Why the works go over budget

It is so common that it gets taken for a law of nature: the works always cost more than the budget said. And because it is taken for granted, nobody looks into it, when in reality it is hardly ever one single cause, and hardly any of them is bad faith.

There are eight, and seven are controlled before the first bag of cement arrives.

1. The budget was an estimate, not a budget

The commonest confusion of all. An estimate is made per square metre against an assumed area; a budget is made from quantities of work measured off finished drawings.

When somebody gives you a figure before the technical drawings exist, they are estimating. That is legitimate and it serves to decide whether the project is viable, but it is not something you can contract against.

2. Items were missing

The ones most often forgotten are not the obvious ones. Almost always: the soil survey, the technical designs, the curaduría charges, the delineation tax, the utility connections, the earthworks, the temporary site enclosure, the insurance bonds and the laboratory tests.

None of them is optional, and several have to be paid before the building permit comes out. A budget that does not name them is not cheaper: it is incomplete.

3. The ground was not the ground everyone assumed

It is the most expensive cause of all and the easiest to avoid. The foundations depend on the ground, and the ground is known only through boreholes. If the geotechnical survey arrives after the budget, the foundations in that budget are an assumption.

And it is not a minor item: between shallow foundations and deep foundations there is a difference that changes the whole project, not only its cost.

4. Changes of mind

It is the commonest cause and the only one that depends entirely on the client. Moving a wall once it is already built does not cost what the wall costs: it costs demolishing it, carting the rubble away, rebuilding it, and the time the gang stands idle while the decision is being made.

The rule has had this settled for decades: except for an error by the architect, every modification is charged to the client. It is not an unfair clause: it is what makes it possible for a project to finish.

The way to control it is not to forbid changes: it is to close the concept design before the project is drawn, because there a change costs an afternoon and on site it costs a demolition.

5. Additional quantities with no rule

On every job quantities turn up that were not foreseen: more excavation, more fill, more steel. That is normal. What is not normal is that there is no agreed rule on who approves them, at what unit rate and on what document.

Without that rule, every additional quantity is a negotiation you enter at a disadvantage, because the works have already started and stopping them costs more than accepting the price.

6. Time costs money as well

A delay is not merely a nuisance. It is a gang that carries on being paid, hired plant that carries on being invoiced, rent that carries on being paid while the place cannot be lived in, and materials that go up in price in the meantime.

And construction costs really do move: DANE, the national statistics office, measures them every month. On a long contract, the same scope costs a different amount six months in.

7. The incentive built into the contract type

No contract type is a bad one, but each pushes in a direction and it is worth knowing which:

8. Nobody was checking

The eighth is not a cause: it is what allows the other seven to go unnoticed until there is no remedy left.

If nobody measures quantities against what is invoiced, if nobody checks that the materials are the ones specified, if nobody records the delays as they happen, the overrun does not appear all at once at the end. It had been growing the whole time and nobody was looking at it.

What to do

1. 1The soil survey before the budget. Not after.
2. 2Close the concept design before the technical drawings begin. That is where deciding is cheap.
3. 3Require the budget to list what it does NOT include, and to name the nine items in point 2.
4. 4Agree the rule for additional quantities in writing: who approves, at what price, on what document.
5. 5Set aside a contingency and do not touch it for anything else. If it is left over at the end, so much the better.
6. 6Put somebody in charge of checking, even if that somebody is you with a list. Without checking, all of the above is theory.

And one thing that appears on no list: a budget markedly cheaper than the rest is not an opportunity. It almost always comes from leaving out items that have to be paid for anyway, later, and without having been foreseen.