Mistakes to Avoid When Estimating Construction Costs

By Coba Pekaj, MAIQS CQS - Director, Pekaj Group

After 23 years of estimating and reviewing estimates across the Melbourne market, the same mistakes come up again and again. Most of them are avoidable. Here are the ones that cost builders the most money.

Estimating construction costs is a vital part of the building process in Australia. It helps everyone involved to stay within budget and timeline for the project. However, making errors during the estimating process can result in cost overruns, delays and other issues that can have a negative impact on the success of a project. To ensure the accuracy of your estimates and steer clear of common mistakes, here are a list of things to keep in mind:

Underestimating the cost of materials and labour

One of the most frequent blunders during the estimating process is underestimating the cost of materials and labour. This can lead to costly overruns, affect the budget and schedule of a project. To avoid this, it's important to research and compare quotes from suppliers and sub-contractors to make sure they are within tolerance. We suggest getting at least three quotes for each trade and allowing for additional contingency for unexpected expenses.

Neglecting to account for all costs

When estimating construction costs, it's crucial to account for all costs, not just the big-ticket items. Unfortunately, many companies get caught out as they haven't properly accounted for all costs in the project. This can be a significant issue if you only rely on quotes to create an estimate for the project and don't perform due diligence and complete your own take-off to verify contractors' quotes.

Here are some common elements that are often missed on projects.

• as asset protection fees and dilapidation reports at preliminary stage
• water tapping
• asbestos costs when demolishing a property
• tree and rock removal
• concrete blinding
• step downs in concrete
• joist hangers, bolts and screws at frame stage
• brick ancillaries
• roof flashings
• raked ceilings
• stringing for insulation
• render to the inside face of parapet walls
• brick lintels
• plaster bulkheads and pelmets
• waterproofing to the ground floor wet areas and many more.

Ignoring the impact of location

As the old saying goes, location, location, location, the same principle can be applied when estimating construction costs. Unfortunately, many trades take advantage of the project if constructed in a more prominent location and the cost can vary greatly if you don't have reliable and long-tenured contractors working on your projects. Either way, you should always allow an additional contingency if you're unsure you can get your regular supply chain of trades and suppliers on the job.

The cost of construction in rural areas is generally thought to be cheaper, but in reality, the cost of construction is higher due lack of available resources and transportation costs if you are unable to find local suppliers for materials. When estimating construction costs, it's important to take these factors into consideration and adjust your estimates accordingly.

Ignoring the impact of regulations

Building regulations and codes can vary depending on the location of a project and from state to state. So, if you're a builder or contractor coming to work from another state, be sure to review local regulations. Failing to consider these regulations and codes can lead to unexpected expenses and delays, which can impact the budget and schedule of a project. Therefore, it's important to hire estimators or speak to estimators who are familiar with the regulations of that region.

Not involving a professional estimator

While it may be tempting to handle the estimating process yourself, involving a professional estimator can help ensure the accuracy of your estimates. Just like a builder or a contractor, an estimator will view projects from a different viewpoint and may pick up faults on design, drawings, engineering and specifications because they will spend considerable time completing the take-off and know where to look for mistakes. So having a second or third point of view when tendering and quoting jobs could be the difference between blowing your budget and actually making a profit.

Not updating cost estimates throughout the project

One of the most common oversights in the construction estimating process is not updating cost estimates throughout the project. As the project progresses, it's crucial to reassess the cost estimates to account for any changes in the scope of work, changes in the cost of materials, changes in the labour market and so on. This helps to prevent cost overruns and ensures that the project stays within budget.  If changes do occur, you have the option to submit a variation request to the client if the design alterations were made to fulfill their demand.

Ignoring the impact of inflation

It's important to consider the impact of inflation when estimating construction costs. Inflation can have a significant impact on the cost of materials, labour and other expenses over the course of a construction project. The last two years in Australia have been incredibly challenging due to the impact of COVID-19. The pandemic has resulted in widespread disruptions to the construction industry, with numerous site shut-downs, delays and material shortages causing significant headaches for contractors, builders, and suppliers.

The supply chain, which is the lifeblood of any construction project, has been severely impacted by these disruptions, leading to a wide range of problems and difficulties. From delayed schedules and increased costs to quality control issues and project overruns, the impact of COVID-19 has been felt across the entire construction industry.

These disruptions have created a number of obstacles including increased lead times for materials, increased costs for labour and equipment and difficulties in securing reliable subcontractors and suppliers. Balancing these difficulties with the need to remain competitive in pricing has been a monumental task for builders, contractors and estimators alike, with many turning to other contracting arrangements including cost-plus to secure a profit margin at the end of the project.

Not considering the impact of seasonality

The cost of construction can be affected by seasonality, as certain materials and services may be in higher demand during certain times of the year. For example, the cost of concrete may be higher during the summer months due to increased demand, while the cost of roofing materials may be higher in the winter months due to increased demand for roofing services. To ensure the accuracy of your cost estimates, it's important to consider these factors and adjust your estimates accordingly.

The construction estimating process is critical to the success of a construction project. By keeping these tips in mind, you can help to ensure the accuracy of your cost estimates and avoid common mistakes that can negatively impact the success of your project. Whether you're a builder, contractor, or project manager, it's important to have a strong understanding of the construction estimating process and to involve a professional estimator whenever possible.

The Mistakes We See Most Often in Melbourne

Missing demolition and site preparation costs. On inner-Melbourne sites where you are demolishing an existing structure, the demo and disposal costs can run $15,000 to $40,000 depending on the size and asbestos status. This gets missed or underestimated on almost every first-pass estimate we review.

Underestimating earthworks on reactive clay sites. Melbourne's western and northern suburbs sit on highly reactive clay (Class H and E sites). The difference in foundation costs between a Class A site and a Class H site can be $30,000 to $60,000 on a standard residential project. If your estimate assumes Class M without checking the soil report, you are carrying a risk you have not priced.

Using last year's rates. Subcontractor rates in Melbourne have moved up across most trades in the past 12 months. Labour is tighter, material costs are under upward pressure from fuel prices, and some trades (concreting, framing, roofing) have limited availability in peak periods. An estimate based on rates from 6 months ago can be 5 to 10% light by the time you go to build.

Not allowing for builder's margin and GST in feasibility numbers. We regularly see developers test feasibility using construction cost per m2 figures that exclude margin and GST. A townhouse that looks like it costs $2,200/m2 to build actually costs north of $3,000/m2 once you add builder's margin, design contingency and GST. That difference can turn a viable project into a loss.

Scope gaps between trades. The gap between what the plasterer thinks is included and what the painter thinks is included is where money disappears. A proper estimate defines the scope boundary for every trade so there are no assumptions about who is covering what.

Need help with your Melbourne project?

Call 1300 420 227 or email info@pekajgroup.com.au for a fixed-fee proposal.