Case Study 04: The Budget
Budget and pricing are often one of the biggest concerns people have when starting a building project.
So how do you have your project priced?
There are a couple of different ways to price a project for construction. The most common methods used for a residential project are a competitive tender or a negotiated offer.
Generally, a competitive tender will include pricing from three or four Builders. They are each issued a full set of documentation and have a window of time to price the project. This does depend on the size and complexity of the project, but a tender period is usually around four weeks. To help ensure pricing is accurate, during the tender period your Architect or Designer will assist the builders. They will answer queries, issue additional information, and organise for the builders to visit the site.
At the end of the tender period, your Architect or Designer will present you with each of the tenders. They will discuss each option with you and give their assessment of the pricing. But it is your decision who you will engage.
If all the pricing comes in high, you can discuss the project further with your preferred builder. This is an opportunity to discuss buildability, scope reduction and other potential savings so that everyone is satisfied with the scope and budget before signing contracts.
At the core of the tender process is a spirit of fairness. All the tenderers should have access to the same information and be assessed equally. The other tenderers should be informed if you or your designer has worked with one of the builders before, or if one of the builders has prior knowledge of the project.
A tender should never be used as a ‘test price’ process or a way to check on the pricing of a preferred builder. The builders involved in a tender invest a substantial amount of time pricing your project. It is not fair to expect this to be done if you know ahead of time that you have no intention of going ahead with them. If you want to check construction costs at any stage of the project, you should engage a Quantity Surveyor to provide a detailed pricing.
A negotiated offer is the process of negotiating the price with a preferred builder rather than calling for tenders. It is a more open, collaborative relationship and saves the time spent completing the tender process. The builder can be brought onto the project earlier to offer opinion on buildability and pricing. A builder with a better understanding of the project can provide a more thorough pricing. Knowing about the project early also helps your Architect or Designer to manage the design timeline alongside the builder’s availability to start on site.
A Negotiated Offer is done in good faith that the project will go ahead with the preferred builder. Unlike a tender, it is not a competitive process. It requires a higher level of trust and an established positive relationship with the builder to ensure the project is priced fairly. Again, you should engage a Quantity Surveyor at any stage of the project if you would like a second opinion.
We successfully used the process of a Negotiated Offer to price our Meow House. We had been referred to our Meow House client by one of our other very happy clients from a previous project. During our early discussions, our client decided that they would also like to bring on the builder from this previous project. We knew that we worked well with this builder, his work was of a high standard. He had been fair and transparent in his pricing in the past, so we were happy to work through a negotiated offer process with him.
The Meow House house included fully gutting and renovating an existing 1960s brick house. The footprint of the house was large but very poorly planned, as a warren of small rooms. Our new design sat within the existing footprint, without an extension. This meant the careful treatment of the old building was critical to the success of the project.
Once the Sketch Design phase was completed, we had the outline of the design and scope of the project. We organised a walk-through with the builder to discuss the design and the extent of repairs required. The builder was able to review buildability and give an indicative price for repair work – giving us a baseline for our budget. Having this baseline cost showed us how much of the budget would need to be allocated to non-negotiable items. This wasn’t a matter of expensive finishes or design details. This was work that the building required to bring it up to a suitable standard.
We continued to check in with the builder as the design and detailing developed. We worked with them to price some stand-alone elements, like the joinery, ahead of the main pricing. This helped us to keep tabs on pricing and give our client a sense of where the construction price was going to end up.
There is a place for both types of pricing and we hope being aware of your options will allow you to choose the best way to proceed for your project.
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