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  • Chris Holland

Establish Construction Budgets and Negotiate Allowances Using Preliminary Pricing


A preliminary pricing budget can be assembled with Test Fit Drawings and Finish Notes.


What is Preliminary Construction Budgeting?


Having your General Contractor prepare a preliminary construction budget can assist the end user, design team, and consultants in determining the feasibility of a project. For minimal or no upfront costs, a benchmark budget can be developed based upon a schematic drawing and finish notes utilizing unit costs. This allows the team to compare competitive buildings, evaluate the total cost of occupancy, and form an educated basis for negotiating allowances and deal terms.


What is reflected in a Preliminary Construction Budget?


Preliminary budgets are generally based on unit costs and square foot pricing. Accurate budgets can be established if detailed information is available to provide to subcontractors in specialty trades for their input.

It should provide a detailed summary of the work involved along with associated costs. The scope should be clearly defined to provide the end user with options that will assist in evaluating alternatives and present a clear picture for those unfamiliar with construction pricing.


 

This allows the team to compare competitive buildings, evaluate the total cost of occupancy, and form an educated basis for negotiating allowances and deal terms.

 

A contingency fund can be included to cover unknowns and unforeseen issues, particularly as it relates to Mechanical, Electrical, or Plumbing costs. These amounts generally range between 5% and 10% of the overall construction cost and seek to estimate all potential costs that may arise once a drawing set based on the given specifications is complete or ready for permit, therefore representing a maximum budget that can be expected.


The budget may also incorporate separate voluntary alternates as additional option pricing. The end user then has the ability to elect to add or modify costs that are not included in the base budget. These alternates reflect suggestions for cost savings while still building to specification, foreseeable conditions that may not be detailed and could be part of the final design, or designated alternates shown on the preliminary drawings. It also assists the design team by illuminating items to consider as the final drawings are processed.


Preliminary scheduling is an important supplement to any preliminary budget. Not only does it project a realistic timeline for construction, but it also allows the end user to plan for furniture, technology, transition into the space, and occupancy.



Walking the space will provide the general contractor an understanding of the existing conditions.


Advantages of Preliminary Budgeting:

  • Allows the project team to establish a construction budget to work against as the design process is finalized before generating construction drawings.

  • Provides for educated decision-making while incurring minimum design and consulting fees on the front-end of the project.

  • Invaluable in lease negotiations to establish tenant improvement allowances.

  • The end user is better able to determine capital budget expenditures that might be necessary to complete the design and construction.

  • Assists the architectural and engineering teams in understanding the feasibility of certain design aspects as they relate to cost.

  • Provides a level of detail or "menu" pricing that allows the end user to pick and choose what details are most important to them, as they relate to cost.

  • Can be assembled by the general contractor with little information and drawing input, typically at no cost.

End Users, Architects, Owners, and Brokers can all benefit in executing their respective roles with an educated perspective on costs and timing. Better information and preparation will generally lead to better results. A good General Contractor can be a valuable member of your team.



Chris Holland is the President of ONYX Constructors LLC, a Houston based General Contractor focused primarily on building interior workspaces. You can contact him at cholland@onyxconstructors.com.





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