Frequently Asked Budget QuestionsMarch 2023
by Rachel White
This post is a companion piece to Early and Often: Our Approach to Budgeting. We hope that these FAQs will be a helpful resource for folks we haven't met yet as well as for our current clients. If you think of other questions we should considering adding to this list, please drop us a line and let us know.
I have a rough budget in mind. When and how will I know whether you can you work with that?
At our initial meeting, we’ll give you our best initial sense of overall project costs based on the goals you’ve shared, what we can see during our walk-through, and pricing of recent projects. We’ll also discuss cost drivers, areas of uncertainty, and strategies for managing costs. Our hope is that you come away from that meeting knowing whether our sense of what it would cost for us to build your project aligns reasonably well with what you think you are prepared to spend.
How do we get from an initial rough ballpark budget to a final budget?
Once we have a better sense of your goals and we’ve thoroughly documented your home’s existing conditions, we’ll develop schematic design options for all the spaces you’re considering renovating. Once you’ve decided on your preferred approach for each space, we’ll develop conceptual solutions for the performance aspects of the project, such as insulation and mechanical upgrades, as well as for any miscellaneous items you may be considering doing (we call this the “while-you’re-here-list”). Then we’ll put together a feasibility budget for each potential “chunk” of work. The feasibility budget is not based on hard quotes, but on allowances for products and finishes and on recent past pricing from our subs and suppliers. It is given as a range of ±10%.
We think of the feasibility budget as a menu of options. Our hope is that some subset of this menu will meet your needs and work for your budget. Once you select which “chunks” you want to move ahead with, we’ll move into design development: we'll flesh out all the design details, select all the products and finishes, and get hard quotes from our subs. During this phase of planning, we’ll narrow the budget ranges further until we arrive at a fixed amount for each chunk of work. The sum of these is the construction contract price.
How often does the final budget come in higher than the high end of the feasibility range?
Rarely. We have a good track record of staying within the ranges we give at the feasibility stage if the scope and design stay relatively consistent. (We do our utmost to discourage “scope creep” after you’ve approved a feasibility budget). Occasionally, we are surprised by higher-than-expected quotes from our subcontractors and our suppliers, which can push the final chunk pricing above the high end of the feasibility range. If this happens, we may have to do some cost engineering to bring the pricing down. This is partly why we may update the budget a couple of times during design development—if the pricing is pushing beyond your budgetary comfort zone, we don’t have to scramble to course correct.
Is the construction price really fixed?
Yes, it really is fixed, but we do carry a small number of allowances. There are two types of allowances. The first is for hidden conditions. In each chunk of work, we’ll include an allowance to correct problems with existing framing, plumbing and electrical that are hidden behind finishes. Once we complete the rough work, we’ll reconcile these allowances. Sometimes the actual cost is higher than we budgeted, but on average actual costs for corrective conditions are lower than allowances. The second type of allowance is for products and finishes. We keep these to a minimum by asking you to select nearly every product during design. There may be a small handful of decisions we won’t ask you to make upfront, such as knobs and pulls for cabinetry, which we will carry allowances for. There are also some items that we typically carry as allowances even though they are selected and quoted. Cabinetry is one example. We carry this as an allowance because we wait to finalize the order until after demolition, when the cabinetry installer can take final measurements. We typically reconcile product and finishes allowances at the end of the project, but if there’s a larger than expected delta between an allowance and the final quote, we’ll ask for your approval before we sign off, and if we need to adjust, we will.
What about change orders?
Change orders can happen one of two ways. The first way is if you change your mind about part of the contract scope or want to add a new component. We do our best to head this off by following a rigorous and thorough design process. By the time we sign a construction agreement, we want you to feel comfortable with every decision you’ve made and every product you’ve selected. The second way is if we run into a hidden problem beyond the scope of our corrective conditions allowance. These are the true unknown-unknowns—things like a failure of the drain system — and they can, unfortunately, derail both the budget and the schedule. The good news is that big hidden problems show up surprisingly rarely. We know that because we track our change order income: on an annual basis 1-3% of our income comes from change orders. Of course, this doesn’t make it easier if you’re one of the unlucky people this happens to. The silver lining is that if it does happen, we have the chance to correct it before it becomes an even worse problem.
How does construction billing work?
We follow a milestone payment system. When we sign the construction agreement, typically 6-8 weeks prior to starting construction, we ask for a deposit of approximately 20-30% of the contract amount to place special orders, apply for the permit, and line up our subs. Once construction starts, we bill in equal increments upon milestones that are listed in the construction agreement. Typically, these milestones occur every 2-3 weeks until we reach substantial completion. We send you an invoice at each milestone.
What about design costs?
Design is billed by the hour and invoiced monthly. Total design fees typically range from 8-14% of total construction costs. The two factors that seem to have the most impact on where you land in this range are the permitting requirements and your decision-making style. The percentage of design to construction costs tends to be lower if we can build your project by right, and higher when we need approval from municipal commissions and/or boards. Likewise, this percentage tends to be lower if you are more decisive and higher the more you revisit your design decisions.
In the design agreement we include an estimate of the design hours to feasibility budgeting. So, you’ll know going into the planning process how much you’ll need to invest in design to get to a clearer sense of the overall construction costs—and from there a clearer sense of the overall design costs.
How do you keep us informed about design costs?
After feasibility budgeting, we provide a statement with each monthly invoice, and each budget update includes an estimate of remaining design fees.
Will there be design fees during construction?
Design billings cease once we start construction, except for change orders that require design work. From this point forward, any work by the architect, designer or products and finishes coordinator is included in the fixed price construction contract as construction administration. That said, you will likely receive your last design invoice after construction has started, because invoicing tends to be a month behind when the fees were incurred.