Preconstruction Costs: A Complete Breakdown

Imagine starting a journey without a map, a budget, or even knowing the weather conditions at your destination. It wouldn't be a very smooth journey.

Your entire journey may be a bad experience.

The same holds for construction projects. Starting a construction process without knowing the preconstruction costs involved can lead to:

• Project delays and quality issues
• Poor response to risks that can arise during construction
• Financial issues caused by inaccurate budgeting and unforeseen expenses
• Regulatory and legal compliance problems

Let’s help you avoid such issues way before the actual construction begins. You’ll learn the key components of a pre-construction budget and its benefits.

What Are Pre-construction Costs?

Pre-construction costs are the expenses incurred before the building process begins. Think of them as training for a marathon—the gear, coaching, diet planning, and check-ups that runners invest in before a marathon are like preconstruction expenses to ensure the event (construction) is a success.

A preconstruction process budget is needed for any building project, whether residential, commercial, or infrastructural. It acts as the reference point for all subsequent financial decisions related to the project.

Let’s now examine a few factors that determine preconstruction costs:

1 - Market Conditions and Project Scope

Fluctuations in the market can affect material costs, labor rates, and even the availability of resources, thus affecting the overall estimated costs.

For example, if the costs of the construction materials and equipment are high during the preconstruction planning phase, the overall project's cost estimation will be higher.

The project's scope—defined by its scale, complexity, and customization—directly influences the level of pre-construction activities, affecting costs.

For instance, larger projects require more detailed planning and documentation, increasing the pre-construction costs.

2 - Regulatory Requirements

Regulatory requirements of the local area where the construction project will take place affect the overall preconstruction cost. This is because obtaining construction permits and related costs differ from one region to another.

The requirements also differ depending on whether the property to be constructed is for commercial or residential purposes.

For example, commercial projects often face more strict regulatory requirements with additional studies, permits, and compliance checks, which can influence the overall preconstruction costs.

3 - Use of Construction Software

The preconstruction estimated budget can be significantly reduced when stakeholders (contractors, builders, and property owners) use preconstruction software.

A construction management software keeps track of the entire project for everyone involved. This helps streamline workflows by reducing the risk of errors related to design and costs. It also speeds up the preconstruction phase and subsequent construction processes.

Core Components of Pre-construction Costs

Pre-construction costs involve all the elements required to make the planning, scheduling, and budgeting of the building project a success.

Both the construction team and the owner need to know the specific costs of the pre-construction phase. This helps in getting a clear picture of the feasibility of the project and its financial requirements.

The key components of pre-construction costs include:

1 - Surveys and Environmental Assessments

Detailed surveys and environmental reports before the construction process assess the condition of the construction site. A budget is required for these surveys.

For example, the surveyors who perform preconstruction surveys will need to be compensated for their services.

Payment is also needed for environmental assessments to identify potential consequences of the construction on the surrounding areas.

2 - Architectural and Engineering Design Fees

Building designs are visual representations of your project’s idea on paper. And, this requires architectural and engineering help to transform them into reality.

But why do you need to budget for both architectural and engineering designs? Because they play different but complementary roles in the construction project.

Architectural designs focus on the aesthetics, functionality, and layout of the building, reflecting the vision of your building project. These capture elements such as floor plans, elevations, sections of the building, and sometimes 2D or 3D representations of the form, style, and interior spaces.

Engineering drawings, on the other hand, focus on the structural, mechanical, electrical, and plumbing aspects of the project as follows:

• Structural: Load-bearing elements, foundation design, and structural integrity of the building to ensure safety and stability
• Mechanical: HVAC systems, ventilation, and plumbing layouts necessary for comfort and functionality
• Electrical: lighting fixtures, power distribution, and communication systems to meet operational needs
• Key Takeaway: For an excellent construction project, you need the design aesthetics (architectural designs) and technical feasibility (engineering drawings).

3 - Building Permits and Legal Fees

Construction permits are sought during the pre-construction phase to avoid regulatory and legal issues that may affect your project’s timeline.

These permits signify that your proposed building meets all the local zoning laws, building codes, and other regulatory requirements.

The cost of obtaining permits depends on factors such as the project’s location, size, and complexity.

You may be thinking “Why pay fees?” They help cater for administrative expenses incurred by the building department in:

• Processing permit applications
• Conducting plan reviews
• Inspecting the construction site at various stages of the project

You need construction documents showing project specifications, site plans, and architectural designs, to obtain permits.

But here’s the good news: these documents are prepared during the pre-construction phase and the construction manager often helps in obtaining the permits.

Construction managers have a deep understanding of building projects due to their experience and are in a better position to guide and help in seeking permits.

4 - Utility Installation

Utilities relevant to the construction process should be in place before any foundation is laid. These include water, gas, electricity, and sewage lines.

Such utilities may need to be laid, connected to local service providers (for example municipal services), or upgraded. All these require finances.

The costs resulting from utility installation include:

• Planning for installation
• Labor costs
• Material needed
• Fees paid to providers

5 - Construction Project Costs and Administrative Fees

You’ve set aside money for site analysis, building designs, permits, and utility installation. Good. But have you factored in the cost estimate of your project and contract fees?

The general contractor needs to be compensated for their preconstruction services which include:

• Overseeing the development of architectural and engineering plans
• Conducting site assessments
• Coordinating with utility providers for installation and upgrading
• Obtaining building permits
• Other administrative tasks that may arise

The contract fees ensure that your project is ready for the subsequent construction phase.

Discuss with the contractor a fair fee. It's mostly assessed as a percentage of the total project cost while considering the contractor’s expertise and reputation.

The project costs should be estimated during the preconstruction phase. Here, all the resource and labor expenses that will be needed for the entire project are predicted.

An estimate of the overall project’s cost is important because it's used as a point of reference during and after construction.

Bonus Idea: While the exact pre-construction costs can vary depending on factors such as market conditions and contractor expertise, the overall estimate is somewhere between one to three percent of the total project cost.

Enjoy the Benefits of Accurate Pre-construction Costs

The preconstruction phase is incomplete without considering pre-construction costs. The benefits of these costs are beyond finances because you will get the peace of mind of knowing that your construction project is well-planned.

Knowing preconstruction costs helps in:

• Streamlining your construction project planning by allowing stakeholders to predefine the what’s when’s, how’s, and where’s of the project. This ensures that all aspects of the construction project are catered for in advance.
• Developing an accurate initial budget and estimated project costs. This helps reduce the likelihood of cost overruns during the preconstruction and construction phases.
• Assessing risks and contingency planning—and their financial impacts. This will help the construction team plan how to address them during the project, without affecting the budget.
• Improving stakeholder communication and collaboration. This is due to precise preconstruction documents and cost breakdown which involves all stakeholders’ participation.
• Refining the project design and overall outcome. An estimate of the budget can help you assess the financial feasibility of the project and make the necessary adjustments.

Construction projects with clearly defined pre-construction budgets are often completed on time and within budget. Yours should not be any different because now you know the essential components of pre-construction costs.