Client note: Managing your project costs

Project budget

At the commencement of the brief, you and your architect must agree a target project budget. This budget should carefully detail all inclusions and exclusions to the project cost. Items which are likely to form inclusions in your budget comprise:

• construction cost including allowances for known special conditions, such as the owner remaining in occupation, difficult site access, special materials and finishes
• architect's and other consultant fees
• local authority fees and statutory authority fees
• cost escalation (inflation) from the date of the estimate up to the date of closing of tenders for the project
• contingency for changed market conditions at the time of the tender
• construction cost contingencies for possible as yet unknown items (latent conditions) that may be encountered on site, particularly in relation to subsurface ground conditions (such as rock) and works associated with existing buildings
• design cost contingencies and associated construction cost changes to the scope of works whether initiated by you, the authorities or consultants
• soft furnishings, furniture, special equipment (these may be provisional sums or prime cost sums, depending on their nature and budgets)
• special insurances
• industrial delays and delays encountered in obtaining approvals
• delays due to weather
• any other provisional sums or prime cost sums.

It is important to list as many items as are known or are reasonably foreseeable that may affect the overall cost of the project. As the client, you should be actively involved during this part of the process. Budget allowances should then be determined or specific items should be noted as excluded from the budget. Items that often form exclusions from your budget comprise:

• legal fees
• marketing costs
• site/building purchase costs
• holding and finance charges
• relocation/removal costs
• business interruption costs
• infrastructure costs
• GST GST Goods and services tax levied under the GST Act - A New Tax System (Goods and Services Tax) Act 1999. View full glossary .

In addition, items normally supplied by the client after the conclusion of the building work such as tenancy fit-out costs, soft furnishings, blinds, artworks and special items of processing equipment are often treated as exclusions (unless noted otherwise).

It is imperative to understand that your budget will be affected by your other project requirements: size, time and quality of the project will all impact on the cost. Your initial brief may not be able to be fully realised for your available project budget. If this is the case, cost, size, time and quality may each need to be considered and amended to achieve a balanced and successful outcome.

The project budget is established before design has commenced and is likely to be determined primarily by your financial capacity rather than the actual cost of meeting the brief. You should discuss with your architect in broad terms the likely adequacy of your budget at the outset, before design is even started.

As the project moves into the design phases, you and your architect must ensure that estimates are provided based on the current design for comparison with the original budget. If the two vary, then either your budget or the design will need to be amended.

All these brief parameters and budgets must be recorded and distributed in writing.

Back to top

Estimates

You should ask your architect to provide an estimate of the cost of the works at each of the various architectural stages. Estimates are not quotations or tenders; they are an opinion of the probable cost of the project, taking into account any inclusions or exclusions identified in the budget as per examples above, and how the cost of works is defined in your Client Architect Agreement. They may be prepared by your architect or a separate specialist cost consultant such as a quantity surveyor depending on the nature of the project.

Few architects are expert at cost estimating, and recommend the use of the quantity surveyor – however, based on their experience and published cost data, they may be able to provide you with some ‘opinion of probable costs’. An 'opinion of probable cost' draws a distinction between this level of estimate and the more detailed estimate prepared by a dedicated building cost professional. Your architect should provide these opinions to you in an itemised format clearly identifying the same inclusions and exclusions as the project budget, to enable a direct comparison.

Where the project is large, complex, or if meeting the budget is the primary project influence, then specialist professional services from a qualified cost consultant or quantity surveyor should be sought. Your architect will then work with these professionals to inform them of building elements and design, but the cost consultant or quantity surveyor will offer increased expertise in project pricing and therefore a cost estimate with greater certainty.

Generally, cost estimates will be provided near the conclusion of the following stages as defined in the Client Architect Agreement . During these stages, the architect’s scope will include coordination of the preparation and update of the forecast cost of works.

Concept/schematic design

A concept/schematic design (initial design options for you to consider) will be prepared by the architect, based on your initial brief. The preliminary forecast for the cost of works estimate will be calculated on this design and will be compared back to the project budget. If the budget and cost of works estimate vary then you must discuss with your architect the reasons for variance and the changes needed to budget or design to achieve alignment. The design, estimate and budget must then be rechecked before proceeding to the next phase.

The concept design will be based on your architect's understanding of regulations and local requirements, many of which will affect the design solution and the project schedule. The architect and any other consultants involved in this stage should be paid for their work even if the project does not proceed. Many cost elements will be subject to contingency allowances (for unforeseen matters) and these should be declared, as the project will not be fully resolved at this stage. As always, these key agreements and decisions must all be recorded and distributed in writing.

Design development

At this stage the schematic design is refined and fully detailed to meet your requirements. This stage finalises ‘the look’ of the project and all the materials and finishes to be used both inside and out. The cost of works estimates at this stage will be a more accurate guide as to what the project may cost. Many ancillary items should have reasonable allowances based on research (eg authority fees) but there is still scope for further refinement, as the construction specifications and details have not yet been finalised. Some contingency allowances will remain in place.

Contract/construction documentation

A further cost of the works estimate should be given when the tender contract documentation is completed and prior to calling tenders or negotiating a price with a builder. By this stage most of the additional project costs should be known, (eg authority fees and consultants' fees).

The pre-tender cost of works estimate will provide a basis for assessing the tenders or negotiated prices received from builders. Significant variance in builders' prices either higher or lower than the estimate should be investigated, as they may reflect misunderstanding of the scope of the project.

The tender prices will include the construction of the documented building works only. Your architect or quantity surveyor should summarise the preferred tender price to an overall project cost position with all inclusions and exclusions in the same format as the project budget, to facilitate a direct comparison.

If the project cost comparison embodying the preferred tender does not match the project budget then amendment to the budget or the design will be required before proceeding. You will need to discuss with your architect the best way to address this situation. Options may include negotiating with the preferred contractor to reduce scope and costs, or staging the work to meet the current budget with the remainder to be completed when more finance is available.

Contingencies

During all phases of cost estimates and even after acceptance of a tender your total project budget should include contingency allowances. It is worth noting, that you may have a construction contingency that is within the building contract (tender price) and/ or outside of the tender price. Through consultation with your architect and quantity surveyor you can determine where to best place this contingency. Irrespective of its location (within the building contract or not) it is essential to allow for this contingency.

Cost of works estimates should be based on rates for calculated quantities or areas of work required for the project. However, at all stages of the design and construction there will be items that are not yet resolved, or possibly even unknown. Contingency allowances must be included in the total budget to account for these items.

The size and number of the contingencies will depend on the complexity and level of resolution of the project. When the project progresses through design, documentation, and construction, contingency items will reduce as they are resolved. The professional preparing your cost estimates will include contingencies based on their project experience suitable to your project.

You should consider contingency allowances to be reasonable expectations of unresolved costs and likely to be required to complete your project . Refer Acumen note Client note: Contingency sums.

Back to top

Cost management

Your architect should draw your attention to any matters which may arise during the design development and contract documentation or tender stages which may seriously affect the previous estimates. As a part of due diligence during contract administration, your architect reviews all contract variations and request for information (RFI) against the contract set. You may also have a quantity surveyor assess the value for money with any variations and or cost savings during the construction phase. These variations are also sent to the specialist consultants/ secondary consultants (if engaged) during this phase for their reviews.

This will assist you to track and record costs as construction progresses for certainty against your project budget. If engaged for contract administration, your architect will also manage the valuation and approval of design and building cost adjustments for you during construction.

Clear lines of communication are critical for the contract administration. Ensuring that all correspondence goes through the architect and not directly to the builder, means that the project team can formally instruct the builder to provide cost estimates for any variation prior to them proceeding, to eliminate any unexpected higher costs that these variations may cause.

Back to top

Conclusion

Remember that you are part of the building project team and it is important that you maintain effective communication with your architect throughout the project. You might not be able to meet all the goals of your initial brief for your desired budget but you can ensure that you are well informed to make decisions that maximise the value for money you spend and avoid cost surprises.

You and your architect should discuss and agree on the scope and cost of architectural services before the project is started, and make sure the agreement is in writing. The scope of services will define who is responsible for preparation of cost estimates and cost management during the project. For this purpose, and to protect your interests, it is recommended you use the Australian Institute of Architect’s Client and Architect Agreement, which your architect can provide.

Back to top