Businesses understandably want to keep their costs down when it comes to construction projects, whether these are new builds or refurbishments. This pressure to get the lowest price is reflected at the tendering stage.
Traditionally, sequential lowest price tendering is the preferred option. Here the client procures consultants for the building design and separately goes out to tender for the contractors who will do the actual building work.
This non-integrated model is increasingly prey to variables arising from more complex building projects and additional costs arising during the course of the construction work. There is often a gap between the tender cost and the final building cost.
In researching its recent report on business rates in the education sector, The Beattie Partnership has uncovered various examples of this gap. As Head of Education, Brian Sayers explains, “Because the construction industry is so competitive, they’re tendering as low as they can to get the work. However, this means an increased likelihood of additional, “hidden” costs to the client down the line”.
The Beattie Partnership specialises in ratings work, and is working with clients in preparation for the 2017 business rates revaluation. The education sector is particularly vulnerable when it comes to discrepancies between tenders and final costs because, in this sector, changes to rateable values are predominantly based on build costs not rents.
“We’re used to analysing the Tender Price Index to get an idea of potential rate increases for education”, Brian continues. “However, the gap we’ve found between tender and build costs makes it hard to quantify what increased building costs are to schools, and therefore what sort of rateable value increases they’re likely to face”.
This all adds to the uncertainty around forthcoming changes to business rates, especially in the light of George Osborne’s recent announcement about wholesale changes to the levy and collection of business rates.
“It is important for schools and businesses to be very aware of what their final building costs are”, concludes Brian. “Regardless of the gap between the final figure and the tender, in the case of schools, there are the implications around business rates to consider”.
Education Sector: 2017 Rating Revaluation – What You Need to Know is available to view and download by clicking here.