Last edited 12 Sep 2019

Budget for building design and construction projects

A budget is a statement of the amount of money that is available to spend over a period of time, or on a specific thing, such as a building. It may include an outline plan for how that money will be spent, and a breakdown of the items it will be spent on.

The CIOB Code of practice for project management 4th edition, defines a budget as:

'Quantification of resources needed to achieve a task by a set time, within which the task owners are required to work... a budget consists of a financial and/or quantitative statement, prepared and approved prior to a defined period, for the purpose of attaining a given objective for that period.'

Budgets for construction projects help determine what is affordable and should be set as early as possible. It is important that they are based on evidence and are realistic.

A project budget can be established by:

Assessment of projected income and expenses through the life of the project.
Comparison with similar projects.
Assessment of the funds available.
Pre-design analysis of requirements.
Analysis of preliminary design options.

The budget is set by the client and is distinct from cost plans prepared by a cost consultant which are likely to focus on the construction cost.

The client's total project budget may include:

The construction cost.
Land or property acquisition.
Approvals fees.
Planning costs (Section 106 Agreement or Community Infrastructure Levy).
Financing costs.
Site investigations.
Fixtures, fittings and equipment.
The cost of decanting and relocating, including costs associated with moving staff.
Contracts outside of the main works.
Insurance.
Consultant fees.
Inflation.
Contingency.
VAT.

It is common on projects that the project budget and the project brief diverge over time and it is for this reason that careful cost control is important.

It is important that the client makes clear what costs should be monitored by the cost consultant and what will remain within the control of the client organisation.

NB: NRM 1 defines the authorised budget (sometimes referred to as the approved estimate or cost limit) as; 'the maximum expenditure that the employer is prepared to make in relation to the completed building.'

NB: In the case of Riva Properties Ltd & Ors v Foster + Partners Ltd [2017], the Technology and Construction Court (TCC) found that Foster + Partners had been negligent in failing to design a hotel that could be constructed within Riva Properties budget, and then suggesting that it could be value engineered down to the budget after planning permission had been granted. Foster + Partners were held liable for client's costs of £3.6 million in developing the scheme which was almost £100 million over the budget.

Stephen Homer, a partner at Ashfords LLP, the lawyers that acted for Riva Properties said; "This case serves as a warning to designers that they cannot design in a vacuum. Cost and budget is a key constraint and should always be identified and considered when designing any project, even when the provision of cost advice is expressly excluded from the designer’s obligations."