Why do building projects go over budget?

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Statistically, more building projects go over budget than not. Overspending can be due to many factors, some of which can’t be avoided. However, it’s possible to mitigate your loss with careful thought and some planning, as Gavin Sampson explains.

Project cost overruns are almost unavoidable in the building game. Whichever way you look at it, going over budget will either mean the contractor could end up making less profit, or you will end up needing to find more cash to get the result you want.

If you have engaged a contractor on a fixed price contract, ‘extras’ will eat into his profit. If you are working with a time and materials or cost-plus contract, you will shoulder the burden. Exactly where the liability lies is primarily determined by the terms of the agreement.

Unfortunately, in terms of building projects, or #granddesigns (we’re currently involved with one but more about that later), cost overruns are the most common cause of disputes. That said, there are a few things you should consider carefully to avoid overspending.

Unrealistic Budget

Unsurprisingly, there is the inevitable, “I hope to build for…”. However, “I can deliver the project for….” is a better place to start. Be truthful to yourself and your consultants.

Inaccurate Project Brief

The accuracy of the brief is usually the main area for going over budget. Either there’s no brief, an unclear brief or an absence of any meaningful detail. Invariably, the project’s success will hang or fall on the quality of the brief. So spend time to get it right.

Serious Design or Construction Errors

Poorly designed, inaccurate, or incomplete plans account for project delays, and increased costs and almost always result in substandard work. Avoid vagueness always.

Unforeseen Conditions

Delays often occur due to unforeseen works, or as we call them, ‘an event under the contract’.  Such delays will again cost money. To resolve this quickly, you need to have the right experience. To avoid adding unnecessarily to your budget, you need appropriate contractual mechanisms.

Undoubtedly, experience will dictate where there is potential for an unforeseen issue. However, forewarned is forearmed; dealing with unexpected works at the outset within the contractual documentation will offer the best protection.

Contract & Design Variations

Client variations are inevitable. Especially in residential jobs, although it happens too on most commercial projects.  
Issuing an unclear variation or instruction will delay things further and is likely to increase the budget. Once again, clarity comes with experience. However, if in doubt, question everything and do it early.

Naturally, finishes will play a big part, as ultimately, this is what the client sees, not the amount of concrete in the foundation preventing the building from toppling over.

In a Nutshell

Ultimately, the type of contract you choose is vital. It may seem a little self-serving, but a good Project Manager is as essential. In our experience, money invested in one at the start will pay you back several times over by the end.

Good luck with your project!

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