Cost overruns in construction
In construction, cost overruns are relatively common, occurring when the costs being incurred are in excess of the amounts that have been budgeted for.
There are a number of possible reasons for this:
- Construction contracts are often tendered and won on the basis of the lowest cost bid. Costs can then increase as contractors attempt to claw back some profit.
- Construction projects are complex, involving a large number of different parties, components, requirements and other factors.
- Projects can take a long time to complete, during which costs may change.
- Deficiencies and inaccuracies in design.
- Poor project management.
- Changes in client requirements.
- Unforeseen costs that only become apparent as the works progress.
- Poor communication between project team members.
- Tools, equipment and plant being unavailable, in poor condition, etc.
- Skilled workers being unavailable.
- Inaccurate cost information that leads to incorrect pricing (e.g. material prices).
- Adverse site or ground conditions.
- Late or withheld payments.
- Scope creep.
The different ways in which cost overrun can be described include:
- As a percentage of the total cost.
- As a total percentage including the original budget and the overrun amount.
- As a percentage of the cost overruns to the original budget.
In order to address and manage cost overruns, it is important to identify what the root causes are. While specific events such as extreme weather conditions can cause delays or damage which may result in cost overruns, they are often the result of more complex project management issues that can be difficult to untangle.
The largest cost overruns tend to occur due to a change in requirements. If, for example, the client needs a space to be 20% larger than originally anticipated, then the cost is likely to increase by at least 20%. It is very important therefore to ensure that the project brief is comprehensive and that all project stakeholders accept it and agree on the specific scope of work and performance requirements.
Pre-construction estimates and careful project planning are then vital in terms of ensuring accuracy and confidence in the project costings, particularly if the project is complex and has the potential to change.
Design and construction issues can be mitigated in some cases by using project-wide project management, cost control software or building information modelling (BIM) as a way of ensuring all stakeholders are using the same up-to-date design information, as well as being able to make real-time adjustments.
Change orders may also be a reason for costs overrunning. A change order is work that is added to or deleted from the original scope of work of a contract, which alters the original contract amount and/or completion date.
If one of the parties to a contract fails to perform as required by the contract, and this results in costs overrunning, it may constitute a breach of contract. A breach of contract may entitle the innocent party to make a claim for damages for the losses it has suffered.
Construction contracts will generally provide for the contractor to claim direct loss and/or expense as a result of the progress of the works being materially affected by relevant matters for which the client is responsible.
[edit] Related articles on Designing Buildings Wiki
Featured articles and news
The continued ISG fall out, where to go?
Support for ISG contractors, companies and employees.
New HES national centre for traditional building retrofit
Announced as HES publishes survey results which reveal strong support for retrofit.
Retrofit of Buildings, a CIOB Technical Publication
Expected to become one of the largest activities in the global construction industry.
The ECA industry focus video channel
Keeping update with the industry session by session.
Over 25 recorded informations sessions freely available.
AT Awards 2024 ceremony East London October 25th.
Revisiting the AT community at the 2023 awards evening.
The Community Housing Fund and built affordable homes
CLTN reviews the impact of the Fund and calls for extension.
The grading system of the Regulator for Social Housing
A background, an explanation and ten recent enforcements.
Construction, repair and maintenance. Book review.
Putting new life into a city with a 1900 year history.
BSRIA Briefing 2024: Sustainable Futures speakers
Redefining Retrofit for Net Zero Living 22 Nov.
Wall of support for post-Grenfell regulation of electricians
Call for a shake-up of the construction industry highlighted on radio.
Digital sustainability through future AEC tools
Bringing together industry and academia to meet challenges.
Skills gap for net zero highlighted to Minister for Industry
ECA convenes roundtable discussion at Portcullis House.
Evidencing Net Zero with the new UK buildings standard
Pilot version with detailed excel proforma out now!
Scottish Building Safety Levy, in consultation
From direct remediation and the RPDT, to the costs and alternatives.
Waves of warmer homes grants for the rental sector
Boosting energy efficiency standards for all rented homes.
A refocus of the National Planning Policy Framework
Key terms described in brief, as the consultation closes the evening of the 24th.
Fortified farmhouses of the unruly 16th-and 17th-century borders.