The final part of an eight-part series written by Ian and Ritchie for Property Investor News, featuring some of the key aspects of small-scale property development covered by propertyCEO’s ‘8-Pillars’ system. This article appeared in the March 2022 edition of the magazine.

In this final instalment, Ritchie looks at arguably the most critical aspect of any development, which is delivering the project on-site.

For those of you that have been paying attention over the past eight months, you’ll have realised that we’ve reached the eighth and final pillar of our property development journey. You may even be kicking back, a small glass of something to hand, with the slightly smug air of someone who has nailed the first seven pillars. What could possibly go wrong now, you might think. Unfortunately, if you fail to get Pillar 8 right, it won’t make much difference how right you got the first seven; your project will quickly find itself in deep water. Luckily, help is at hand to steer you back to the shallows on this, the home straight.

As with many things in life, deal analysis is easier if you approach it as a system. The first thing to point out is that you don’t want to do an in-depth analysis of every deal you look at because you won’t have enough time.

I’ve talked about development being a highly leveraged business, and this is really brought home to you when you’re starting work on site. Your team of professionals will leap into action and start doing their thing; it’s all rather impressive. Your biggest asset at this stage is going to be your Project Manager. They’ll oversee everything and check-in with you regularly to keep you appraised. It means you won’t have the unenviable task of trying to manage your own development project for the first time, surrounded by a host of industry professionals who have all been here before. Your PM will be your eyes and ears, and they’ll be taking care of the shop.

But it’s a big mistake to think that once you’re on-site, you can sit back and relax. I’ve seen highly experienced developers get things wrong by failing to exercise sufficient control of their project in this final phase, so please don’t fall into this trap. Luckily, you only need to manage four key elements at a high level:

1. Time: How are you progressing against your planned timescales? Time is money in development because it means you’ll be paying finance interest for longer, plus you’ll encounter other problems if a site drags on, such as the ongoing availability of your team. Make sure you’re on top of where you’re at and that you know your anticipated end date at any given point in time.
2. Budget: How are you doing against your original budget? Are you being charged extras and overs at every turn? Is your contingency fund virgo intacta, or did it get seduced by your contractor within days of the hoardings going up? Keeping an eye on the spend allows you to see the direction of travel and economise en route if you need to. You don’t want to find out you’ve overspent just as you’re being handed the keys.
3. Quality: How good is the quality of your team’s workmanship? Are the materials up to scratch, and will the fit and finish be sufficient to woo your target audience? This is one reason why regularly visiting your site will enable you to spot things early on and take corrective action. Changing things post-snagging could take a lot longer to resolve, even if your contractor is on the hook for the cost
4. Team: Just because you have a project manager doesn’t mean you abdicate all responsibility for your team. The PM may be the managing director, but you’re the CEO. You need to know who’s performing well and who isn’t. Take the time to speak to each professional to work out what could work better in general and how you can make life easier for them. Make a mental note of who will stay in the team for your next project and who will be kicked into touch.

Developing property is a well-trodden path, and so not surprisingly, some well-trodden processes and systems have been established to make life easier for everyone involved. One of these processes is the RIBA Plan of Work, a series of eight ‘gates’ that every project must pass through on its route from the drawing board right through to the new homeowners moving in. The principle is simple; everyone on the project signs up to the system, and they all must proceed through each gate before the group can progress to the next one. It means no one gets left behind, and each stage of your project is fully completed before you move on to the next. Make sure you follow the RIBA Plan of Work from day one.

This ‘gateway’ process is critical to avoid costs and problems creeping in. If your architect has missed detail off the drawings, your contractor will have to plug the gaps. This is an easy route to additional costs and delays, as your contractor will charge you for extras. A similar problem can occur when the drawings submitted by the architect, the structural engineer, and the mechanical and electrical consultant aren’t coordinated. You can imagine your poor old contractor scratching their head and wondering which set of contradictory plans they should follow. Again, it will cost you time and money, so having everyone going through the same gateways will pay dividends.

A key challenge in any project is previously unknown problems that only arise as the project progresses. If you’re doing a conversion, it may not be possible to see the extent of the work that needs doing until you’ve stripped out the building, something that vendors are not likely to let you do before you’ve bought the thing. The problem can be magnified once you’ve appointed your contractor. They’ll perform the strip out, but if they find a whole load of additional work that needs to be done, they’ve rather got you over a barrel when it comes to the cost of remedying it. They could charge you an inflated price knowing that you’re not likely to ditch them mid-contract and go elsewhere. Your solution is to have two contracts; an initial strip-out contract followed by the main build contract. You’ll still appoint your preferred contractor to do the strip-out. But if it reveals a whole host of nasties, they’ll know you have the option to jump ship if they get silly with their remedial pricing and this should keep them competitive. Another advantage of strip-out contracts is that the stripping out can be done while the design team works on the drawings, so it shouldn’t hold things up.

Tendering is another crucial part of the process, and I promise that you will never cease to be amazed at the range of costs you get quoted. Let me see if I can give you a few pearls of wisdom here:

1. Get your project manager to run the tender; don’t try and do it yourself.
2. Make sure that your tender is precise. For example, you may have specified ‘12 wooden doors with handles’ and can visualise a dozen sexy hardwood numbers with brushed aluminium fittings. Then, when you’ve accepted the quote and the contractor installs a dozen balsawood doors with cheap plastic handles instead, you’ll belatedly realise that he has indeed supplied what you asked for, but not what you wanted. You’ll then ask him to fit the sexy doors and fittings instead, which will be no problem at all, just another £5,000 on the budget.
3. When a contractor is short of work, they may price your tender on the cheap side in the hope of winning the job and then spend the entire contract desperately trying to charge you for extras so that they can turn a decent profit. This isn’t a great situation for either of you. Conversely, contractors with work coming out of their ears might return an expensive quote. They don’t need the work, but if you’re happy to pay over the odds, they’re more than happy to fit you in.
4. You’ll often get asked by contractors how many people are tendering. This is because costing up a tender involves a fair amount of work on their part. If they know they’re one of twenty tendering, they may not bother to respond as they only have a 5% chance of winning, whereas their odds are greatly improved if there are fewer players involved.
5. Not everyone will respond to your tender. You’ll want at least three quotes, and I’d anticipate that only half of the invitees will respond. It’s not an exact science, but you can work out the math.

Another critical piece of advice is to use standard contracts when appointing your contractor. Several standards are available; a good example would be JCT (Joint Contracts Tribunal) contracts. Ensure that your contracts have a process defined for disputes and mediation and that you hold back a percentage of payments for 6-12 months post-completion, just in case any downstream issues materialise. You also need to make sure that YOU determine when the project is completed, not the contractor. Under no circumstances should you allow your contractor to write their own JCT contract, e.g., “I have a standard contract I use with my clients which I can send you…”. This is a recipe for disaster. Contracts should never need to get pulled out of the drawer, but if they exist, then at least everyone knows what’s expected of them, and so they shouldn’t have to be.

It would be remiss of me to cover Pillar 8 without mentioning communication. Poor communication can have disastrous consequences, so it makes sense to be good at it. First things first, make it clear to your contractor in their contract that amendments to specification or materials can only be agreed by the project manager and not by you. It’s all too easy for you to visit the site and the contractor to say to you, “I think it would be much better if we did it this way; what do you think?’. Then, when you absent-mindedly agree to it, you get their bill at the end of the month, which is £5,000 more than you were expecting. When you speak to the contractor, they tell you that it relates to the additional work that they mentioned to you when you last visited the site and which you agreed to. You didn’t think they would do the work for free, did you? But, if your contract says that only the PM can authorise any changes or additional costs, then you won’t fall into that trap.

Inevitably there will be extras that crop up during a project; after all, it’s why you have a contingency fund allocated that you should expect to spend. Make sure that the costs of any extras are run past your quantity surveyor or cost consultant first before they’re agreed. I would also strongly advise you to demand a monthly status report from your project manager. This should list any additional costs that have been incurred, any cost savings realised, how the project is performing against planned timescales, how you are doing against budget, what the cash flow is looking like. And an update on health and safety, so you know that this important box is ticked. You should also be told about the status of any drawing revisions, i.e., if they’ve been updated, as these could have downstream ramifications if delayed.

I like to make sure that I have a good personal relationship with the head of the contracting firm I’ve appointed, as this can go a long way to resolving any disputes. It means that if my project manager has fallen out with the site manager, I can have a pleasant coffee with the site manager’s boss to smooth things out. Development is a people business, and it never hurts to be on first-name terms with the more influential protagonists.

The final point I’ll mention is snagging, that all-important act of scrutinising your new flats with the contractor to see if they pass muster. Your project manager will be on their case too, but I think it pays dividends for you to cast your critical eye over the fruits of their labours.

While I would advise against being ultra-forensic in your assessment, you shouldn’t be letting anything material slide. The new owners will be expecting to move into a perfect home, and it’s far better that you pick things up during the snagging process while the contractor is still engaged rather than trying to get them back on site later down the line.

Hopefully, that’s given you a few pointers on the all-important eighth pillar of your development journey, and specifically on the role that you need to play in making sure you cross the finishing line. You’ll have gathered on the journey that while successful development depends on a number of critical factors, having an underlying system will be a massive help to you. I also think that playing the role of the CEO is critical. You don’t want to be operating down in the detail, particularly if you’re doing a development for the first time.

With even small conversion projects generating six-figure profits, small-scale developments are looking increasingly attractive in the current market, particularly given the new permitted development rights that have recently been introduced. However, if you’re thinking of taking the plunge, I would urge you first to do your due diligence to make sure development is a good fit. It’s certainly well worth knowing what’s involved BEFORE you start. With that in mind, I’ve put together a 3-hour online training session which you can access by visiting www.propertyceo.co.uk/pinmag. It’s completely free and will put some more meat on the bones for you, plus I’ll tell you both the good and the bad of it, so you get a balanced view.

I sincerely hope you’ve enjoyed this foray into the eight pillars of property development. Next month, I’ll be looking at how best to sell your finished units as a developer. While there’s a lot you can get right once your development is market-ready, you’ll be missing a big trick if you’re not thinking about sales right at the very outset, while the project is merely a twinkle in your eye.

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