Home construction - Easy way to control cost - BoQ

Introduction to the problem - Uncontrollable increase in home construction costs

Whenever a person thinks of building a home, he/she is always concerned about cost increasing beyond the budget. This is indeed so commonly faced by majority home owners that it is a practice to expect at least 50% extra of the initial budget.

Questions..

1. Why is there a cost increase?
2. Why is it so common to anticipate a cost increase?
3. What would be the best method for ensuring that the actual costs stay within budget?

Why is there a cost increase?

There are only 2 reasons for cost increase from an initially set budget. Changes to scope or changes to rates.

Let me try making it simple with an example. Let us suppose that you are planning to build a 2 bedroom house which only has a ground floor. Suppose you later on decide to add a roof truss work due to any reason whatsoever, it adds to the scope. Needless to say, you will have to pay additional because of your decision to add to the scope.

When I say adding to the scope, it could be anything, need not necessarily be such a huge change. Let us suppose that instead of a steel door, you decided to replace with a teak door. This is also a change in scope. Even something as simple as deciding to increase the thickness of plastering, or adding a water proofing layer or even increasing the painting thickness, all comes under the gambit of change to the scope.

In my experience, change to the scope is the major reason why cost increases in almost 90% of the cases whether we realize it or not.

Let me try using another example to explain cost increase due to increase in rates. Let us suppose that you decide to construct a home and when you planned the budget, the rate for cement was Rs 350 per bag. During the slab casting, due to whatever condition in the market, the rate of cement suddenly shot up to Rs 400 per bag. This is something which you cannot control or you have limited control over. Hope you agree....

In simple words

Change of scope - CONTROLLABLE ; Change of rates - LIMITED CONTROL

Why is it so common to anticipate a cost increase?

More than the reason of rates changing during the course of construction, which rarely happens, the real reason for increase in costs is because the home owner or the architect/engineer involved in the construction did not anticipate a change in scope. From my experience, the necessary thought processes that were supposed to happen before the setting of budget, did not happen then. This is the single most common reason for cost increase. In fact, it has become such a common practice to start the construction of a house before putting in enough "thought energy" into the details of the house.

One very common way a contractor is finalised for execution of works is by seeking the unit rate on square foot basis. It is a very common practice to issue works to a contractor on say, Rs 2000 per sqft. I sometimes wonder how in the world a contractor is able to quote without going through necessary details such as the plan, construction challenges, ground challenges, site location challenges, construction schedule, the procurement challenges of items involved etc. It is without proper study, an engineer or contractor says a per sqft rate.

I would argue that it is the misguidance or lack of awareness that leads a home owner to enter into an agreement with a contractor based on sqft basis, which eventually leads to a situation where the home owner has no idea of completion costs. Being a contractor, I would say that there is no way a contractor will complete a home in a case where he loses money. One way or the other, directly or indirectly, the contractor would be collecting the money from the client. May be the client realises then or later, but at the end of the project, the burden of cost increase is passed to the client, the home owner.

What would be the best method for ensuring that the actual costs stay within budget?

The best method, which is employed by most professional architects and engineers, involves something called BoQ (Bill of quantities).

Let me explain.

Bill of quantities is a table in which the engineer/architect breaks down the entire scope of works into multiple items, with clear description of each item, following which there is a quantity estimate for each of these items. The contractor is expected to quote for each item.

An example of a BoQ is shown in below image:

In the above example, the item excavation is very clearly drawn out. The quantity is estimated by the architect where he anticipates 55.68 cum of excavation. He asked us to quote for the same and we said we could execute the work at Rs 315 per cum totaling to Rs 17,539 for excavation. We read through the description and the rate of Rs 55.68 includes fulfilling all conditions mentioned in the description.

The key word here is clarity

By clearly writing down what is expected of the contractor, this architect has been able to bring clarity. We quoted for fulfilling the condition. Now by asking more contractors like us to quote, the home owner can compare each quote and arrive who is cheaper. The comparison is apple to apple.

Similarly, by breaking down the entire projects into several activities or items such as excavation, the architect will be able to bring a lot of clarity to the construction team and also the home owner.

Advantages of making a bill of quantities (BoQ)

1. Clarity on scope - All team members now clearly know what all are involved. There is sufficient clarity involved in all items of execution.
2. Ease of comparison - A home owner can now compare quotations from multiple contractors and arrive at the real conclusion on who is cheaper. Rather than talking in air and relying on assumptions, there is clarity for all parties involved. The comparison is really apple to apple.
3. Control of cost escalation - If for some reason, the quantity executed exceeds the anticipated quantity, there is a clear basis on which the contractor can be paid, which is the per unit cost that he quoted. I think it is better than I write about it in a little more detail as below:
4. Necessary "thought energy" before setting the budget - A BoQ forces an architect or engineer to sit down the finalised plan, site conditions etc to make the BoQ. Indirectly, this ensures that they spend sufficient time thinking and analysing the project which is so needed. It is easier for an architect to start a project on sqft basis but responsible and ethically right for him to start only after making the BoQ and inviting multiple quotes.

How does BoQ help in controlling costs?

BoQ is the single most efficient yet very simple tool to control the cost escalation in a project. Let me explain how

1. It says clearly what is to be done - This is the most important point. The contractor and the engineer in charge/ site supervisor or even the home owner clearly knows what is to be done. In the above example of BoQ, the contractor knows excavation is to be done and how. Similarly, all items are listed out. What is to be done is not up in the air, instead it is clearly brought down to the ground by using the correct words and numbers. No confusions to any of the parties involved.
2. It says how much is to be done - Each and every item listed has a quantity attached to it. Which means the contractor knows what is the "planned" quantity. The architect or engineer has arrived at the budget with that quantity in mind. In a case where this mentioned quantity is exceeding, it clearly means that the budget too is exceeding. In larger projects, there are contractual stipulations which clearly direct the contractor to proceed with the execution of an item after written approval of the client in case the quantity is anticipated to go higher. Thus, the budget variations are clearly monitored and in control.
3. It becomes a reference line and a budget - The sum of amounts of all items is what becomes the budget of the building. This becomes a reference line against which all items are executed. In certain cases where there is no absolute clarity, base prices of items are mentioned. Example - a BoQ is finalised for awarding works to a civil contractor. But the architect has not finalised which flooring tile is to be laid. The best practice is to put a base price. Say, the architect puts a base price of Rs 100 per sqft for flooring. The contractor is expected to quote assuming the tile price to be Rs 100 per sqft. In a case where the tile selected is Rs 80 per sqft. In such a case, the contractor is expected to adjust the difference. I plan to write more about base price and best contractual practices may be in an exclusive article later. For this topic, I would say that a BoQ becomes a reference line and a budget with clarity on every item of the construction of a building.
4. Changes can be brought against the reference line - It is a house that is being built and no matter how much discussions and thought energy is put ahead of execution, there would be changes as there is work progress. But what is important is that these changes are measured before execution. BoQ becomes a document against which these changes are measured. The above case of change in flooring tile is a perfect example. You may notice that it is not that changes are not encouraged, it is that having a document helps us measure the change and home owner gets benefited with clarity and in the above case a cost saving.

Conclusion

I have attempted explaining the reason for cost increase. I am sure that if a BoQ is properly drawn out, the chances for cost increase substantially comes down and if at all the cost increases, it is measured and with complete awareness of all parties involved.