Managing Costs and Value in the “New World”

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What are the big needle movers which can save developers many thousands of dollars?

By Andrew Ngo, Principal Engineer, PEAKURBAN

There is little doubt that cost control is a hot topic now. While it has always been important to manage costs regardless of the market cycle, the question though is whether the necessary spending was more than it should have been in the first place.

We previously wrote an article outlining key points to reduce cost and optimize value in a slower market. Click here for that article.

We now take the opportunity to recap some of the big needle movers and provide some recent examples where many thousands of dollars in savings have been realised:

1. Maximising infrastructure credits / offsets: This remains the biggest needle mover and Brent Thomas offered further insights on Infrastructure Agreements in our April edition. It can’t be stressed enough how important infrastructure charges, credits, and negotiating IA’s really are, and I recently came across an example that highlights this even further. A developer approached us for due diligence on a site with an existing IA. In reviewing this with the infrastructure planner, it was revealed that the previous developer executed an IA with a clause that gave up the applicant’s rights to seek recalculation of land credits. That single clause cost the project just under $1M in credits! Sadly, it’s not the first time we’ve seen this and unless the right advice is sought at the right time, it probably won’t be the last.

2. Maximising Developable Area : The next biggest needle mover we see is to develop an efficient layout and to find opportunities to gain developable area. One such opportunity occurred just this month where we were approached by a developer with an existing development layout. By undertaking some additional technical assessment to the work that had previously been done, we found that there was no need for a detention basin. This regained 3 development lots worth ~$800k in revenue and avoided the construction costs associated with the basin. While the technical work is important, this example demonstrates the value in identifying opportunities by considering sites on the merits and not just applying the status quo or blindly following the standards.

Back in February this year we were approached by a client who had a site under contract and was told by another engineer that ‘the site wouldn’t work, its too steep’. They were going to drop it but approached us to see if we had any ideas. We identified several opportunities to deliver a workable outcome including changing the road layout, shortening cul-de-sacs and introducing shared driveway access and changing the access locations to several allotments to provide acceptable driveway grades from the road to the lot. Sites are not getting easier and its essential to look at them critically with a solutions focussed approach.

3. Optimising the earthworks strategy : From a poor example to a good one. We recently completed a peer review across a master planned community and up until this point the project was developed on a stage by stage basis. This created issues with visibility and the looming fear of a rude surprise at the back end of the project. Through reviewing the earthworks model and adjusting the road layout in a few areas, the earthworks dropped by over 100,000 m3. That translates to a $600k saving in cut and fill, or roughly a $2.5M saving if the material had to be exported off-site at the back end of the project. Best of all, with a little bit of early investment, the client can sleep easy now that visibility has been restored.

4. Deal with rock effectively : If you’ve experienced rock conditions on your site, you’ll know that it’s an expensive exercise. By the time the digging starts, it’s usually too late to achieve meaningful cost savings. We are working on a project where early geotechnical investigations had been undertaken to identify rock seams across the site. This early work is proving invaluable as we can reduce cut depths at the top of the rock seams and design services as shallow as possible to avoid trenching in rock. While this will mean slightly more retaining walls, it will almost certainly eliminate the need to blast rock. The added benefit is that the construction process is quicker which results in earlier plan sealing and being able to call settlements sooner.

5. Smarter Sequencing of Infrastructure : This is also a big needle mover where a touch of strategic thinking can take you a long away. A client recently extended their landholdings across an adjoining development site. This site has an existing approval where the authority conditioned non-trunk drainage works. Now interestingly, if the developer chooses to change the sequencing of the two projects, there is an opportunity to upsize the pipe and convert this to trunk infrastructure. That saves an abortive cost of $370k but maximises their credit position on the infrastructure that they do build.

6. If you don’t ask, you don’t receive:  Through a little bit of luck and good timing, we were seeking credits for road safety upgrades to a trunk road leading into the development. Following our enquiry, the authority confirmed that they had budget for maintenance works and this work ended up being brought forward. It may not always be the case, but it just goes to show that you can make your own luck and if you don’t ask you don’t receive. While the maintenance work would have occurred eventually, at least the developer doesn’t need to cash flow the work today and can use their money elsewhere.

The above are some recent real-life examples of how focusing on cost savings and value can really pay off. If you need ideas to save costs on your project, please feel free to reach out.

 

 

Read more

What’s the Development Cost per Lot across the SEQ Growth Corridors?

7 September 2021 – Do you know how much it cost to develop a site in Moreton Bay? How about Logan, Ipswich, Brisbane, or the Sunshine Coast?

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Bringing Projects Forward and Developing Out of Sequence – A Drainage Perspective

31 August 2021 – We spend a lot of time figuring out ways and coming up with ideas to help our clients bring their projects forward

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