- Project plans
- Project activities
- Legislation and standards
- Industry context
Last edited 26 Feb 2018
Capital expenditure for construction
Capital expenditure (sometimes abbreviated as Capex, CAPEX or CapEx) is one-off expenditure that results in the acquisition, construction or enhancement of significant fixed assets including land, buildings and equipment that will be of use or benefit for more than one financial year.
Whilst it is generally relatively straight forward to identify expenditure necessary to acquire or construct fixed assets, distinguishing between enhancements and expenditure such as repairs, maintenance, or replacement can be difficult. Very broadly, enhancements should either:
- Significantly lengthen the life of the asset.
- Significantly increase the value of the asset.
- Significantly increase usefulness of the asset.
Capital expenditure is often distinguished from operational expenditure (OPEX sometimes referred to as 'revenue expenditure'). This is expenditure incurred in day-to-day operations, such as; wages, utilities, maintenance and repairs, rent, sales, general and administrative expenses, and so on.
In construction, capex and opex can be considered to be associated with separate, distinct stages, with capital expenditure during acquisition and construction, and then a ‘handover’ to operational expenditure when the client takes possession of the completed development.
Capex and Opex can be seen as competing needs, with higher capital expenditure often resulting in lower operational expenditure, as a higher quality asset may have lower maintenance and repair costs, lower utilities costs, and so on. While sometimes the division between capital and operational expenditure can be one of necessity, based on the resources available to the client at the time, it can be the result of an assessment of whole-life costs.
- Insurance, inflation and financing.
- Fixtures, fittings and equipment.
Whilst it is often tempting to seek savings in the early stages of a project, the relative benefit of this tends to be outweighed by the long-term impact.
This is sometimes demonstrated by a rough assessment of the typical costs of an office building over 30 years, in the ratio:
- 0.1 to 0.15 for design costs (ref. OGC Achieving Excellence Guide 7 - Whole-Life costing).
- 1 for construction costs.
- 5 for maintenance and building operating costs during the lifetime of the building.
- 200 for the cost of operating the business during the lifetime of the building.
However, this has been criticised as misleading, not least because the construction industry accounts for around 7% of GDP, implying a much more significant proportion of business costs than the ratio suggests. Other ratios of construction costs to operational costs to business costs have suggested figures as low as 1:0.6:6 for some types of buildings. However, the usefulness of these ratios is questionable, other than if they are calculated based on actual figures for specific businesses.
 Related articles on Designing Buildings Wiki
Featured articles and news
As the latest summer blockbuster 'Skyscraper' is released, we look at some of the best uses of buildings in film.
Read our introductory article on how to layout a building.
New cross-party report calls for combustible cladding ban to be extended to all high-rise residential buildings.
Dr Nicholas Falk, director of the URBED Trust, explains why metro cities are the future of urbanisation.
From next week, UK firms can bid for a share of a £12.5m fund to boost productivity, performance and quality.
A right to light generally refers to the right to receive sufficient light through an opening.
Interference and compatibility - the effects of electromagnetic fields in the workplace.
Important action is being taken to inspire young people to train as engineers.
A survey of Leicester’s historic buildings resulted in local listing being taken more seriously.
Demolition is the most high risk activity in the construction sector. Read our introductory article here.