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Setting the budget before design starts

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By , construction economist

Information verified on 6 min read

What you will learn Why the budget is a starting point set by the client rather than an outcome of the design, the difference between the works budget and the total development cost, the price date, the contingency reserve and how to carry the figure into the architect's appointment.

The right order is the reverse of the usual one: the development budget is set before the design is commissioned, and the design is developed to fit within it. This branch of the guide to construction budget control for the client deals with that first decision, the one that shapes every other.

A starting figure the law leaves to the client

The Building Act (Ley de Ordenación de la Edificación, LOE) defines the promotor (the client or developer) as the person who "decides, drives, programmes and funds" the works (art. 9.1; unofficial translation). Programming and funding mean knowing how much can be spent. No other party is given that figure: the designer drafts the design "on the commission of the promotor" (art. 10.1), the contractor is bound to the promotor by contract (art. 11) and the dirección facultativa (the site direction team) signs off the interim certificates and the final account, but the LOE does not assign the client's budget to anyone.

A budget that emerges from the design is someone else's estimate, not the client's own target. If the figure exists beforehand, each design stage is measured against it and any deviation is spotted while it is still cheap to correct.

Two figures not to confuse

The works budget and the total development cost are different quantities, and the client needs both. The works budget starts from the presupuesto de ejecución material (PEM, the net works cost), the sum of the work items priced at their rates plus the lump-sum items, and becomes the contract price once the contractor's overheads and profit are added. The total development cost then adds everything that is not construction.

Figure What it includes What it is for
Net works cost (PEM) work items at their rates and lump-sum items comparing the technical estimates from one stage to the next
Contract price PEM plus the contractor's overheads and industrial profit contracting and comparing tenders
Total development cost works price plus land, fees, surveys, permits and local taxes, insurance, utility connections, finance, taxes and contingency deciding whether the scheme is viable and negotiating its funding

The most expensive confusion is approving a PEM as if it were the total cost: fees, taxes, insurance and finance then no longer fit. The usual ratios for moving from one figure to the other are covered in the article on moving from the PEM to the total cost; here it is enough for the client to know which figure each party is talking about and to put it in writing.

Dating the budget

A budget without a price date cannot be compared with anything. The figure states the month of its prices, and every later estimate is compared at that date, to separate what is due to the market from what is due to the design.

In private works there is no statutory price revision: under a fixed-price contract (ajuste alzado), article 1593 of the Civil Code prevents the contractor from claiming an increase "even if the cost of wages or materials has risen". But between the budget date and signature, rising prices are the client's risk.

An explicit reserve

The contingency reserve is a line in the budget, with an amount and a rule for its use, not a margin hidden in each item. It shrinks as the design is defined and is released only by the client's decision.

Writing the figure into the appointment

The architect's fees and the terms of the appointment are freely agreed. Professional bodies (colegios profesionales) may not set guideline fee scales (Ley 2/1974, art. 14) and the professional body's validation (visado colegial) does not cover "the fees or the other contractual terms" (art. 13). The practical consequence: if the client wants the design to match a figure, it has to be written into the appointment contract, with its date, its scope and the agreed tolerance.

At this stage the figure does not need to be exact, but it does need to be reasoned, with its assumptions in writing (use, floor area, specification, site or existing building). The weight of each assumption is described in the article on the factors that drive construction cost.

The articles in this branch

This article reflects the state of the rules on the date of verification, 21 October 2026, and is intended as professional guidance. It does not replace legal advice or an examination of the specific case.

Frequently asked questions

The promotor, who under the LOE is the party that programmes and funds the works. The architect or a cost adviser can help reason the figure through, but the decision and the responsibility for holding to it are the client's.

Only if what it covers is specified. It is advisable to state whether the figure is net works cost, contract price or total cost, with its price date, and to keep the contingency reserve separate.

Because without a date there is no way of telling whether a deviation comes from the design or from the market. With a date, the budget can be updated to the month of each later estimate, so that both are compared at the same month's prices.

No. The Professional Bodies Act excludes the fees and the other contractual terms from the visado, so fitting the budget is only required if it is written into the appointment contract.

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