Construction costs on a Portuguese development

Early appraisals use a rate per square metre because nothing better exists yet. That is legitimate, provided the rate is treated as the start of an estimate rather than as the estimate itself.

A usable construction budget has four layers:

• the building cost, derived from a rate range for the product type and specification level
• the site costs that sit outside the building — demolition, earthworks, retaining structures, external works, landscaping, parking, boundary treatments
• the infrastructure and connection costs required to serve the scheme
• preliminaries, supervision, insurance, bonds and the contractor's overhead and profit.

Rates should come from a builder or quantity surveyor working in the same region on the same product type. National averages disguise the two variables that move cost most: specification and location.

• Specification level: the gap between a functional standard and a premium finish is large and it is decided by product positioning, not by the builder.
• Structure and ground: basements, deep foundations, rock excavation and retaining works can dominate a budget on constrained urban sites.
• Site access and logistics: dense urban sites carry costs that an open plot does not.
• Existing buildings: refurbishment carries discovery risk that new build does not, and a survey rarely eliminates all of it.
• Programme: compressed programmes and winter working carry premiums.
• Market conditions: contractor availability in the region at the time of tender, which is a timing risk, not a design one.

ITEMS TO PRICE SEPARATELY

• demolition, asbestos removal and disposal
• rock excavation, dewatering, shoring and temporary works
• contaminated soil treatment
• retaining walls and site levelling
• roads, footways, drainage and lighting within the operation
• utility connections and any network reinforcement required
• landscaping and public areas to be handed over
• fit-out, appliances, furniture and equipment where these are part of the product
• marketing suite and show unit
• insurance, performance bonds and warranties.

Connection charges deserve particular attention. Where the existing network lacks capacity, the reinforcement cost falls on the project and can be substantial. Confirming capacity with the operators during due diligence is far cheaper than discovering the limit during construction.

The tender is where an estimate becomes a commitment. Comparing bids on price alone is the most common and most expensive mistake at this stage.

• Issue a consistent tender package so that all bidders price the same scope.
• Compare on scope, exclusions, programme, and the qualifications attached to each bid.
• Test the contractor's capacity, current workload, financial standing and track record on comparable work.
• Fix the contract form, payment mechanism, retention, milestones and damages for delay.
• Agree the change-control process before work starts, including how variations are valued and approved.

Retention and bonds exist to preserve leverage at the point where the developer has none left: the end of the job, when defects are found and the contractor has been paid.

Cost control on site is a documentation discipline. Monthly valuations against measured progress, a live variation register with approvals recorded before work proceeds, and a risk register that tracks emerging issues before they become claims.

Two rules protect the budget:

• no variation is instructed without a priced and approved instruction
• contingency is released by decision, not by drift.

The technical file should be assembled as work proceeds. Reconstructing it after completion delays the utilisation licence, and the utilisation licence delays every sale.

• A rate per square metre applied to gross area with no stated exclusions.
• External works, connections and infrastructure omitted entirely.
• Ground conditions assumed from neighbouring sites rather than investigated.
• Contingency consumed by specification upgrades during design.
• Tender awarded on lowest price with unexamined exclusions.
• Variations instructed verbally on site and priced afterwards.
• No allowance for the cost of programme extension on finance and overhead.