Article 2

Article # 2 - Builder's Margin and Overheads
(in a series of 10)

The comparative cost of Margin and Overheads (including risk, supervision and preliminaries) on a typical 250 m2 house are shown in the chart below.

Volume builders operate on lower risk, lower supervision costs and lower profit margins due to the large number of repetitive houses that they build. Builders who specialise in one-off architect designed houses require higher allowances for risk and supervision, and can charge higher margins due to the specialised nature of the projects.

We estimate that the average cost per m2 for Preliminaries, Supervision, Margin, Risk and Overheads for builders who specialise in one-off architect designed houses is in the order of five to ten times higher than those for a volume builder.

 

Time-related Costs

A large proportion of these costs are time related, and therefore rationalising the design and construction process to reduce the construction time as much as possible will help reduce some of these costs.

 

Margin

In our experience, builder's margin on architect designed houses can vary from 10% to 30%. This is largely market driven, and therefore careful selection of tenderers is important.

In certain markets, negotiation with one or two preferred builders may alleviate this risk to some extent as the margin can be pre-agreed before negotiation takes place.

Careful selection of builders, sensible allocation of risk, clear documentation and simple detailing can all help to keep builder's risk, supervision and margin costs down. However, these costs will always be higher for a one-off architect designed house than a volume builder's house.

In Article # 3 we will discuss the pricing discounts available to volume builders.