I remember early in my consultancy career, the practice I was working for was asked to advise a ‘client’ about a large mixed residential scheme that he was promoting in East London. He had persuaded a reputable architect to prepare a masterplan and had approached a High Street Bank for funding, which is where we came in.
The Bank, understandably, wanted to know whether the scheme that the ‘client’ was proposing was viable. The ‘client’ was initially reluctant to share his appraisal but eventually we were sent a copy and I asked our residential QS team to provide a range of costs for the different types of units shown on the master plan.
And that was where the alarm bells started to ring. You see, the ‘client’ had applied one rate to everything from key worker homes to high-end residential. When asked where he had got this ‘blended’ rate he explained that he had spoken to a well-known contractor who had provided him with the rate, but no explanation of what the rate applied to or whether the contractor had been provided with a copy of the masterplan (there’s a lesson here too).
To cut a long story short, we plugged the different rates into the appraisal and, unsurprisingly, it didn’t stack up. The ‘client’s’ response, ‘You QS’s always over-price’.
The reason I tell this story is to illustrate a point. I am not a Doctor and no matter how many episodes of Holby City I watch, I will never be one. If I want medical advice, I ask a medical professional. But some clients and property agents will happily quote build costs without understanding what it costs to build or considering the effect that location, site conditions and building form can have on that cost.
I wrote another blog where I talked about the need to consider a range of site factors when preparing an appraisal. Factors such as ground conditions, flood risk, rights of light and the availability and capacity of services, can all have a significant effect on the build cost.
But the height and shape of a building must also be considered. There are many models to illustrate this point but it underlines the reason why an understanding of cost modelling is so important.
My advice? Ask a QS. That doesn’t mean accepting everything at face value. Get them to explain their assumptions and why something costs more or less than you think it should. There is plenty of cost data out there against which to benchmark your scheme, but it shouldn’t be relied on for something as important, and sensitive, as a development appraisal.
And what happened to the ‘client’ with the scheme in East London. I never heard from him again and as far as I know the scheme was never realised. I have no doubt in my mind however that he would have continued doing the rounds until he found someone who was prepared to tell him what he wanted to hear. And therein lies another problem…but that’s for another blog.
Paul Nash MSc PPCIOB