A common nightmare in construction or renovation works is: a budget overrun. It will directly impact the cash flow and an overbudget might lead to a reduction of specification or scope of work.
In Malaysia’s construction landscape (construction projects below RM1 million), the quotation is generally unregulated and little contractual terms are being written, let alone the description of work is in high ambiguity; ultimately leading to potential cost overrun.
Thankfully, this situation can be mitigated and reduced significantly by carrying out a few detailed checks, in addition to thorough research.
Nevertheless, here are the 5 ways to avoid additional construction costs.
1. Bill of Quantities (BQ) vs Construction Drawings, which comes first?
Note: A Bill of Quantities is defined as a set of documents with project-specific measured quantities of works through the identification from construction drawings and specifications.More often than not, design drawings are usually issued as construction drawings and there is a high tendency of missing out fine details that can potentially open up for the contractor to have an excuse to claim for additional cost.
Think of the designer missing out drawing details of brick mesh reinforcement at every fourth course; ultimately lead to a loss of brickwall integrity and causes crack lines.
To overcome the possibility, a precedence of Bill of Quantities or Construction drawings must be pre-determined in the contract/quotation terms and the said document should have as many details as possible.
Setting precedence of Bill of Quantities over Drawings is usually a good practice as Bill of Quantities tends to have a better description to cover the entire work with less ambiguity.
2. Lump-Sum or Unit Rate quotation
The good debate over quotation on Lump-Sum or Unit Rate basis always ends up with different Pros and Cons.
In general, works that involve large contract sum (i.e – works above RM 1 million) is advisable to proceed with Unit Rate basis as this will mitigate the chance of contractor being under calculated on the area and make further claim later on unreasonable rates.
For Unit Rate basis quotation, it is wise to run a quick calculation on simple ratios to ensure the quotation makes logical sense. (Simple ratio such as ceiling to floor area ratio, painting vs tiling area, etc.)
Pro tip: Ceiling area should be a close figure to floor area as it is a reflection of each other. Any deviation will raise a RED flag in inaccuracy!
3. Consider the specification needed (Mechanical and Electrical)
One of the situations that we would not want to find ourselves in is an over-design in specification; especially in areas that are costly but yet hard to assess in costing.
Have you ever walked into a café that has 5 ceiling air conditioners but only 3 of them are in use? Ouch, now the over-design in specification will have the client forking out the extra cash.
Depending on the intent usage (may it be residential or commercial purpose), Mechanical and Electrical cost can take up to 50% of your cost and it is generally difficult for clients to assess on the “value of money spent” without a professional consultation.
A common item that usually tends to fall between the cracks in this situation are air conditioners and their associated costs are usually very high (vent ducts, electrical cables, etc).
Some of the factors that needed to be considered when designing air conditioner requirements are:
- The size of the area to be cooled (in cubic feet)
- The finishing materials on the wall
- Heat load calculation
- The orientation of the space (rooms with an orientation to the West tends to generate higher heat load)
4. Be firm on design, because less is more.
The great poet Robert Browning once said, “less is more”. This is indeed applicable to your construction works too! In this context, we are referring to the design changes after construction has commenced due to client’s requirement. To effectively manage a budget, two factors that we will need to consider:
a) Design changes – A variation order (V.O) is defined as a change of work in terms of additional, substitution or omission of works. Variation orders usually occur due to either site condition, client’s requirement or under provision/design. To put variation orders in budget context, it should be kept at a minimal level because variation orders will tend to incur abortive costs (work has been done, and needs to be demolished for new design) and it will lead to new item, rates, and works.
b) New rate item – New items generated from variation orders is where the contractor usually charges a higher premium as he has already been awarded of the contract. To effectively tackle this issue, a general list of materials and basic rates should be bound as an appendix in the quotation/ contract to minimize pricing fluctuation. For an entirely new rate that could not be found in the contract, a Quantity Surveyor is the best person to justify the rate with the contractor with the market rate.
5. Ensure contract terms are in place
A construction/ renovation agreement is of utmost importance as it will always be the source to refer when disputes arise. It will table out contractual rights of both parties to make sure interest are well protected. Some of the items that you need to keep an eye on in construction contracts are:
a) Contractual rights – In a proper construction contract, contractual rights of each party are to be spelled out in details and consequences of breaching are to be explained in details. Some of the key interest that a client shall be protected is penalty for delay (also known as Liquidated Damages) as any delay of work will impact the revenue and rental in a commercial setting.
b) Bill of Quantities – Forms part of the contract, Bill of Quantities hold a certain weight to the contract as it describes the work needed to be carried out in details such as quantities, unit rate and the final amount. With a proper Bill of Quantities being drafted, you can always be sure that the works have been being spelled out in details to avoid any cost overrun.
Of all of the points above, managing construction cost should be approached with high level of logic and documentation such as quotation and contract documents must be carefully tailored to suit your specific project.
To have a cost-effective construction cost, you must dive deep into the construction details as it will weed out ambiguity and indirectly reduces risk from contractors (lower risk leads to cost reduction as contractors do not have to worry to cover for “unforeseen” items).
Ben Au is a seasoned Quantity Surveyor (registered PV-QS in Board of Quantity Surveyors Malaysia) and with a combined educational background in BSc (Hons) in Quantity Surveying and Executive MBA, Lancaster UK. His team is made up of M&E expert, Interior Design specialist, Quantity Surveyors and they are passionate in advocating for better regulation in construction industry from the contract and value perspective.
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