Building costs analysis the only financial risk mitigation tool

© Ingvar Bjork – 123RF.com

"The value of a proper budget combined with the expertise, efficiency and materials supply contacts of a professional contractor cannot be overemphasised," stresses Mphomela.

"It is not uncommon for consumers to find themselves over budget on a building project. In fact it happens so frequently that friends at the braai-side will joke about doubling the estimated costs and taking out a loan to make sure the job is finished. At the crux of it is a poor understanding of the costs involved in building projects. Building costs should take into account, amongst others, variables such as labour, material, equipment, building codes, job site conditions and standard markups applicable to the area."

Going over budget can place the home-owner in a financial predicament. It comes with the risk of having their building bond frozen by their bank until the extra money is furnished, lead to the building project grinding to a halt and the contractor walking off site. On the flip side, having the costs of a building project accurately calculated through a business costs analysis before starting the project can save thousands of rands.

Overlooking costs

A building costs analysis is the only financial risk mitigation tool available in the country. "If you haven't had your budget drawn up or committed to by a registered builder, you can be almost sure that all sorts of costs have been overlooked. For instance, have the costs of connecting wires and plumbing points or fittings and fixtures been considered?"

Aside from including the full costs of labour and materials, a building costs analysis will help to reveal hidden costs associated with a build as well as enable the home-owner to compare apples with apples when considering different contractors as their markups will not be included. Additionally, a building costs analysis will help to ensure that contractors have an accurate picture of the costs involved in the project and prevent them from under quoting in order to secure a job.

With a plethora of consultants and contractors offering building costs analyses as a service, Mphomela cautions home-owners against picking just anybody. "Check their credentials, ensure that they are registered with the NHBRC, and a member of the Master Builders Association. Also remember that a building costs analysis does in no way obligate you to use the same contractor to undertake the building project," he advises.

Right contractor

Choosing the right building contractor to undertake the project is the next important step towards getting the job done properly, soundly and within budget. Consumers are offered some degree of protection by the NHBRC and their financial institution if the project is financed via a building bond.

All contractors who work in the residential market must be registered with the NHBRC, as should the project itself.

The NHBRC though, only provides 'insurance' for defects in the work up to the value of R500,000. If the project is financed via a building bond, the bank's inspectors will visit the site five to six times during the project to check that work is adequately completed before releasing the funds to the home-owner to pay the contractor. The reality is however that even if a contract has been entered into and signed, the home-owner is alone in dispute resolution and arbitration as neither the bank nor the NHBRC will get involved.