Hammering out a Low Build Price

Picture this. You have the plot: it’s left a huge hole in your budget but you can still see a way to fund the build of your home. You discuss the budget with your lender, they see no problem and your architect comes up with a great design. The plans are drawn up to fit your budget. Then the job goes out to tender. You thought you were being cautious by allowing £600/m2 for the build, but when the quotes start coming back, there is nothing below £750/m2 and the builder you really wanted is quoting £900/m2. What has gone wrong?

If this story ties in with your own experience or reminds you of tales you have heard from others, do not be surprised. It is an increasingly common story. The last three or four years have seen a boom for the property market and this means that it is a boom time for builders as well — all of which translates into higher prices. The British building trade is struggling to cope with the demand being placed upon it and this seems unlikely to ease in the short term.

So, what to do? Let us look at the problem from two angles. Firstly, how to avoid getting into this situation in the first place and secondly, how to resolve it once it has happened.

Watch initial budgeting: Overspending can often be traced back to over-ambitious budgeting. There are various reasons for this but a common one is that people get fixated on a unit area cost and assume that all jobs can be done within that figure. A unit area cost is one such as £500/m2 and it is worked out by dividing the build costs by the floor area. It is not an exact science at the best of times: there are no universally agreed definitions of either building costs or floor areas and so the unit area cost on any given job can vary significantly depending on how the calculation is carried out.

Furthermore, the cost of developing similar houses on various plots can be dramatically different depending on the plot. Factors such as difficult ground conditions, long service runs and expensive access arrangements can all conspire to add 20% or more to the standard build costs and the inexperienced eye may miss this when assessing overall construction costs. Ideally, every plot needs to be carefully evaluated before you even start to work out details such as house sizes based on unit area costings.

Hire the right designer: The great Arts & Craft architect Sir Edwin Lutyens was once asked by a young architecture student how he started each commission he took on. “Simple,” came the reply. “First I find out how much my client can afford to spend, then I arrange to spend it.”

If only every architect took this dictum to heart. Unfortunately, there are many instances of architects and designers who appear to be quite unable to draw up a set of plans that can be built for anything like the budget initially presented to them. Whilst the majority of self-builders are more than satisfied with the services provided by their designer, the expert panels and internet discussion forums bear testament to the fact that a significant minority are not. The main complaint is that plans drawn up are not buildable for the initial budget, a fact that often does not come to light until the quotations start coming in from the builders.

It would be comforting to say that the reason for this is that self-builders have hired unqualified draftsmen who do not know what they are doing, but this is not always true. There are plenty of examples of people having fallen out badly with chartered RIBA architects. In fact there is a popular belief that the more highly regarded the architect, the less likely they will be to design something you can afford to build. In contrast, the less prestigious plan drawing services on offer may not offer much in terms of finely crafted architecture but they are often cheap to build.

Buildability is at the heart of the matter. A simple rectangular box-like structure may not look very exciting but it will be simple to construct and builders will feel comfortable quoting for the work. The further away you get from a basic design, the greater the complexity and the building costs start to shoot upwards, regardless of unit area costings. Features such as dormer windows, glazed screens, decorative brickwork, basements and galleries all add weighty expenses to a building job. The key principle here is that if it is expensive to design, it will probably be expensive to build.

A good house designer is capable of improving our amateurish efforts and adding significantly to the overall value of the finished house — but a really good one will also know how to design within a budget and how to make a plain box into a good looking box. It is a mistake to select an architect solely on the basis of qualifications — many qualified architects will never consider designing an individual home. You really need someone who is experienced in the type of work you require, with local contacts and a good working knowledge of local building rates. Ideally you will end up with someone who is on your wavelength as well as having their finger on the pulse of the local building trade.

Be sure about costs: If you still have misgivings about the cost of the design you are working to, it may help to draw in another professional. The obvious candidate to do this is a Quantity Surveyor (QS), someone who makes a living from measuring and pricing building work. Some architects will naturally steer you towards a QS, if only to protect themselves from losing sight of the overall budget.

For a few hundred pounds, a QS should be able to provide a breakdown of the works you are proposing and should have a firm grasp on how much you should expect to pay. Another option is to bring onboard a builder at a pre-tender stage. This runs counter to the traditional procurement methods for building work – many architects would not approve of this at all – but it is becoming surprisingly common in large commercial projects. The buzzword here is partnering. What this means is that instead of forming a team with your designer and then attempting to screw builders down to the lowest possible price for the work, you add the builder onto the team whilst the design is still taking shape. The builder should have a good grasp on costs and may well have useful input on designs, materials and techniques. The advantage is that you can work to the builder’s strengths and hopefully eliminate any potential conflict areas which may lie ahead.

The disadvantage is that the customer is put in a vulnerable position and as a result the builder may seek to inflate his rates. To work well, partnering needs a fair amount of trust on all sides and this is not always very easy to achieve. On the other hand, a partnering approach should prevent the nasty shock which happens when quotations come back at figures way over your budget.

Love me tender: The traditional way of hiring builders is not without its problems. In theory, it should run smoothly and ensure you a well built job for a competitive price. Your agent, be it an architect or some other professional, is paid directly by you, either on a fixed fee, hourly rate or a percentage basis. They draw up a set of plans and a detailed specification of works. When this has passed through the various regulatory hurdles, the job is then tendered to a selection of contractors, often selected by your agent. The builders are then all starting from the same basis and will be quoting for the same job. Each submits a quotation and the final choice is then made by you and your agent — usually, but not always, the cheapest quote wins.

Expressed that way it seems very simple but few jobs ever match this blueprint for how a building contract should be administered. For a start, many self-builders are reluctant to spend money on a full design service and end up sending out planning sketches for quotation. Materials and finishes are frequently left undecided at the outset and end up being covered by such devices as PC sums which cover unestimated parts of the job with a broad guess. This can lead to all sorts of problems at the end of the job when the final bill comes to be resolved, but it is not in itself an explanation for why the tendering process is so unreliable.

For that, we need to look at the way that builders handle tender documents. What builders want is a good, continuous flow of profitable work. In reality, quotes tend to arrive in a random pattern which makes it difficult for builders to timetable. What happens is that builders will want to do some jobs much more than others — your job may be too far away, they may be too busy or simply not like the look of what you are trying to achieve. Established builders develop a good nose for jobs they will do well and ones they would do best to avoid.

The principle of providing free quotations for building work is well established and, whilst this is a great plus for clients and their architects, it is a huge chore for the builders. On average, a builder will quote for seven jobs for each contract they actually win. If they undertake the work themselves, it takes up an inordinate amount of time; it can take two days to measure and price up a complex job plus extra time spent waiting for subcontractors like plumbers and electricians to add their prices. If they contract out the quotation to a QS service, it becomes an expensive overhead that will ultimately be borne by the clients whose jobs they win.

Inevitably, local builders will get together informally and swap information about upcoming jobs and if they have been asked to tender for the same job, it is often in their best interests to work out which one will tender realistically and which one will put a price in for show purposes only. This practice is called covering and, though illegal, is surprisingly common, especially in boom times when there is more work around than builders can cope with.

Back to the drawing board?: So what to do if you are faced with quotations you cannot afford? If there is no way for you to beg, steal or borrow this extra money, you have only two options. Either you re-design the job so that it can be built within your budget or dispense with the main contractor altogether and continue on a DIY basis. Both have pros and cons. Each situation is different and there are no hard and fast rules about how to proceed. A complete redraw will, in itself, be an expensive and fraught exercise. It may well be that by the time the quotes have been opened, relations between you and your architect will have been strained to breaking point and you might not want anything more to do with them. But bear in mind that hiring someone new to undertake this work will very probably be more expensive than reaching some sort of compromise with your existing agent. It also means you are in for time consuming delays.

Another option may be to approach one of the builders whose quotes you have rejected, explain the problem to them and ask if they can see ways of bringing the job in on budget. If this feels uncomfortable, consider hiring a QS to help you reconfigure the job. You may be able to take the knife to a few items without having to redraw the job. For example, items such as inglenook fireplaces, cast iron kitchen stoves and even detached garages can be cut from a budget without impacting very much on the build. Or it may be that a few material changes may greatly reduce costs; roof covers are prime examples of where savings can be made by switching to a cheaper material, though this may require renegotiation with the planners.

DIY Project Management: Perhaps the most drastic option of all is to dispense with the services of a builder altogether and take on the management of the build yourselves. It is not that this is a particularly unusual way to build – statistics show that as many as 50% of UK self-builders act as their own contractors – but it smacks of desperation when you get forced into it because you can’t afford the quotes you have had. The benefit is that you should be able to carry out the work for much less money because you are dispensing with the builder’s profit margin. The minus points are that you will have very little idea just how much money you will be saving at the outset and that you will be tying up hundreds or thousands of hours of your time running the job. If you have such time to devote to a self-build, it is likely that you would have been planning on DIY project management from the outset.

It is not easy to quantify the savings made by dispensing with a main contractor. Builder’s margins vary from as little as 10% in lean times to over 50% in good times but one of the reasons for such an inflated figure is that builders need to cover themselves for increasing labour costs. The past three years has witnessed countless cases of subcontractors downing tools and moving onto other sites just because they have been offered better pay — the building trade can be quite ruthless in this respect and self-builders have suffered from this practice as much as anyone. Just as you may have been unable to tie down main contractors to the price you had hoped, so it may be very difficult to get subcontractors at rates you have budgeted for. By and large, material prices have remained relatively stable throughout the past ten years but labour rates are volatile and extremely variable across the country, subject as ever to the laws of supply and demand.

There is a halfway house. Ask the builder to quote for just supplying a watertight shell and then taking on the completion of the build under your own steam with your own subcontractors. Some builders actually like to work this way and it may well suit their overburdened workload to be able to get in and out quickly, just doing what they are good at.