How to budget for a construction project in Spain

Constructing in Spain

When you start a building project, the first thing you look at is how much is it going to cost. This figure will guide you as to whether you can afford to build that dream family home, or whether it is profitable to build a development or hospitality project. But beware of early quotes that come in quickly from builders, as they are very unlikely to be remotely accurate. Also beware of low cost per square metre prices. While we all want to build for the lowest price we can, we need to be smart and understand what’s included – or excluded – in that price, before basing all future projections on that figure.

MDCI Project Developers have been costing and project managing construction projects for 25 years and have hundreds of successfully completed projects under our belts. We pride ourselves on never going over budget and in many cases saving our clients significantly more than our fee and bringing them under budget, through value engineering and tight budget control at the planning stage and throughout the project.

In this article, we want to share some pitfalls which often occur during the budgeting stage and what to look out for and question when you receive quotes and proposals. We’re here to help developers and individuals to make their vision a reality and remove the stress from the project, supporting them every step of the way. Please contact us to discuss how we can help you through  providing Project Feasibility Studies at the planning stage of your project, as well as project management, project supervision and much more.

Where budgeting for building projects often goes wrong

Unfortunately, nine out of ten projects experience cost overrun and projects go over budget for a wide variety of reasons.

One of the main pitfalls when planning to execute a project, whether it be a family home or a project of apartments, is that the development scope is not adequately covered by the potential cost on which they are basing all their calculations. Many novices are lured in by the promise of a low cost per square meter, without fully understanding what that means. Early conversations with builders revolve around very general “back of an envelope” figures, which don’t take into consideration your individual requirements, your plot complications or the level of finish you want to achieve. Basing your project on these figures has inherent risks and sadly, the reality can be much more.

What to look out for when budgeting

Remember, that the built size of your building or development cannot and does not stand in isolation. You need to always bear in mind the inevitable additional costs, such as utility connections, access and egress routes, retaining walls, swimming pools, landscaping, irrigation, exterior lighting, perimeter walls and doors – to name only a few. Each of these need to be costed and added to the cost per square meter.

So, when a constructor talks about this cost, make sure you ask him what that includes. Don’t be afraid to run through the points above to specifically check each one would be included in that price. You may be surprised to learn that it covers a lot less than you had imagined.

It is also vital to ensure that you guide the constructor to the quality of finish you are looking for at the quoting phase. Those companies who often put forward very low prices, are estimating based on third rate materials and finishes, which may be far below what you are expecting. If you’re concerned, it’s a good idea to ask them to show you a project that they have completed for the price that they are quoting you, so you can see for yourself what their finish and materials look and feel like in situ. Alternatively, asking them to show you some example floor tiles or windows that they commonly use in the project is a good way to judge what they are quoting you for and check that this is in line with what you want.

Another thing to check, is whether the MEP complexities are adequately catered for in the low per square metre cost. MEP stands for “mechanical, electrical and plumbing” — and the engineering of those systems. These components alone will account for at least 30% of the cost of any new build, and if there is complexity, these additional potential costs need to be covered.

It is also important to understand how builders actually provide a cost per square metre price and to ensure a very important component is included. Prices generally contain a price for materials and a price for labour, but that is not the final price. A Contractor will need to add his “cost coefficients” for overhead and profit and this can amount to an additional 19-25% on average. Make sure this is included or you will be immediately over budget and only looking at partial numbers when you make your calculations.

Right from the beginning, you should be aiming to get the best possible estimate of the total cost, to ensure that you will be able to afford this project, before you start spending money. It will always be a best guess projection at this stage, but at least it will allow you to get a true picture of how the suggested design compares to the potential cost. Does this match the budget, or is it over?

At this stage, with as much information as you can have early on, you can make design changes and limit certain aspects of the project to bring it in line with your ideal spend, or understand that you will need to get additional funding or add some budget to it in order to achieve what you want.

The final and real cost will be given by the most competitive constructor, under the terms of a tightly run open market bidding process. This bidding process must be properly managed to ensure that all potential hard costs are covered, under optimal terms and conditions, and that you will not be subject to price discussions during the construction process.

However, by involving an experienced project manager during the planning phase of your project, you can be sure that all elements have been considered and costed. Your project manager will ask the right questions and challenge low cost per square metre costs on your behalf, to ensure you don’t start a project based on false information and then are unable to complete it due to lack of funds.

MDCI – saving you on budget, on time, every time!

It’s our job to start you off on the right footing and keep control of costs on your behalf. You can trust us to think of everything and provide detailed cost projections, based on over 25 years of experience. We will then manage the tendering process for you to ensure you get the best price and have watertight contracts in place to protect you. After that we’ll be constantly updating you and informing you about the impact of any potential changes you want to make and how that will affect the bottom line.

With MDCI on your side, your project will come in on budget and on time and we’ll be with you every step on the way. If you are thinking of building in Spain, contact us today.

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