Factors affecting construction costs

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Note

29 Mar 2021: Full stops added.

2 Mar 2021: Revised.​​​​​​​

17 Mar 2020: Created.​​​​​​​

Generally

  1. Cost factors may be asked from different perspectives at different stages:
    • Feasibility study before choosing site:
      • What type of development?
      • Which country and place to invest and develop? 
      • Why cost differently between countries, places and sites?
    • Planning and design after fixing site:
      • What design, provisions, types, standards of the whole and its components?
      • Why cost differently?
    • Tendering:
      • Why tender prices so different?
    • Construction:
      • Why original contract sum changes?
  2. Cost factors generally:
    • Some factors affect the quantities, and therefore the total cost.
    • Some factors affect the unit cost per area or unit cost per length (e.g., roads, rails, tunnels, bridges, etc.). 
    • Some factors affect the unit rate per quantity of work.
    • Price changes during the post contract stage are excluded here.
  3. Think and brainstorm:
    • The factors can equally apply to other industries or commercial or even social sectors.
    • Common sense knowledge is to be applied.
  4. Classify systematically:

    • There is no absolute answer to "which classification is the best?".
    • A systematic classification should help people think further systematically in the future and present the more relevant factors systematically depending on the perspective and stage.

(3 and 4 added, 2 Mar 2021)

No fixed prices

  1. One important thing to learn is that there is no fixed (constant) set of unit prices in any economy, as evidenced by the many factors suggested.
  2. Free market economies operate on free market competition of the prices. They would only regulate prices for using government services and some public utility services.
  3. The mainland, China used to fix a constant set of unit prices (by issuing standard price books) with moderate periodic inflationary adjustments but when foreign materials and equipment using foreign currencies are involved, the price fluctuations can become serious. After opening up the market, the mainland has admitted significant free market competition though some measures to regulate the prices are still implemented.
  4. Hong Kong operates as a free market economy. Therefore, there is no fixed set of unit prices for construction works. An exception to this is that Hong Kong Government publishes Schedule of Rates for term contract works. See notes at the end.

(Section added, 2 Mar 2021)

Reasons for variances in unit rates in the same city

  1. Even for work items of the same description, the rates can be quite different between projects due to various reasons.
  2. Design:
    • Functions
    • Materials and construction
    • Standard.
  3. Site location:
    • ​Transportation
    • Restrictions.
  4. Construction:
    • Project size
    • Extent of mechanization
    • Extent of standardization
    • Extent of repetition
    • Extent of pre-fabrication
    • Volume of bulk purchasing
    • ​Workmanship
    • Weather
    • Extent of safety measures
    • Extent of environmental protection measures.
  5. Economic environment:
    • Level of market competition
    • Exchange rates
    • Time differences.
  6. Contractual:
    • Degree of contractual risks
    • Harshness of contract terms
    • Payment terms
    • Degree of design liability and statutory submission obligations
    • Extent of warranties.
  7. Human factors:
    • Consultants’ attitude
    • Owners and occupiers’ attitude and co-operation
    • Tenderers’ pricing strategy in distributing the costs, profit and overheads differently across different work sections.

(Section added, 2 Mar 2021)

​​​​​​​Country (assuming putting a done design to a different country)

  1. Different planning and design regulations.
  2. Different environmental requirements.
  3. Different tax requirements.
  4. Planned economy or free market economy.
  5. Significance of government intervention.
  6. Different purchasing power of local currencies.
  7. Availability of foreign currencies.
  8. Availability of local supply of labour, materials, plant and management.
  9. Degree of reliance on foreign supply of labour, materials, plant and management.
  10. Different requirements on holidays and restriction on working hours.
  11. Different productivity of local labour.
  12. Different extent of availability of public roads and utilities.
  13. Different degree of ease of evacuation of existing occupiers.
  14. Significance of corruption.

Site location and conditions

  1. Extreme climatic conditions: hot, cold, frozen work period, typhoon.
  2. Seismic zones.
  3. Existing status of use: greenfield or brownfield.
  4. Existing type of use: urban, rural or agricultural.
  5. Existing site topography: flat, hilly, mountainous, offshore, etc.
  6. Ground conditions: soft, rocky, reclaimed, submerged, swampy.
  7. Obstructions underground and above-ground.
  8. Availability of public roads and utilities.
  9. Ease of evacuation of existing occupiers.
  10. Congested site or sufficient space for storage and maneuvering.

Planning and design

  1. Functional type of the building or civil engineering construction.
  2. Class and standard of the construction.
  3. Planning and design regulations for different sites and constructions.
  4. Environmental requirements.
  5. Structural form of the construction (brick, reinforced concrete, steel, timber, composite).
  6. Plan shape of the construction. (Different elevation area to floor area ratios. Square building costs less than rectangular building on external elevations.)
  7. Storey height. (Storey height will affect the vertical elements of the building both internally and externally. Higher storey height will increase the volume of the building to be heated or cooled, and therefore HVAC services.)
  8. Number of storeys. (Different shares of the roof and ground slab and beam costs. Need to have staircases for non-single storey buildings. Need to have lifts and refuge floors for tall buildings.)
  9. Height of the construction. (Heavier loading on taller buildings.) 
  10. Orientation of the construction. (Thermal transmission on external surfaces. Use of sunlight.)
  11. Impact on neighbouring properties.
  12. Extent of provision of construction components.
  13. Functions, materials and quality of components.
  14. Extent of site works and external works shared by the main construction (affecting unit cost per area or length).

Economic environment

  1. Stability of economy.
  2. Forecast of cost fluctuations.
  3. Level of market competition.
  4. Exchange rates and their changes.
  5. Time differences (if compared between projects at different times).

Construction 

  1. Project size.
  2. Period of construction and its reasonableness.
  3. Ease of transportation.
  4. Access restrictions.
  5. Changing labour, material and plant costs over time.
  6. Extent of plant required and availability of plant.
  7. Availability of supervisory staff.
  8. Extent of hoardings, covered walkways, scaffolding required.
  9. Extent of temporary works required.
  10. Extent of safety measures required during construction.
  11. Extent of environmental protection measures required during construction.
  12. Extent of mechanisation.
  13. Extent of standardisation.
  14. Extent of repetition.
  15. Extent of pre-fabrication.
  16. Volume of bulk purchasing.
  17. Workmanship expected.
  18. Weather which may be encountered.
  19. Availability of temporary water and electricity.

Contractual

  1. Procurement method.
  2. Degree of contractual risks.
  3. Harshness of contract terms.
  4. Payment terms.
  5. Degree of design liability and statutory submission obligations.
  6. Extent of insurances, bonds and warranties.

Tenderers' ability and perception (causing differences in tender rates)

  1. Labour, material and sub-contract costs which can be sourced at the time of tendering.
  2. Availability of plant.
  3. Availability of supervisory staff.
  4. Availability of expertise.
  5. Availability of sufficient cash flow or reliance on loans.
  6. Reasonableness of the period of construction.
  7. Consultants’ attitude.
  8. Owners and occupiers’ attitude and co-operation.
  9. Tenderers' profit expectations.
  10. Tenderers’ pricing strategy in distributing the costs, profit and overheads differently across different work sections.

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