Why the Cost Blowouts on Single Luxury Residential Developments?
Why does there increasingly appear to be no rigorous cost control during the design process for single luxury residential developments/refurbishments when compared with the cost control measures put in place for larger projects such as multi-residential, commercial and government projects, or even when compared to the lower ‘spec-home’ market?
More and more, owners of single luxury residential developments, or those refurbishing existing properties, are becoming frustrated that the initial cost parameters set or the initial cost indications provided to them does not match the final tender received.
Most notably, cost control measures for developments/refurbishments of single residential dwellings of $500,000 and above seem to have fallen through the gap.
Residential dwellings below this figure generally tend to be by ‘spec-home’ developers who have their construction costs fine-tuned to the last dollar on a small number of standard floor plans they offer. These ‘spec-home’ developers have tight cost controls on all their suppliers and subcontractors, and can therefore offer their clients certainty when providing initial quotes for a particular floor plan.
For the larger projects mentioned above, qualified quantity surveyors are commissioned as part of the design team with the cost management process put in place being as set out in the Australian Cost Management Manual, Volume 1 – Construction Cost Planning, published by the Australian Institute of Quantity Surveyors. Essentially, this manual sets out milestones when cost checks should take place:
- Cost Plan A – Concept/Feasibility Design Stage
- Cost Plan B – Schematic Design Stage
- Cost Plan C – Design Developments Stage
- Cost Plan D – Pre-Tender (contract documentation stage)
By having cost reviews at those milestone design stages and ongoing cost monitoring, the client is provided with cost certainty to move forward after each review, thereby minimizing the risk of any nasty surprises at tender time.
So why generally, is the same cost control rigour applied at the lower end of the residential market and on the larger projects not applied to single luxury residential projects?
To understand this, we need to look at how projects within the single luxury residential project market evolve.
The first and most fundamental point is that each and every one of these projects are extremely personal and emotive to the client. Generally the client has owned property before, is a professional and is now seeking either the perfect home or a ‘forever home’ that will see them through to retirement. Beyond that:
- The client is likely to be a ‘lay’ person in terms of construction, however, the client tends to be very ‘hands-on’ during the design process.
- The client is likely to work very closely with the architect and have a large influence on the design, type of finishes etc, without having a full comprehension of the cost implications of decisions being made.
- Generally, only an architect is engaged in the early stages with other professionals only being engaged on an ‘as needs’ basis.
- Initial cost advice is generally very broad, on dollars/metre square basis, with this advice not being provided by a qualified quantity surveyor.
- The professional quantity surveyor is only brought in to provide a final cost check prior to going out to tender.
The above tends not to be a structured process, but ad-hoc, as often there is no specific programme to which the client or architect are working.
Without a structured process being put in place providing the ‘checks and balances’ to the design as it is developed, the following risks become real:
- The client’s expectations do not match the budget
- Does the initial square metre rate quoted match the real costs for the design (typical rates per square metre for luxury dwellings can range from anywhere between $2,500 and $7,500 plus depending on finishes and services required by the client)
- Scope creep during design is not controlled or monitored
- Client priorities often change through the design process, with associated cost implications not being captured
- As other consultants are brought in later in the design process, consideration to accommodate structural, services and environmental requirements often lead to either abortive work on the original design or additional construction costs
- First real costings are not realised until the tenders are received, by which time it is to late.
As can be seen from the above, the potential cost of a 200 square metre dwelling can range from $500,000 to upwards of $1,500,000 dependent on the design, structure, services and finishes. This is a huge variance which client’s can ill afford.
As mentioned, control over projects of this type seem to have fallen through the gap in terms of process and delivery.
Due to the emotive nature of these projects, until proper process is put in place. That process should include:
- Initial scope/brief identified and agreed as the basis for the project
- Engagement of all consultants at the start of the design
- Realistic initial costings put together to match the clients brief
- Cost control during the design process to highlight possible cost overruns
- Architects/engineers acknowledge the real cost when advised
- Scoop creep monitored and reported on
Unless these issues are addressed with each project, we will continue to see cost blowouts on single luxury residential developments/refurbishments in the industry.
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