Build cost evidence in a viability appraisal

Build cost evidence viability arguments are won and lost on whether the reviewer can trace each figure back to something. A cost per square metre with no source, an abnormals line with no schedule behind it and a contingency applied on top of already cautious rates will be adjusted downwards, and the adjusted appraisal is the one the officer reports.

The Planning Practice Guidance on viability lists what costs should include: build costs from appropriate data sources, abnormal costs, site and external works, professional fees, contingency, finance, and the policy requirements including the levy and planning obligations. That list is also the structure a reviewer marks against, so use it as the structure of your own submission.

Published cost data and its limits

For a scheme without unusual features, published cost data adjusted for location and date is accepted as a starting point. The standard source in UK practice is the cost information service published by RICS, which gives rates by building function derived from analysed tenders, with location factors and indices to bring figures to a chosen base date.

Three limits to understand before you rely on it.

The rates are distributions, not single numbers. A median rate is the middle of a spread that can be wide, and choosing the upper quartile needs a reason expressed in the text rather than left implicit in the spreadsheet.

The rates already include some items people then add again. Substructure to a normal depth, standard external walls, internal finishes and services are within the rate. Adding a piling allowance on top of a rate that already assumes normal foundations is double counting, and it is the first thing a reviewer looks for.

And the rates reflect tenders from a period, adjusted by index. In a volatile market an indexed figure can be some way from what a contractor will actually price, which is an argument for a cost plan rather than an argument for inflating the rate.

State plainly which function category you used, which location factor, which quartile and which base date. Four lines of text that remove four rounds of correspondence.

Abnormal costs and how they are evidenced

Abnormals are the contested part of almost every appraisal, because they are where the site specific money sits and because they are easy to assert.

The ones that do arise in practice:

• Demolition and site clearance, including asbestos removal.
• Ground remediation, where contamination is confirmed by investigation.
• Piling or ground improvement, where the ground conditions require it.
• Retaining structures, basements and significant level changes.
• Diversion or reinforcement of utilities, and grid connection works.
• Archaeological mitigation, where an evaluation has established the need.
• Flood mitigation and drainage attenuation beyond standard provision.
• Off site highway works under a section 278 agreement.
• Ecological mitigation, including off site biodiversity units.
• Works to retained listed or historic fabric.

The evidence standard for each is the same: a document produced for a purpose other than the appraisal. A ground investigation report, a specialist contractor's quotation, a highway authority's estimate, an ecologist's costed mitigation strategy, a utility provider's connection offer. Where contamination is the driver, the contaminated land assessment is the document that makes the remediation cost credible, and reports of that kind need suitably qualified authors in any event.

What does not work is a percentage. An abnormals allowance of five per cent of build cost, with no schedule, is treated as an aspiration. Where mitigation costs are set by a market rather than by a contractor, as with the credit purchases discussed in our note on nutrient neutrality mitigation credits and cost, cite the price source and its date.

External works and infrastructure allowances

External works are the line most often left as a round percentage and most often challenged.

On a small infill site a percentage allowance of the order of ten to fifteen per cent of build cost is commonly accepted, because the external works are proportionate and predictable. On anything larger, the percentage approach breaks down, because external works scale with site area rather than with floor area. A low density scheme on a generous site carries far more road, drainage, boundary and landscape work per square metre of house than a dense one.

So on a site of any size, measure it. Roads and footways by area and specification, drainage by length and size, attenuation by volume, boundary treatments by length, hard and soft landscape by area, street lighting by number, parking by space. That measured schedule is both more defensible and usually higher than the percentage it replaces.

Infrastructure that serves later phases needs a stated allocation, otherwise a reviewer will treat the whole cost as attributable to phase one and query the phasing logic.

Professional fees, finance and contingency

Three lines that follow the build cost and are routinely overstated.

Professional fees are conventionally expressed as a percentage of construction cost, and the accepted range narrows as schemes get larger, because fees do not scale linearly. A fee percentage at the upper end of the range on a large, repetitive housing scheme will be challenged. Where fees are higher because of a demanding refurbishment or a heritage constraint, say why in the text.

Finance should be modelled on the cashflow rather than applied as a flat percentage of costs. The inputs to state are the interest rate, the arrangement and exit fees, the assumed drawdown profile and the period. A rate materially above market for the scheme's risk profile invites a challenge, and stating the source of the rate removes the argument.

Contingency needs care because of its interaction with everything above it. A contingency of three to five per cent on a new build scheme with a full cost plan is normal. The same contingency applied on top of upper quartile published rates and a generous abnormals schedule is asking to be reduced, because the caution is already priced twice. On a refurbishment of an existing building, a higher contingency is defensible and should be explained by reference to what is unknown.

Where a quantity surveyor's cost plan is expected

For anything beyond a small scheme with no abnormals, expect the authority's reviewer to want a cost plan from a quantity surveyor rather than an appraisal populated from published rates.

Situations where a cost plan is effectively required:

1. Any scheme where abnormals are a material part of the argument.
2. Refurbishment or conversion of an existing building, where published new build rates do not apply.
3. Schemes with basements, structures, or unusual forms.
4. Any appraisal that has been through one round of review and been challenged on costs.
5. Schemes where the affordable housing outcome turns on a small margin, because that is where scrutiny is heaviest.

Have the plan prepared in a recognised measurement format, dated, and signed by the practice. A cost plan with the same base date as the value evidence is checkable. One dated eighteen months before the appraisal is not, whatever it says.

How the council's reviewer tests the figures

Knowing the sequence lets you pre empt most of it. A reviewer typically:

• Compares the build rate against the published distribution for that function, location and date, and asks why any figure above the median was chosen.
• Looks for items inside the rate that have been added again as abnormals.
• Tests each abnormal against the document said to support it, and discounts any that has only an assertion behind it.
• Checks the external works allowance against site area rather than floor area.
• Checks the fee percentage against scheme scale and type.
• Checks that the finance rate, the drawdown profile and the programme are consistent with each other.
• Checks that costs and values share a single valuation date.
• Runs sensitivity on the two or three inputs that move the answer most.

The last one is worth doing yourself before submission. If a one per cent change in build cost flips the affordable housing conclusion, the appraisal is too finely balanced to present as certain, and saying so is more credible than pretending otherwise.

Presenting costs so they can be checked

A format that survives review:

• A single page cost summary following the guidance headings, with every line traceable to an appendix.
• The published data extract, showing function, location factor, quartile and base date.
• The quantity surveyor's cost plan in a recognised format, dated and attributed.
• An abnormals schedule, one row per item, each cross referenced to the report or quotation behind it, with the date of that evidence.
• A measured external works schedule for anything but the smallest site.
• A statement of the finance assumptions and their source.
• A sensitivity table on build cost, values and finance.

Then write two paragraphs explaining the three costs a reviewer is most likely to query, and why they are what they are. Anticipating the challenge in your own text is more persuasive than answering it in correspondence six weeks later.

Remember that viability assessments are expected to be publicly available, so write the cost narrative knowing that objectors will read it. A Viability Assessment that is legible to a non specialist reader is harder to attack than one that hides behind a spreadsheet, and the same applies to the Affordable Housing Statement that carries the conclusion. Where contributions are later reported by the authority, they surface in the way our note on infrastructure funding statements describes.

This is general guidance, not legal advice, and it is not a valuation or cost estimate. Cost data and market conditions change, so take advice from a quantity surveyor and a viability practitioner before relying on it. For specialist technical reports, qualified professional input may be required.

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