Why construction budgets overrun, and how to prevent it

Overruns have multiple origins, but some are far more frequent than others. The table ranks them by frequency and scale.

Cause	Frequency	Scale of the overrun	Stage of origin	Key preventive measure
Changes of brief mid-project	★★★★★	+ 8 to 25 %	Design and construction	Freeze the brief before tender; formalise every variation
Initial under-estimate	★★★★★	+ 5 to 20 %	Feasibility and concept	An outline estimate by an independent economist from the sketch stage
Discoveries in excavation and ground	★★★★	+ 3 to 30 %	Construction	A ground survey before the planning application; a ground contingency of 5 to 15 %
Inflation between developed design and tender	★★★★	+ 3 to 8 %	Tender and award	A dated estimate, updated at the date of the tender, and a provision for price variation in the client's budget; the contract's indexation and price revision apply only after the offers are submitted
Unprovided variations	★★★★	+ 3 to 8 %	Construction	A variations provision of 3 to 5 % of the contract, from the outset
Regulatory premiums forgotten	★★★	+ 5 to 15 %	Outline and developed design	A systematic regulatory checklist: accessibility, acoustics and the rest
Delay leading to finance costs	★★★	+ 2 to 8 %	Construction	A firm programme with effective delay damages in the contract
A poorly defined brief	★★★	+ 5 to 20 %	Feasibility	A detailed brief approved by the client before appointing the design team
Poor coordination between packages	★★	+ 2 to 6 %	Construction	A competent site coordinator and systematic design approvals
Disputes with contractors	★★	+ 1 to 10 %	Handover and defects period	A jointly agreed final account, an expert where necessary

Cause number one: late changes of brief

Changing the brief after the planning application, or worse, after work has started, is the most frequent cause of overrun and one of the most expensive. Every late change costs on average five to ten times more than the same decision taken at concept stage.

The rule of thumb: one euro of decision at feasibility equals ten at developed design and one hundred during construction. Moving a partition on a drawing costs a few hours of design time. Moving the same partition on site costs demolition, removal, rebuilding, reworked services and disruption to the other trades.

The second great cause is the deliberate or inadvertent under-estimation of the initial budget. It happens for several converging reasons.

• Optimism in preliminary estimates. At feasibility, estimates are produced from incomplete data with a natural tendency to present reassuring figures to secure the decision-maker's go-ahead. Those provisional figures then become the psychological reference for the budget, even when the design work reveals a costlier reality.
• The invisible items forgotten. Land, fees, external works, connections, parking, furniture, tax: these represent 30 to 60 % of the total cost of an operation. A correct works estimate without them leads to a total budget under-stated by the same proportion.
• Regulatory premiums not anticipated. Accessibility, acoustics, energy performance, seismic requirements: every requirement not built in at the start produces an overrun once the design advances.

An estimate is not a quotation, it is a forecast with a level of uncertainty that depends on how far the project has advanced. Ignoring that uncertainty risks presenting an initial budget too precise to be realistic. The correct provisions at each stage are as follows.

Stage	Estimate precision	Recommended contingency	Price revision provision	Recommended total budget
Pre-brief	± 30 to 40 %	15 – 20 %	3 – 5 %	Estimate × 1.20 – 1.25
Concept and outline design	± 15 to 20 %	10 – 15 %	3 – 5 %	Estimate × 1.15 – 1.20
Developed design	± 8 to 12 %	8 – 10 %	2 – 3 %	Estimate × 1.10 – 1.13
Detailed design and tender	± 5 to 8 %	5 – 8 %	1 – 2 %	Estimate × 1.07 – 1.10
Contracts signed	± 3 to 5 %	3 – 5 %	The contract indexation clause	Contract sum × 1.04 – 1.06
Handover	± 1 to 3 %	1 – 2 %, retention	Settled in the final account	Final account plus defects cleared

The table imposes an uncomfortable truth: a pre-brief estimate presented without a provision of 15 to 20 % is either too optimistic or incomplete. A client who approves a budget with no significant contingency accepts a near-certain risk of overrun.

A contingency is not waste

The contingency for risks and unforeseen items is a reserve in the client's budget. The MIQCP guide (June 2008) places within it risks (changes to the brief, changes to the specification, an unsuccessful tender, the failure of a consultant or a contractor) and unforeseen items (changes to regulations or technical standards, technical developments in products); in practice, it also covers discoveries during construction, such as those in the ground, and poorly coordinated interfaces. It is not there to compensate for poor design or poor supervision.

On a 5 M€ project with an 8 % contingency of 400,000 €, it funds probable expenditure that cannot yet be pinned down, and is in no way a comfort margin. The unspent part returns to the client at handover. An unspent contingency is good news, not a planning failure.

Variations to the works contracts, changes of brief, additional work, unforeseen items, can represent a significant share of the initial contract sums, especially on complex operations. That is additional spending most initial budgets do not include.

An order of magnitude for framing is to provide around 5 % of the contract sums for variations when the works budget is drawn up. That provision belongs to the client's budget: it is the client who decides on each variation and on its charging against this reserve, with the design team assisting through its financial monitoring; in public procurement, the design team must keep the client systematically informed of the progress and forecast of the works and expenditure.

On a project running 18 to 24 months from developed design to handover, construction sector inflation creates a gap between estimated and real costs. That gap is structural and foreseeable, but often unprovided.

The price revision provision is calculated over the tender and construction period, multiplied by the expected sector inflation. With inflation at 4 % a year and a total duration of 20 months, of which six are tendering, the provision is at most 4 % × 20/12 = 6.7 % of the works, an upper bound that assumes the whole amount is exposed throughout the period. This provision is a line in the client's budget, not a clause of the contract. The contract, for its part, organises price variation after the offers are submitted: in a fixed-price public works contract, the price is indexed if more than three months separate the date on which the contractor set its price in the offer and the start of performance, at the economic conditions of three months before that start (R2112-10 and R2112-11); with a revisable price, the form adopted when the parties are exposed to major risks during the performance period, it "may be modified [...] to take account of economic variations", according to the reference or formula set by the contract, for example on the basis of an INSEE BT index (R2112-13). Before the offers are submitted, rising prices can only be covered by a dated estimate and by this provision.

On any construction project, validating the following ten points before work starts significantly reduces the risk of overrun. Every point not validated is an identified risk.

Control point	Responsible	Effect if missing
A ground survey carried out before developed design	Geotechnical engineer	Special foundations unprovided, + 5 to 25 %
The brief definitively frozen before tender	Client	Variations for changed brief, + 8 to 25 %
The developed-design estimate validated by an independent economist	Economist	Systematic under-estimation, + 5 to 20 %
An explicit contingency in the budget, at least 5 %	Client and economist	A visible and painful overrun
A price revision provision, 2 to 3 % according to the tender period	Client and economist	Offers above the design budget
An indexation clause in the contract conditions	Client and legal adviser	Dispute with contractors if materials inflate
A contractual programme with effective delay damages	Design team and client	Delay with no recourse
A site coordinator appointed for inter-package coordination	Client	Uncoordinated interfaces, cost of reworking
Handover defects listed and the defects period agreed	Design team and client	Defects cleared without pressure, dispute in the defects period
The additional budget for furniture, IT and the move identified	Client	A surprise at occupation, total budget affected

The construction economist is the client's principal resource for preventing overruns. Their role is not limited to producing estimates: they monitor the cost of the project continuously between stages, flag potential drift, and help decide brief questions when they carry a financial consequence.

• The financial dashboard: a monitoring document that reconciles in real time the initial budget, the successive estimates, the contracts signed, the variations and the remaining provision. It is the project's financial steering instrument, updated after every significant event.
• Early warning: when a change of brief risks exceeding the contingency, the economist tells the client immediately, before the decision is taken, not after. That early-warning function is among the most valuable in the assignment.
• Judging by value: faced with an expensive change request, the economist can quantify the marginal cost of each option and help the client decide with full knowledge. Sometimes a 50,000 € change is indispensable; sometimes a 5,000 € alternative delivers 80 % of the value for 10 % of the cost.

The two most frequent causes of overrun are late changes of brief, at + 8 to 25 %, and initial under-estimation, at + 5 to 20 %. Both are prevented early: freeze the brief before tender, and commission an independent outline estimate from the sketch stage. The correct contingencies are 15 to 20 % at pre-brief, 10 to 15 % at outline and 8 to 10 % at developed design; they are not waste but cover for the statistically foreseeable unforeseen. The ten-point checklist, ground survey, frozen brief, explicit contingency, indexation clause, programme with damages, site coordinator, is the systematic preventive instrument before any site starts.

The nature of the figures quoted

The percentages and amounts quoted on this page are orders of magnitude for framing, not measurements. They illustrate mechanisms and proportions, and they substitute neither for a tender exercise nor for an estimate prepared on drawings.