Blog 018 - The Key to Cost Control is in the Scope

News today that Bellway will be asking their Commercial Managers to focus on controlling build costs…. What have they been doing until now? Last month Bellway were the first major developer to request a price reduction from Subcontractors, so, with Specialists already up to 5% down how will they cope if cost of their package is then “controlled”.

Control of build costs for developers will have two key limbs…

1) buy at the lowest possible price

2) keep variation accounts low.

Squeezing Specialists to the lowest possible price and then operating an ironclad “my way or the highway” variation account, in my opinion, will not yield the results the developers are looking for. For me, true control of build costs comes in the scoping of Specialist packages when letting the contract. For years I have seen old scopes of works recycled from project to project with generalised requirements. This isn’t to say they’re all like that, but in my experience, the more detailed scoping document the smaller the variation account.

Producing a detailed scope may attract higher initial tenders, but I can assure you, the benefit of known costs versus the unknown cost planning “contingency” for what might be the variation account is far greater. When a scope is detailed and has genuine site specific consideration of the products, the specification and the site conditions, it produces a contract document that leaves little room for variations for “un-scoped” items which could (should) have been foreseen at the tendering stage. The only variations then, should be new additions to the drawings or changes directed from Sales.

Specialists can tell good information at tender stage, it is often a sign of a good project and a good Commercial Manager, I wouldn’t be surprised if Specialists accepted lower margins on these projects due to a perception of lower risk!

So please Commercial Managers, instead of piling your efforts into cutting away at Specialist Contractors variation accounts, focus on getting to know your projects; the logistics, the products, the sequence and the intricate details, which, if highlighted in the scoping document, will vastly reduce your variation accounts. I suggest that if there are details you are unsure about, request provisional sums at the outset to help control costs later or if there is a possibility that something may be required later, agree a “rate only” with the Specialist. These are all genuine and sincere ways to manage the cost of potential additional works. If there is a rate in the contract, the Specialist will honour it, if there isn’t, there is always the risk of dispute over pricing it later or undertaking on a time and materials basis. Get buy in from the early stages from the Specialists, it is common for Trades to submit their own inclusions / exclusions with tenders, work with them to use this to iron out the scoping document.

This will require a dramatic overhaul for some QS’s and Commercial Managers out there, but taking some pride in the profession and producing fair and robust documents that allow everyone to know where they stand should be the standard practice. I know from having reviewed many scopes that there is acres of room for improvements. With a little extra effort up front, from both parties, build costs could be reduced through greater efficiencies. Everyone wins.

If you would like to discuss preparation of tender documents or variation accounts further, drop me an email.