From works budget to total development cost: when each item becomes certain

A budget sorted only by amount hides where the risk lies. Two items of the same weight do not need the same attention if one is already contracted at a fixed price and the other depends on a design that does not yet exist. The useful question for each line has three parts: who invoices it, when its final amount is known and which document fixes it.

The usual ratios between net works cost, contract price and total cost are covered in the article on moving from the PEM to the total cost. The general logic of a budget set before design is in Setting the budget before design starts, the branch this page belongs to.

The table below runs through the usual items in the total cost of a development. The order of the rows roughly follows the moment at which each item is fixed.

Item	Who invoices it	When it becomes certain	Where its value comes from
Land	seller of the land	on purchase	agreed price and acquisition costs
Design and site direction fees	architect, arquitecto técnico (building engineer), engineering consultants	on signing the appointment, if fixed	appointment contract, freely agreed fees
Preliminary surveys (topographical, geotechnical)	laboratories and specialist consultants	when commissioned	consultants' quotes
Health and safety coordination	coordinating consultant	when commissioned	coordinator's contract
Planning permission and municipal taxes	town council (ayuntamiento)	on applying for or obtaining the licence	municipal by-laws
Net works cost (PEM)	contractor	in stages: estimated in the design, fixed in the contract, closed at handover	quantities, rates and the contractor's tender
Contractor's overheads and profit	contractor	in the building contract	contractor's tender
Quality control	laboratories	during the works, according to the tests carried out	control plan and quotes
LOE insurance and guarantees	insurers	when the policy is taken out, on the basis of the final cost	policy terms and art. 19 of the LOE
Utility connections	utility companies	on receiving their technical and financial conditions	utility companies' quotes
Finance costs and bank monitoring	lender, monitoring firm	on signing the loan, with the final amount depending on duration and drawdowns	loan agreement
Indirect taxes	each supplier, on its invoice	with each invoice	applicable rate according to use and tax position
Extra works, modifications, excess quantities	contractor	as each change is approved and in the final account	contract and change log
Price movements	contractor or client, depending on the contract	on signing the contract or when the clause is applied	price date of the budget and contract
Contingency reserve	nobody (the client's own line)	consumed or released up to the final account	client's decision

Land and fees are usually the first items to become certain, but only if the contract fixes them. The price of the land is settled on purchase; its weight in the total cost and in the value of the development is analysed in the article on the impact of land on cost.

Fees are freely agreed in the appointment. Ley 2/1974 on Professional Bodies (Colegios Profesionales) prohibits professional bodies from setting guideline fee scales (art. 14). The way fees are agreed determines how certain they are: a lump-sum fee is certain from signature; a fee calculated as a percentage of the works budget grows with it, so every deviation in the works drags a deviation in the fees behind it. That is why the basis of calculation is best fixed in the architect's appointment. The tendency of published decisions shows that the question does reach the courts: in STS 750/2012 of 12 December, as reported by vLex, the Supreme Court (Tribunal Supremo) rejected the architects' claim to fees calculated on an actual cost that had been increased by their own defective work.

Preliminary surveys and health and safety coordination are small amounts, but they come early. They are known when commissioned. Their value for the budget lies not in their amount but in what they reveal: a geotechnical survey that anticipates more complex foundations changes the works estimate before the detailed design exists.

The net works cost is the heaviest item and the slowest to become certain. It goes through three states. In the proyecto básico (the outline design), which under article 6 of the Technical Building Code (Código Técnico de la Edificación, CTE) "shall define the general characteristics of the works" (unofficial translation) and is enough to apply for planning permission but not to build, the figure is an approximate valuation. In the proyecto de ejecución (the detailed design), which develops the outline design, it becomes a budget with quantities and rates for each item. And only with the building contract does it become a price committed by a third party.

Technical requirements carry weight from the preliminary design onwards. The solutions required to comply with the Technical Building Code (insulation, building services, fire protection, accessibility) are not an optional extra cost; their effect is described in the article on the cost of CTE compliance.

The permit taxes depend on each municipality. This article gives no rates: each by-law sets its own. What matters for the budget is the timing: they are known when the licence is applied for or granted, that is, when the outline design is finished.

The contract price adds the contractor's overheads and profit to the PEM. That difference is not known until the tenders arrive. In public works there is a regulatory reference structure: article 131 of the General Regulation of the Public Administration Contracts Act (RGLCAP) defines the base tender budget (presupuesto base de licitación) as the net works cost plus the general overheads and industrial profit, plus VAT (IVA). In private works there is no mandatory structure; each tender allocates its indirect costs in its own way, and comparing them means reconstructing them, as the article on indirect costs and site overheads explains.

Insurance is taken out before the works but calculated on the final cost. The LOE (art. 19) sets the minimum sums insured for its guarantees by reference to the final net works cost, so the insured sum depends on a figure that is only closed at handover. In addition, the one-year guarantee may be replaced by the client retaining "5 per cent of the amount of the net works cost" (art. 19.1.a). That retention is not a cost: it is an amount the client keeps during the guarantee period, and it should appear in the payment plan.

Finance costs are fixed when the loan is signed, but their final amount depends on the duration. Interest, fees and, where applicable, the periodic monitoring report the lender requires under a development loan depend on the actual programme of the works. Each month of delay therefore carries a finance cost that the budget must be able to estimate.

Extra works, modifications and excess quantities only become certain in the final account. In private works at a fixed price, article 1593 of the Civil Code prevents the contractor from claiming a price increase because wages or materials have gone up, but not for an increase in the works authorised by the owner. In public works, the Public Sector Contracts Act (LCSP) allows excess quantities of up to 10% of the initial contract price without their counting as a modification, recorded in the final certificate (art. 242.4). In both cases, the final amount appears when the works are closed.

The LOE records the cost; it does not control it. The handover certificate (acta de recepción) must state "the final net works cost" (art. 6.2.c), and the final account of the units carried out is drawn up by the director de la ejecución (site works director) and approved by the director de obra (works director) (arts. 13.2.e and 12.3.e). This is the first time the works figure is entirely certain; by then, the rest of the total cost is too.

Each line of the client's budget should carry a status label. Four are enough: certain (paid or contracted at a fixed price), committed (contracted but with a variable amount), estimated (calculated by the client or the client's team) and provisional (reserve, or an amount awaiting a decision). When the budget is reviewed at each stage, the share of estimated lines should fall; if it does not, the design is not advancing in definition, even if it is advancing in drawings.

The reserve is sized against the lines that remain open. There is no point in holding caution against land that has already been paid for; there is every point in holding it against the net works cost until there is a contract, against finance costs while the programme is uncertain and against utility connections until the companies have replied. The article on the contingency reserve at each design stage develops that logic stage by stage.

Every line is expressed on the same tax basis and at the same date. Mixing amounts with and without indirect taxes, or figures from different dates, is the quickest way to lose control of the total cost without any item having changed.