There are four cost centres in construction which are similar sounding – they all begin with ‘Pr’ – but they differ in content and hence are rather confusing for laypeople. What they have in common, however, is that they are concerned with the supporting aspects of a building project that don’t involve the actual materials and the fixing of them.
Add them all together and they can account for up to a third of your overall expenditure, so all in all, it’s worth knowing about them.
This covers costs concerned with both design and getting the relevant permissions in place to undertake a building project. The major fee here is usually paid to the architect but there may also be fees paid for:
- structural engineers
- quantity surveyors
- party wall advisors
- statutory fees for planning permissions and Building Regulations approval
- insurance and warranties.
There may be fees for such items as energy assessments, airtightness testing and health and safety compliance. Even worse, professional costs are not usually mortgageable.
Typical professional fees: £10,000 upwards.
The most important component here is almost always the architect’s costs. There is a huge gulf between what you would pay a competent but unambitious designer for a set of house plans (circa £2,000) and an architecture practice looking to produce something unusual and cutting edge (£50,000). Other professional costs tend to be more predictable: typically all in at around £3,000-£5,000. When discussing building costs on a m2 basis, the costs of professionals are usually excluded.
Short for preliminaries, this is a blue-collar version of professionals and covers such items as:
- setting up a site office and a site loo
- providing scaffolding and site fencing
- security and safety equipment
Another way of looking at prelim costs is to see them as temporary structures required to run the site, which will be removed on or before completion. Sometimes prelims include money set aside for a site manager’s time, but this is more usually included as a project management fee (see below).
Typical prelim cost: £5,000-£12,000 for a new house
Scaffolding in particular can balloon in price if complex features, such as temporary roofing over, are involved — scaffolding costs in this situation can be as much as £20,000. Things like security fencing hire can soon add up too, and it usually makes sense to buy it if you expect to use it for longer than six to eight weeks.
3. Project Management
In order to get a building site to run smoothly, someone has to manage the processes. They have to ensure that the right people are hired in the right order and that the correct materials are on site as and when needed, as well as checking that the work is carried out properly and that the site is left clean and safe everyday. Project managers have to keep things on the critical path.
Typical project management cost: £15,000 for the average self build
This sort of thing doesn’t happen by magic: a neat ratio to bear in mind is that for every seven hours spent ‘on the tools’, one hour needs to be set aside for managing the whole process in order to do it efficiently. A typical British self build, using on site construction methods, requires around 3,500 hours of site work (costing around £75,000 at £20/hour) and this work will require an additional 500 project management hours (costing around £15,000 at £30/hr) or between 10% and 12% of the overall project cost.
Often, this work is carried out by self builders themselves and therefore gets lost in the overall cost analysis. It’s rarely costed separately unless you specifically hire a project manager to run the site on your behalf, where additional fees would be charged for travel and office overheads.
A builder or main contractor quoting for a project such as a new house will allow for all the costs of building the house, the prelims and the project management fees (but not usually the professionals, which are charged separately). These are the costs which they need to recover in order not to make a loss. But over and above this they will add a profit margin in order to make the job worth doing.
You only normally come across the term ‘profit’ when you work with a quantity surveyor who adds a percentage over and above what the job costs so that you can gauge what a builder’s quote might be. Trying to figure out likely profit margins is something of a black art and it is notoriously difficult to predict a builder’s quote in advance. Looked at from a builder’s point of view, there are essentially two things to consider here.
Firstly, there is risk involved in taking on any job for a fixed price. There may well be a punitive contract in place which will cost the builder a great deal of money if things don’t go as smoothly as hoped for. So the builder has to assess the risk and make an informed guess as to how likely your job is to go well. The greater the risk, the more you will be charged a risk premium — i.e. a higher profit margin.
The second point to consider is just how much the builder wants your work. The busier they are, the more they are likely to add to their margin as it can be an almighty hassle to organise a large job and their costs tend to expand by more than they would like. Many builders work with the same team of people over many years and know their strengths and weaknesses and how best to manage them. Taking on extra staff to cope with a greater workload can lead to unforeseen problems and costs overruns. Once again, to counter this problem, the builder is likely to add a significant margin.
So how much profit will a builder add?
It’s often hard to say because the quotes aren’t broken down. But as a rule, the builder is likely to add 15% to the raw build costs (including prelims) in order to cover the project management element, plus whatever the market will bear over and above this. It could be as low as 5% or as high as 50%. So expect a fixed-price quotation to be anything from 25% to 75% more than the raw build costs. That’s a lot of money and one principal reason why so many self builders choose to become their own project managers.
If you want to have the comfort of a fixed-price contract and, with it, professional management, and you don’t want to pay through the nose for this service then:
- Build when times are hard for builders and they don’t have much work;
- Design something simple and easy for them to build — something that is within their comfort zone;
- Be as nice as pie when you come to interview the builders and let them know that you are not forever teetering on the edge of bankruptcy. Some evidence of ability to pay is always welcome — many perfectly good builders go bust because their clients run out of money.
How Contracts Affect the Four PRs
The first two PRs, professionals and prelims, are costs that will have to be faced by all self builders, however they are building. The only way of directly avoiding design costs is to design it yourself, which in most cases leaves the scheme lacking (at the very least in constructional detail).
Project management can potentially be carried out by the self builder. But this is only realistic if they can take a great deal of time off to carry out this role. The profit elements can also be avoided by not using a main contractor working on a fixed price, but in doing so, you take on the risk of the job costs overrunning.
In summary, a typical build cost for a simple four bed house measuring 160m2 to be built by a single builder using a fixed-term contract, might look like this:
|Raw build costs:||£150,000|
|Project management @ 15% of raw build costs:||£22,000|
|Builder’s profit @ 12% of raw build costs, prelims and project management:||£22,000|
|Total project cost:||£221,000|
|Build cost (per m2):||£1,381/m2|
Note that the raw build costs (the sum paid for materials and the labour required to fix them in place) come out at under £1,000/m2. Adding the four PRs into the equation adds 40% to the overall budget.
Note on VAT: The zero-rating of self build projects doesn’t extend to professionals or prelims, where you will be charged VAT at 20%. The only way of avoiding these VAT charges is to employ a single contractor to both design and build the whole project, so that you only pay one company throughout.