When it comes to building projects, the pressure is on for organisations to get the lowest price for the work they are commissioning. The traditional option is for sequential lowest price tendering, whereby the client procures consultants for the building design followed by a separate procurement process to engage contractors. There is little room for integration between the design and construction stages but it is regarded as a tried and trusted model.
However, building projects are increasingly complex and costly, and while the pressure to the keep costs down may have been met by tenders, the actual build costs do not always reflect this. In short, there is a gap between the amount quoted on tenders and the final cost for construction.
The Beattie Partnership has produced a guide to business rating for the education sector, in anticipation of the forthcoming 2017 rating revaluation. Their Head of Education, Brian Sayers, has noticed this gap occurring in the research findings. “Tender prices end up only being a guideline to what is ultimately paid. It means the final cost of a project may contain various “hidden” extras.”
For the education sector this adds to any uncertainty around potential business rate rises. In this area, changes to rateable values are usually based on build costs, for both new and refurbished buildings.
“The gap we’ve found between tender and build costs makes it hard to quantify what increased building costs are to schools, and therefore what sort of rateable value increases they’re likely to face,” continues Brian.
The Tender Price Index is normally seen as a key, comprehensive source of evidence for analysing movements in building costs. But the gap between initial tender costs and the actual final cost of projects makes this less reliable as an aid in predicting trends.
Contractors have become more competitive at the first stage of tender, as per the traditional method of sequential lowest price tendering. But the knock-on effect is a greater emphasis being placed on additional costs as a project gets underway and progresses.
“The lesson here is for organisations planning builds to be really aware of the potential for increasing costs down the line,” cautions Brian. “They also need to consider the implications of actual build costs when it comes to the business rates they’ll have to pay.”
Education Sector: 2017 Rating Revaluation – What You Need to Know is available to view and download by clicking here.