what is margin creep

A lot of people ask what is margin creep in regards to property development?

This is something you really have to understand if you want to keep a handle on your spending

Before you start

Before your project starts you will have the scope of the project. The scope has a fixed amount of work and a fixed cost.

If you keep changing your mind and changing the scope once the project has started you will cause yourself 2 problems:

1 Margin creep

Scope creep

When your builder originally quotes for the project he will put a margin on labour and material costs. If it costs him £100K and he charges you £120K that means he has put a 20% margin on costs

However once you have signed a contract with him and you request additional out of scope works, you have a problem. He may decide to put a 40% or 60% margin on the additional works and there will be nothing you can do about it. You can’t tell him to stop and get another builder to do the additional work. Well, you could try it but that could cause the first builder to walk off

The tender process

This is why it is essential that you take your time before you send out Tender documents, as that’s what the builder is going to price for. The drawings that are sent in the tender pack will show your builder what you want. Once he has given you a price and you have accepted it these drawings will become the contract set.

Any additional work you request once the job starts will be called a Variation order . This is the point that the builder may put his margins up. You can avoid this by asking the builder before the job starts what his day rate is for any extra works. That way you won’t get any nasty suprises

Feasibility study before you start

Its always useful to have a feasibility study before you start your project. If you make changes to the design or scope of the project this will be the stage where changes will cost the least. A feasibility study will help you decide if you have planned your project in the most efficient way, not least the financial aspect of your project

 

If you would like us to do a feasibility study of your project please get in touch here

To see how we can help you in other areas of your project please click here

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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