Build Costs: Project Fees

Professionals. Prelims. Project Management. Profit. Vince Holden explains how things other than material and labour costs, impact on how much your new home will cost to build — perhaps as much as 40% of the total

There are four cost elements in construction that start with ‘Pr’ – but they are sometimes 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 significant amount of your overall expenditure, so it’s worth knowing about them.

1. Professionals

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.

2. Prelims

Short for preliminaries, this covers such items as:

Setting up a site office and a site loo

Providing scaffolding and site fencing

Security and safety equipment

Waste disposal (skips)

Another way of looking at prelim costs is to see them as elements required to run the site. Whether built into a main contactor’s cost or even if using managed sub-contractors, prelims occur in one form or another and can run away with themselves on cost.

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.

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 and this work will require an additional 500 project management hours at an hourly rate or between 8% and 10% 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 stand alone fees would be charged. However, whether you project Manage yourself or employ a professional, the cost is still there somewhere.

4. Profit

A builder or main contractor quoting for a project such as a new house will allow for all the costs of building the house, including 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 work out likely profit margins is something of an 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, and the busier they are, the more they are likely to add to their margin. 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.

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: Employ a Project Manager at the earliest stage who will organise and monitor all other Professionals to ensure that Prelims and Proffits are kept to a minimum.