And I can tell you now. With us cost overrun never happens and it never should happen if you are properly advised.
So in practical terms how do you avoid it?
A Detailed Specification and Bill of Quantities
First of all your architect must produce a really detailed specification and bill of quantities. This means spending time with you, the client, asking the right questions, having examples at their fingertips of features you may like that fall within your budget. Your architect needs to have knowledge, experience and …frankly……charm (and why not?)
This really detailed specification means a number of things.
First of all it means the thinking is done and decisions taken at the design stage. Ideally, and of course it never happens ideally (but that is what we aim for), ……… ideally the construction phase goes exactly according to plan and you arrive at your destination like a train on a track.
Check in with the Building Team During the Design Phase
It helps enormously to have an in-house building team who can tell you how much different options may cost and even make suggestions during the design phase. It is only builders who really understand labor costs. We find it incredibly useful, in staying on budget, to have the advice of our building team during the design phase. All too often an architect-only design ends up over budget and you only find that out when it’s too late, the architect is paid, and the offers from the contractors are in. Remember the architect can increase costs by hundreds of thousands with a mere sweep of the pen. To avoid cost overrun we check in with our building team during the design phase when adjustments are painless.
Go to A Competitive Tender
Clearly it is essential to send the project out to a competitive tender. It is only in this competitive environment that contractors will really sharpen their pencil. By the way all our projects go out to competitive tender and we ourselves compete in that tender. That’s the only way you, the client, can be confident you are getting the best possible prices. We are the normally the most competitive (although this is not a given) because we are a lean organization, well organized and efficient, and because our labor comes from inland. Labor is far more expensive on the coast and this is a major cost. (If you’re concerned about quality take a look at our projects completed, finished photos, letters from grateful clients and judge for yourself).
Another advantage of a well thought through detailed specification is that the contractors know exactly what is required. No ambiguity. No room for interpretation. They are told “we need exactly this much of exactly that to be applied is this particular way”. All contractors of course have the same detailed project so their offers can be easily compared.
A Fixed Price Contract
And of course you sign a fixed price contract with a reliable contractor you trust and you monitor them carefully.
Bingo! No cost overrun.
Budget for Change Orders
Now the project that has no change orders doesn’t exist. There may be very few change orders if the specification is detailed and well thought through and matches what you want but there are never no change orders. So long as you are aware of this in the beginning and factor something in, 3% maybe 5% then, assuming it is within this margin you stay within budget. No cost overrun.
Developer Risk: There is always some residual risk that the developer carries. It goes with the territory. Building a house is a complex business and however detailed and well thought the project there may arise unforeseen circumstances beyond the architect’s foresight and control. The fixed Price contract with the contractor covers the Project as it is conceived before the diggers move in. Changes orders are almost inevitable.