase Costs, the Contract Sum holds a critical role. This total monetary commitment is a pivotal aspect in the dynamics of any construction project. Let’s dissect the Contract Sum and understand its significance:

1. What’s Included and Excluded: The Contract Sum is comprehensive, encapsulating all agreed-upon works. However, it normally excludes items such as client changes, unforeseen events, and risk allowances.
2. The Basis for Valuation and Payment: The Contract Sum is the baseline for determining value and payment schedules. It’s a crucial element for Cost Management.
3. Provisional and Prime Cost Sums: These sums are usually stipulated in the Contract Sum, covering specific items or services whose details are not determined at the contract’s inception.
4. Fluctuations Clauses: These clauses allow for adjustments to the Contract Sum due to changes in costs.

This construction cost component positively impacts project delivery by providing financial transparency and controlling expenditure.

 

Professional Fees

During the construction phase of your project, be aware of the additional costs that are often overlooked – professional fees.

1. Contract Administration: Contract Administration costs are central to a project’s financial success. Effective management in this area ensures that the project stays within budget and adheres to contractual and regulatory requirements, ultimately contributing to a successful project outcome.
2. Architect and consultant fees: These are integral to the project’s design and management. Fees depend on the project’s size and complexity. The architect’s and consultants’ expertise plays a crucial role in cost management and adherence to building regulations.
3. Calculating fee adjustments: Adjustments may arise due to changes in the project’s scope. An agile construction approach can help manage these changes effectively, ensuring the project stays within budget.
4. Other professional services: These may include services like soil testing, landscape design, and project management. The costs of these services vary based on the project’s needs.

Hiring professionals may seem like an additional expense, but their involvement is vital to avoid costly mistakes and ensure a successful project outcome.

 

Risk Allowances

Every construction project faces a level of uncertainty, making the inclusion of Risk Allowances vital in the budgeting process. These are sums set aside to cover potential costs that may arise due to unexpected events during the project.

1. Design Errors or Omissions: Contingencies can absorb the financial impact of having to modify or rework aspects of the project due to design mistakes.
2. Weather-Related Delays: Including a contingency for weather-related issues safeguards the client against the financial strain caused by unexpected project delays.
3. Contractor Default: A contingency can help offset the costs of replacing the contractor, ensuring the project stays on track without additional financial burden to the client.
4. Unforeseen Site Conditions: Contingencies can cushion the client from the financial blow of dealing with unexpected site conditions like contaminated soil or archaeological finds.
5. Scope Creep: A contingency allows the client some leeway in accommodating new requirements without destabilising the initial budget.

Considering Risk Allowances enhances project resilience and ensures a smoother workflow by enabling swift response to unexpected events.

 

Other Project Costs

During the lifecycle of a construction project, there are additional costs known as Other Project Costs that need to be accounted for. These are costs that may not be directly linked to construction but are equally essential to take into account for successful project execution.

• Statutory Fees: These are government-imposed charges related to planning permission and building regulations approval. They could also include any environmental taxes if applicable.
• Planning Obligations: Also known as Section 106 payments, these are agreements made with the local authority to mitigate the impact of your project on the local community and infrastructure.
• Enabling Works: These are preparatory works to make the site ready for construction and may include demolition, site clearance, and setting up temporary facilities.
• Finance Costs: Interest payments on a construction loan or any other financial charges associated with funding the project should also be factored in.

Remember, Lean Construction practices and adherence to standards like ISO 41001 can help manage these costs effectively and efficiently.

 

Handover and Closeout

As the construction project reaches its final phase, we step into the realm of Handover and Closeout. This last lap isn’t without its own collection of costs that contribute towards the final tally. These are:

• Snagging Costs: This includes expenses related to fixing minor defects and completing unfinished tasks – the little bits and bobs that weren’t addressed in the construction phase.
• Commissioning Costs: These costs are associated with testing systems and equipment to ensure they are operating correctly and safely before the building is handed over.
• Documentation Costs: This involves collating all relevant paperwork, like warranties and manuals, into a comprehensive handover pack.
• Legal & Administrative Costs: Any legal fees or administrative charges related to the handover process are included here.
• Training Costs: These are the expenses related to training the client’s team to operate and maintain the new systems and equipment.
• Move-in Costs: These costs encompass packing, transportation, and unpacking of the client’s possessions into the new building.
• Fit-Out Costs: Any additional costs related to customizing the space to the client’s specific needs after the handover.
• Initial Maintenance Costs: The first round of costs related to maintaining the new facility fall under this category.

Understanding these costs upfront can help avoid unexpected surprises and ensure a smooth handover. Each of these costs contributes to effective project management and the overall success of the construction project.

 

Conclusion

Managing construction costs effectively is crucial for any project’s success. From site acquisition to handover, each phase comes with its own set of financial considerations that require careful planning. While meticulous budgeting is essential, be prepared for unforeseen expenses by setting aside a risk allowance. Adopting standards like ISO 41001 and Lean Construction techniques can streamline processes and improve efficiency.

In summary, understanding and planning for the costs associated with each phase of a construction project is key to avoiding overruns and delays. For those interested in delving deeper into specific aspects of construction cost, we invite you to explore our other articles on the subject.