Bill of Quantities and Progress Payments

Bill Of Quantities and managing the cost of building projects

The Bill of Quantities is a detailed list of the costs of building a building or carrying out any construction project. It lists exactly what will be provided and how much it will cost. The Bill of Quantities or BoQ, as it is called, allows the customer to know exactly what he/she will get for their money. The BoQ also allows management of progress payments as stated in the payment schedule and it provides a very effective means of controlling project costs. It provides protection against fraud and/or unethical behaviour and warns you if the contractor is running out of money.

Protecting ourselves against unethical builders

Integrity is a precious comodity, and sadly many people have bitter experiences when building their dream home. I recently came across a case in which a builder had disappeared leaving a partially completed project. It often happens around the 60% completion stage.

It is common that in such cases the “builder” has been paid more than the work he has completed. He will have worked out that by running off now he will end up with more profit than if he finishes the project and he will avoid the most difficult period when he is doing the finishing work and trying to get final payment.

Sometimes the builder may add insult to injury by demanding even more money, his argument being that the money paid is less than the amount of work completed.

I have come across several cases like this over the years. Honest people who are building their dream home only to find that the builder has disappeared, the money has run out but there is an absence of windows and doors, electrical wiring is nowhere to be seen and there is some very effective ventilation where the roof should be.

Enquiries follow only to reveal that the 8 teams of workers that came and went over the 14 months the project dragged on for left because they hadn’t been paid. Sadly pleonexia is alive and well in the construction industry and contractors know that the average owner builder, Mr and Mrs Nicefriendlypeople, are easy prey for their games. Lambs and slaughter come to mind.

When a contractor walks away from a half finished job it leaves all sorts of problems. The project is likely to be considerably delayed and it may be difficult to find a new contractor willing to take on the mess that someone else has left. Unfortunately the sort of contractor who perhaps had planned all along to walk away from a half finished job may well be the sort of person that will have cut corners in the work.

Control Systems used by Professional Bulders

Professionals use standardised systems that; if they are well set up, properly thought out and a rigidly applied; minimise the risks involved and keep contractors in check.

These systems relate back to the Bill Of Quantities which, as we have said before, is a detailed list of all the tasks that have to be completed to construct the building. Each part of the work is fully described and costed so everyone knows exactly what is to be done and how much it will cost.

What is in the Bill Of Quantities?

Let us look at a typical Bill Of Quantities and see what information and the level of detail you should expect. We will try and keep this simple enough for even brain surgeons to understand. For the full report go to the website at: Sample progress report you will see a sample report from a database designed for managing project progress and payments.

The Bill Of Quantities is broken down into headings for each section of the work such as:

1. Site clearing and project establishment

2. Foundations

3. Structure

4. Floor slabs

5. Walls

6. Roof and ceilings

7. Windows and doors

8. Electrical Installation

9. Plumbing Installation

10. Ceramic wall and floor tiling

11. Painting

12. Drainage

13. Water Supply

We also need to add on the bottom:

14. Architect’s Fees (10%?)

15. Structural Engineers Fees

16. Construction Tax (10%)

17. Legal costs (IMB, contract fee, etc)

Under each of these headings will be a breakdown of the tasks within that heading with the estimated costs. The tasks should describe the work to be done, the type or level of quality of the materials to be used and a quantity such as cubic meters (excavation, fill or concrete), square meters (tiling, roofing and painting) or per item (washbasins, toilets, doorhandles, stress pills, etc.). The price for a single unit and the total price for the totals needed for the project is also given. The description also should, where relevant cross refer back to the drawings in order to tie the specifications stated on the drawings as part of this document. This provides legal protection. The costs are totalled up to give us the TOTAL cost of the project.

Alright so we now have our Bill of Quantities and this should become a part of the legal documentation that becomes part of the building contract. The builder must sign up to agree to construct according to this document. You might want to add a penalty clause should he not complete the contract, if he refuses such a cluase this might ring some warning bells.

The Schedule of Payments

Now we come to the important part, we have to determine a schedule of payments. We start by saying we’ll give you so much to get started (10% might be a reasonable amount but it depends on the size of the project). This gives the contractor some cash to pay for some materials and start up costs.

Next we have to work out how we will carry on paying as the project proceeds. We have to make sure the contractor has enough money to carry on working but also make sure that if he heads for the hills we are not out of pocket. This might sound difficult but remember there is a profit margin for the contractor in each part of the project and we can use the profit margin on the work he has already completed as the advance for the cost he will incur on the next part. This means that after each payment is made you and the contractor are square, you have the work completed and he has his profit so far.

It is advisable to avoid paying large amounts. If you have only 3 or 4 payments for the whole project the amount paid and the amount of project completion will vary to a far greater degree than if you use smaller, more frequent payments.

Construction companies tend to use a more rigid approach. They will set milestones and pay only when the milestone is achieved. For example they may only pay for the roof when every part of the roof is completed and has been inspected and passed.

A Typical Construction Project Payment Schedule

A typical payment schedules would allow for 5 or 6 payments as follows:

10% up front to get started

25% on 30% completion of the project

25% on 60% completion of the project

25% on 90% completion of the project

10% on completion

5% retained by the customer to be paid at the end of the gaurantee period when all post construction problems have been satisfactorily rectified.

Managing Progress Payments

Ok now the final stage is to manage the Payment Process. Before any payment is made the project is inspected and payment made according to the actual work done. You will need an engineer to go through the bill of quantities and check each line item to assess the percentage of completion. This is totalled up to give you the total financial value of the construction that has been completed.

If you look at the sample file you will see that there is a column second from the right with the percentage complete entered which is then calculated into a monetary value for the amount of work completed in the right hand column. Armed with this information, some common sense and a healthy dose of assertiveness, you can now make sure you are not paying more than you should.

A good contractor will understand all this. He/she will give you a detailed Bill of Quantities and will respect your desire to get progress inspections carried out before you release money.

If you know you are not a very assertive person beware that the contractor may sense this and feel that he can exploit you. It might be best to find someone to represent you in dealing with making payments but make sure it is someone you trust.

Look out for tell tale signs of dodgy dealings. Don’t let emotions take over, be methodical and never assume the contractor is your best friend and is going to be benevolent to you. Keep an eye out for vagueness or lack of detail in the Bill of Quantities. Excuses should ring alarm bells. If he cannot keep his workers this suggests there is a problem. If the staff walk off find out why and if they have not been paid you can bet your life the contractor will be dishonest with you. It is also well to remember that happy workers will do better work than unhappy workers.

Protection comes from having a clear definition of what is to be done, what has been done and accurate costings of the two.