Capital Projects: From Brief to Budget
How to design and cost a project that delivers
Every capital project is shaped long before anyone sets foot on site. The decisions made at design and costing stage, how the scope is defined, which procurement route is chosen, how the price is built and tested, set the tone for everything that follows. Get them right and the project has a fighting chance of landing on time and on budget. Get them wrong and you spend the rest of the programme managing the consequences.
This blog is written for the people on the customer side who carry that responsibility: estates and facilities leads, heads of property, procurement teams, and the senior stakeholders who sign off the budget. You don’t need to be a construction specialist to use it. The aim is to help you ask better questions, recognise the warning signs earlier, and get a fairer, more accurate price for work that actually delivers what you need.
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In our experience, the projects that run into trouble rarely fail on site. They fail at design, planning and costing stage, most often because the existing building and user needs were not properly understood before a price and solution was agreed. We come back to that theme throughout, because it is the single biggest lever you have.
Routes to pricing: understanding your options
How you buy a project shapes how it is designed, priced and delivered. There is no single right answer, but there is usually a right answer for your project. The main routes to pricing are:
- Fixed price (lump sum), Often referred to as ‘traditional’, the customer will have appointed a professional team to design the project to a point the contractor can price. It gives cost certainty, but only if the scope is genuinely understood and complete. Price a lump sum against an unresolved design and you are buying certainty you don’t actually have.
- Schedule of rates, you agree unit rates and pay for the work as measured. Useful where the full extent of work is not yet known, common in refurbishment and reactive works, but it transfers more cost risk to you.
- Cost-plus / open book, the contractor is reimbursed actual cost plus an agreed margin, with the books open to inspection. It builds trust and works well in collaborative relationships, but it needs the customer to engage with the detail.
- Target cost with pain/gain share, a target is agreed and any saving or overspend against it is shared on pre-agreed terms. It aligns both parties around the same number and rewards efficiency on both sides.
- Design and build, a contractor is appointed to undertake the full design and delivery. Often under a Pre Contract Services Agreement (PCSA) to ensure customer requirements are embedded including the scope, design, program, planning and all the legislative detail to construct an accurate cost plan, before moving into a similarly formal Main Contract for the project delivery phase. All this can be done using standard form contracts like Joint Contracts Tribunal (JCT) for example.
There is also the question of how many stages your tender runs to. Single-stage tendering takes a completed design to market in one go, clean and competitive, but only when the design is genuinely finished. Two-stage tendering appoints a contractor earlier, on the basis of preliminaries and overheads, then develops the price with them as the design is completed. That second route is where early contractor involvement lives, and it is the one we keep coming back to.
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Our preferred route is a Pre-Construction Services Agreement (PCSA). It gives the most comprehensive and accurate pricing and lead-in times, because pre-orders can be placed to secure both cost and programme before the main contract is signed. On refurbishment and M&E-heavy work, that early certainty is worth far more than the apparent simplicity of a single-stage lump sum.
How to achieve an agreed and fair price
A fair price starts with a well-defined scope. The more clearly you describe what you need, the more accurately a contractor can price it, and the fewer surprises arrive later as variations. Vague scope doesn’t save money; it just defers the cost to a point where you have less leverage.
To price accurately, a contractor needs to understand the condition of what already exists. On a refurbishment or replacement project, that means the condition of the existing plant, fabric and associated systems. This is the information customers most commonly fail to provide at the outset, and the gap that most often turns into unplanned cost later.
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On a project to upgrade Biological Services Unites (BSUs), our validation of the existing services before the RIBA Stage 4 design highlighted that the customer’s RIBA Stage 3 design was incorrect. Catching that before pricing and ordering, rather than after, is the difference between a controlled project and a series of expensive surprises.
What pricing model best suits your organisation
The right model depends less on fashion and more on your specific circumstances:
- Size and complexity, a simple, well-defined project suits a lump sum; a complex refurbishment in a live building rarely does.
- Appetite for risk, every pricing model allocates risk between customer and contractor differently. Be honest about how much risk you are equipped to hold.
- Public sector obligations, frameworks and procurement regulations may shape or constrain your options. Working through a compliant framework can remove much of that friction.
- Speed of delivery, if programme is critical, a route that allows early ordering of long-lead items (such as a PCSA) can protect your timescale.
- Internal resource, an open-book or cost-plus arrangement needs customer-side capacity to engage with the detail. If you don’t have it, factor that in.
For public sector readers, our note on framework procurement explains the compliant routes available.
Understanding the contractor’s perspective
Customers price better when they understand how a contractor builds a number. A price is made up of measured work, plus allowances for overheads, risk and profit. The size of the risk allowance is driven by uncertainty, and uncertainty is largely within your control. The clearer and more complete your information, the less a contractor has to price defensively to protect themselves against the unknown.
Contractors price competitively when the scope is clear, there’s a smaller number of pre-qualified bidders, the programme is realistic and the relationship encourages transparency. They price defensively, or walk away, when scope is ambiguous, terms are one-sided, or the cost of even bidding is too high relative to the chance of winning. Understanding that dynamic helps you create the conditions for a keener, more honest price.
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One of the most common misconceptions we see is around pricing and lead-in times, customers relying on internet pricing or indicative manufacturer lead times that simply don’t hold once an order is actually placed. Realistic numbers come from engaging the supply chain early, not from a quick search.
The power of partnerships and early collaboration
The best outcomes come from collaboration, not adversarial procurement. Framework agreements and long-term supply chain relationships build the trust and continuity that one-off competitive tenders can’t. A two-stage design-and-build approach brings the contractor into the design conversation, where their buildability knowledge can head off problems before they are baked in.
Value engineering, done well, is a collaborative process to get better value, not a euphemism for cutting corners to hit a number. The earlier that conversation happens, the more options remain open.
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Early Contractor Involvement, via a PCSA, lets us validate any previous advice, the condition of existing plant and systems, issue clear RAG-rated condition reports, and put real decisions in front of the customer: replace this now, or accept the risk of leaving it. When that engagement is missing, typically because we’re handed a completed RIBA Stage 4 design, the relationship becomes dictated rather than collaborative, and the opportunity to head off problems has already passed.
Why capital projects fail at design and costing stage
Most project failures can be traced back to decisions, or omissions, at this early stage:
- A poorly defined brief, allowing scope to creep before works even begin.
- Unrealistic budgets and the pressure to ‘make it work’ regardless of what the scope actually requires.
- Lowest-price-wins thinking, which selects for the contractor who has best understood how to leave things out of their price.
- Design not fully resolved before pricing, forcing reliance on provisional sums that are really just deferred uncertainty.
- No contingency built into the cost plan, so the first surprise becomes a crisis.
- Not engaging the in-house maintenance team, the people who know the building best, to understand the true scope and its impact.
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The single most common cause of scope creep we see on refurbishment work is the unknown condition of the existing building fabric, plant and systems. It is also the most avoidable, through validation surveys carried out early, before the budget is fixed. On one university project, our validation surveys identified around £700k of M&E requirements against an initial £200k fabric scope. Far better to know that at the start than to discover it mid-project.
Unfair contract terms and how to spot them
Finally, the terms you want your contractor to sign up to matter as much as the price. So avoid:
- One-sided risk allocation that passes risks to the contractor which they can neither control nor price fairly, the cost comes back to you eventually, usually as a dispute.
- Unreasonable payment, penalty and retention terms that strain the relationship and the supply chain.
- Unlimited liability, unreasonable warranties, excessive obligations and consequential losses drafted to push disproportionate and often uninsurable risk to the contractor.
- Bespoke amendments to standard contracts that quietly shift the balance.
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Our view is straightforward: contracts work best when they remain as unamended as possible. A recognised standard form (NEC, JCT) is fair and unambiguous for both parties. Most disputes we see arise from amendments that are either inequitable or simply unfair. Where there’s doubt, take legal and commercial advice before signing, not after.
Getting it right from the start
Design and costing is where projects are won or lost. Define the scope properly, understand the building you already have, choose a procurement route that fits your circumstances, and treat your contractor as a collaborator rather than an adversary. Do that, and you give every later stage of the project the best possible chance.
This is exactly how we approach capital projects and works at DMA, bringing planning, design, delivery and handover under one accountable team, so the early decisions are made with the whole project in view.
To learn more about how we approach capital projects, contact us to speak with our Projects & Engineering team.
