Controlling the cost of home improvements

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It’s the New Year and, if you’re not booking a world cruise, you may be thinking of doing up your house. But what about controlling the cost of home improvements? If you are planning a refurbishment, this article offers tips and advice for making sure your dreams remain affordable.

.Property renovation costs

Key Requirements for Controlling Home Renovation Costs

I can put my hand on my heart and say that we have never had a project go “over budget”. There are four key ingredients for sound financial control: a taut specification, a fixed price, an appropriate payment schedule, and a figure for the total project cost (including fees and other peripherals). We spend an age on the first, tie down prices for the second, agree suitable payments for the third, and detail everything for the fourth. You can do the same.

We provide links at the foot of this blog to guide you further on writing a good specification, and what things cost.

Home Renovation Specification

A taut specification pre-supposes the following:

  • you are clear on your requirement and won’t make significant changes part-way through.
  • you have acquired detailed construction drawings for projects with structural changes.
  • you have produced a layout with floorplan to scale, electrical and lighting scheme, and identified your heating requirements.
  • you have scale kitchen and bathroom designs available.
  • you have a good idea of your finishes, fixtures and fittings.
  • you are clear on what a contractor is to supply and what is to be “supplied by others”
  • you are clear what a contractor is to do (eg paint the living room), and what others will do (eg lay a carpet)
  • you have done your homework and have realistic expectations of what things cost, and how long they take.

It helps to separate the specification into the contractor’s 5 main trade annexes:  structural and building; plumbing and heating; carpentry and joinery; electrical; and decoration. We also reserve an extra annex for “other” which may include works to the garden or patio. We and our contractors find this easier than a room-by-room separation, particularly for larger projects.  Each annex effectively forms a package of work for a specific trade (which may be a sub-contractor).

Each requirement, or group of requirements, in your specification should be priced. Against a taut specification, a contractor can supply a reliable quotation, which will appear in the first section of your pricing spreadsheet.

airy kitchen

Home Improvement Pricing Spreadsheet

Our pricing spreadsheets have 4 sections.

  • price for contractor’s work (labour and materials)
  • price for furnishings and fittings (those not supplied by the contractor, including any external labour, like hanging curtains)
  • professional fees
  • risk provision.
pricing spreadsheet to calculate building costs

Looking at each in more detail:

  • Price for contractor’s work:  this section covers the labour and any materials supplied by the main contractor.   Your specification should make clear which items the contractor is to “supply and fit” (eg trade radiators, light fittings, and so on) and which the contractor is to fit only (where items are supplied by others, including products you will provide).
  • Furnishings and fittings:  this section covers anything not supplied by the contractor.  “Supplied by others” is accepted terminology and your specification should make this clear. It may include kitchen cabinets, bathroom suites, flooring, paint, special radiators and so on. You should also include in this section a price for any labour carried out by others (such as fitting a carpet).
  • Professional Fees:  Depending on the extent of the project, professional fees may include an interior designer, an architect, a project manager, a structural engineer, a Party Wall surveyor, the water board, the council and other specialists.
  • Risk Provision:  We identify specific risks and estimate associated costs.  We also include a 10% general provision (usually of the contractor’s price) for unforeseen risks.

These 4 sections should give you the total cost of your project.  The spreadsheet will help you to manage your figures and to see where you might trade one price for another.  You can also see more clearly if you need to phase the work to meet your cashflow.  For example you might complete the building work but decide to delay the fitting of carpets for a few months.

edwardian sitting room in bath

Home Refurbishment Estimates and Quotations

You may know that an “estimate” is just that – an estimate;  it is not binding. Price increases can result if an estimate is re-evaluated upwards when the final bill is delivered. Always ask for a fixed price “quotation”.

For higher value projects, a competitive tender should help you to obtain better value for money. When choosing your contractor, make sure you are comparing like with like. The more detailed your specification, the more likely you are to obtain a true comparison of prices.

For more complex renovations you should still fix those elements of the price that can be fixed. However, there may be other elements which are not yet fully defined. Here, it is reasonable for the contractor to include a “provisional sum” (PS) or “PC Sum” (PC), which are reasonable judgments on the eventual price of those elements. However, PS and PC can lead to price increases so it is best to minimise these as far as possible before the contract is placed. We explore this further below.

contemporary bedroom design

Minimising Price Uncertainty and Risk

A loose specification uses phrases like:  the contractor is to “supply and fit lights” or “supply and fit taps” without stating the specific type and quantity of lights or taps. The contractor may then include a PC sum in his price for purchasing these items. The problem here is that this price will almost certainly be at the low end. When you eventually choose your products, they will be higher than the PC sum. We spend a lot of time specifying these items to minimise the price uncertainty. When tendering, all contractors will price against the same specific products. You might be faced with a higher initial price, but it is one you can budget for with confidence. So be as detailed as you can in your specification.

Similarly, for provisional sums. If, for example, your contractor needs to price to lay foundations without establishing the soil conditions, it is reasonable for him or her to set a provisional sum. The final figure is then determined once the work is complete. You can minimise this uncertainty by digging pilot holes before the contract is let to determine the soil condition and hence fix the price.

As mentioned above, we include a section for risk provision in the spreadsheet (some call this “contingency”). We identify risks, and price these specifically in case they arise. Depending on the type, age and maintenance of the property, possible risks include presence of asbestos (eg in artex ceilings), woodworm, poor electrics and so on. We have found water pipes on the point of corroding through, rotten joist ends, and walls to repoint. These typically come to light once plaster has been removed and floors lifted.  But the clients have actively budgeted for these additional tasks.  Along with a general risk of 10% of the contractor’s costs, our clients have confidence in the upper bound of their budget.

contemporary bathroom

Home Renovation Contracts

You can form a contract for most simple home renovations (painting, decorating, installing a new kitchen etc) using your written specification and a covering letter with agreed prices, signed up to by all parties. For more significant projects, particularly those involving structural work, you might use a standard template such as the JCT Minor Works contract. These cover everything that you should be concerned about, and you can order them on-line.

traditional dining room design

Cost Control During the Renovation, and Payment

If you’ve done all of the above diligently, there should be no surprises. There will always be some variation from the original fixed price whether through adjustment of PS and PC sums, or the realisation of risks. In our experience, clients often increase the scope of the project as they become increasingly confident in their contractors, and pleased with the work being done.  Obviously, you should still agree the price with the contractor for any additional work before committing to it and keep an eye on the overall budget. Hopefully, if the risks don’t materialise, you will have a sum available to spend on these further tasks.

Paying the Contractor

Your contract will state the terms of payment.  There are several options.

  • For a small project, you might agree to pay the contractor for materials, then pay the final amount on completion.
  • For larger projects, you could specify key milestones and state the amounts to be paid when each is achieved.
  • You could pay monthly based on percentage of work completed. For longer projects, this is a reasonable approach.  “Percent complete” is a sensible measure of progress for a domestic project.  The spreadsheet can help here too, as you can quickly create more columns to the right to show the sums payable. For example if the price to install the kitchen was £2000 and about 40% of this was complete at the month end, it is reasonable to pay £800 for what had been done. Totaling these part-sums over the whole project then gives that particular monthly payment.

You should avoid any commitment to pay monthly at a set amount each month if this is not tied to performance. You could find that you’ve paid 80% of the money but only seen 20% of the work completed.

Finally, the contract would have specified the retention if any – say, 5% to be paid 6 months from project end.

gloss-grey-kitchen

Closing Comments

We hope you find these notes helpful. Knowing the total cost, with a taut specification, a fixed price, and a sensible payment schedule, you shouldn’t go far wrong. You can read more about related topics elsewhere on our website by following the links below.

Property Renovation Guide.  This advice column describes what to expect from a property renovation. It leads you through the steps to a successful renovation and covers planning, specification, tendering, choosing a contractor, contracts and overseeing the work.

How to Renovate a Property.  An insight which includes a section on engaging professionals and the different skills they bring. Architects, Structural Engineers, Interior Designers and others are compared and contrasted.

Cost of Property Renovation.  This page and subsequent links show actual costs from our renovations over 12 years.

Best wishes for a successful and affordable project.

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