Mitigation of Construction Cost Inflation – A Possible Solution                                                                                                                                                                                                                              

Recently, we’ve discussed the growing cost of construction and delays in deliveries of key components, as well as the potential impact(s) of these changes to the industry.

But, the question remains, how can we address these issues when developing projects today?

A possible solution to mitigating the risk construction cost inflation

The key is in the detail!

For example, ask a contractor to quote for the installation of a new bathroom suite and they’ll give you a particularly high estimation.

Ask the same contractor to quote for -

• Half tiling the bathroom walls

• New flooring

• New sink + toilet

• P shaped shower bath

• 1 heated towel rack

• Integrated vanity units

And they’ll provide you with an accurate quote, based on materials, labour and time required to install these specific elements of your new bathroom.

Although a domestic example, the same principle can be applied to the commercial construction industry; at its core and simply put: a contractor can price more accurately once they are provided with more detail.

The problem arises when the information is not clearly defined or lacking in detail, meaning the contractor will have to provide an assumed cost (estimate) that will include risk, i.e. ‘best guesses’.

From the development perspective this is providing an inflated cost.

The advantages of a detailed design phase

Using one of our projects as an example, entering into a detailed design phase prior to the main construction contract provided us with a number of advantages in what would be a fluctuating price market due to the following considerations:

1. We have managed to work with our contracting partners in finding the right solutions for both parties and the best solutions for the project.

2. By developing the specifications and the designs we are able to establish better pricing and avoid some of the unknowns or ‘best guesses’.

3. We are able to understand the key risks and implement the mitigation measures to refine the contingent sums.

4. We are able to work on the programme and the risks associated with long lead times.

5. Once the design and pricing phase is complete both parties are in a clear position to agree the main contractual terms.

In short, attention to detail and investment of time & money in providing detailed design prior to the main construction contract, allows for more accurate prices; reducing risks and inflated ‘assumed’ costs.