How To Ensure The Right Contract Budgeting In A Construction Project - SILA

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Riding on the back of multiple reforms, the Indian real estate sector is witnessing a growing trend of developers, companies and even individuals using organized contractors for the execution of a construction project. This has led to the expansion of the organized contracting space with firms providing turnkey contracting services that include comprehensive civil interior works, electrical and lighting installations amongst a host of other capabilities that can transform the aesthetic feel and add value to a project. 

 

However, construction projects need careful financial and logistics planning with considerations being made for potential delays, plan modifications, unforeseen structural challenges and other hidden costs.  At SILA, for us this deems having a detailed budget prepared before commencing a project critical to the ensure success and there are a few basic pointers that we employ to safeguard the right contract budgeting for any real estate construction project. 

 

Preparing a baseline budget built upon the client’s desired design specifications requires sitting down and discussing aspects like the client’s vision for the property including its intended use and general design theme along with the desired completion date and an agreed upon cost tolerance. Despite this budget being just a rough estimate, it acts as an effective tool for measuring the project’s performance during joint reviews at various stages of construction. Efforts should be made at this stage to gather as many specifics to arrive at an estimated budget that is accurate in terms of the eventual cost of construction.

 

Value engineering at the design stage with the help of a structural consultant can be the difference between a good and great project. Discussing the client’s requirements, be it for a bungalow project in Alibaug or constructing an industrial warehouse, with an experienced structural consultant at the design stage is therefore highly recommended. Incorporating energy and water saving features is an example of value engineering that can help unlock savings in future facility management costs while also adding value to the project.

 

Periodically reviewing the costs accrued in comparison with the budget to ensure that any inflation-risks to cost of materials or labour can be highlighted and discussed for further action. For example we  suggest to our clients that at least a fortnightly review mechanism is established with both the client and the contractor revisiting the original plans and budget to make suitable amendments. This process assumes even greater importance in large or complex projects as they are more susceptible to encounter inflationary price pressures on key raw materials like cement and steel over the course of the long construction period.

 

Transparency in ensuring all bills are presented to all stakeholders can do wonders to a client-contractor relationship and ensures a high level of trust amongst both parties. A thorough Project Management plan will include the use of an ERP tool that can facilitate the recording of all expenses with proof of bills or receipts. In the current GST regime, this activity is vital from a compliance perspective and can also lead to potential tax savings by availing the benefit of Input Tax Credit (ITC), wherever applicable. 

 

In case of cost overruns, suggesting design or specification changes is a key responsibility on part of a contractor to ensure that the overall vision of the project can be achieved. These can include material changes that have minimum impact on the end-utility or aesthetic appeal of the space being constructed. More innovative structural design changes may be necessitated in case of unforeseen challenges racking up the construction costs significantly. At SILA, we evaluate the project keenly at the design stage itself to ensure that such extensive changes are not required at a later stage

 

 

Despite being a largely unorganized sector so far, the Indian real estate contracting space is witnessing home-grown companies that provide general Contracting services in addition to Facility Management, Project Management & Real Estate Advisory services to a host of clients across India.  By following the above laid tenets of thorough budgeting, efficient design and construction processes, SILA, an organized player in this space, we help our clients by redefining cost, safety and quality standards across this fast-growing space in the country today. 

 

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