Last year, the overriding factor behind rises in the price of materials was the skyrocketing shipping costs, believes Max Wilkes, Cost Intelligence Lead at Faithful+Gould, a leading project and programme consultancy.
But now the eyes of the industry are all scrutinising the rapidly rising energy costs.
The rise in energy prices hits especially hard on “heavy-side materials” such as steel and cement. Some brick manufacturers have already raised prices by around 10% due to energy costs.
“For architects, communication with contractors over materials availability and lead-in times at early stages is key,” Wilkes recommends. “Architects should also be thinking about the buildability of a project. Now is a time for people to agree on the most practical materials to use.”
“One way architects can reduce risk is to use tried and tested systems, rather than bespoke systems that may have to be tested,” he continues. “Specifying UK-manufactured products might also be less problematic.”
Prices, contracts and contractors
Wilkes has noted that on larger projects, contractors have been increasingly turning to two stage tenders over the past year to protect themselves from rising materials prices. While clients are at risk of seeing large increases for packages of work during the second stage, Wilkes suggests that early contractor involvement can help keep costs down overall.
He also warns that contractor insolvencies are expected to rise and that architects would be well advised to look out for warning signs such as slow progress and stop-start delays reported on other teams’ (or other practices') projects.
Faithful+Gould provide consultancy work for very large projects. But what is the situation today for smaller practices? Many small and medium size practices are reporting that materials costs have fluctuated considerably recently but that client appetite currently remains high in the domestic market; partly due to stimulus provided by the Stamp Duty incentives of last year.
Jonathan Rixon, Director of Cotswold-based Rixon Architects, reveals the residential market remains so buoyant that fixed price tenders tend to not be on offer. Demand is such that local builders see no need to tender: they are too busy with work to accept risks from materials cost rises.
Instead, they are opting for Cost Plus contracts, which Rixon explains have locally become the norm since the upheavals of Brexit and COVID-19 lockdowns.
‘Cost Plus’ and ‘open book’ contracts
With a Cost Plus contract, the builder charges for labour and other direct costs and an agreed margin to cover overheads and profit, and passes materials costs on to the client. Max Wilkes states that costs consultants such as F+G rarely advise on the use of Cost Plus on larger projects because the potential risks to the client are too big. But Rixon explains that the system works in his area because established builders depend on their reputation. It is a small world and trust can be maintained between architect, client, and contractor because reputation is everything.
Rixon points to steel costs as an example of why fixed price tenders are no longer the norm locally: one steel sub-contractor could only guarantee a steel quote for 72 hours, meaning the price would be redundant before a tender went out.
“If you are willing to interrogate the contractor across the project, the Cost Plus model can still be good value for the client,” observes Rixon. “It is up to you to keep the contractor honest yourself: in some ways you can maintain more control than with a fixed price.”
Will Mawson, Director of Newcastle-based MawsonKerr, says they have started suggesting an ‘open book’ approach to builders they have a relationship with as a way of getting around their nervousness in committing to tender prices. Open book accounting means that contractors are reimbursed on the basis of transparent record-keeping of costs incurred – it requires close collaboration and trust to succeed.
Providing the client with a building cost estimate
“We prefer to bring in a quantity surveyor rather than providing clients with cost estimates ourselves,” states Dan Marks, Director of MATA Architects.
“That said, at feasibility stage, we might give a very high level cost per square metres so a client can begin to budget. And at concept design stage we do use an online subscription tool called Build Partner: a cost estimating platform.”
On larger projects, Marks will use a QS from concept design to completion, but even on small jobs, he finds them invaluable as a sense check. It helps to have an official third party analysis to keep the client’s ambitions realistic and allows the architect to demonstrate value by finding cost effective solutions.
Will Mawson takes a similar attitude. “We try to bring in a cost consultant wherever possible, even if it is just to give a short, contained piece of cost advice at RIBA Stage 3.”
He will give a historical square meterage rate based on previous projects but has been heavily caveating this recently, given the volatile market. Mawson has also been asking clients to factor in a contingency.
“We ask clients to consider budgeting for a 20% contingency wherever possible. It is an awkward conversation – they ask why the design does not account for this – but a necessary one.”
Thanks to Max Wilkes, Cost Intelligence Lead, Faithful+Gould; Jonathan Rixon, Director, Rixon Architects; Dan Marks, Director, MATA Architects; and Will Mawson, Director, MawsonKerr.
Text by Neal Morris. This is a Professional Feature edited by the RIBA Practice team. Send us your feedback and ideas.
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