What are preliminaries in a construction contract?

What is meant by preliminaries in a construction contract?

In a construction contract, preliminaries – often referred to as “prelims,” – set out the costs and arrangements necessary for a project’s execution that do not usually form part of the finished structure. These items are fundamental to the overall operation of a construction site, ensuring that the environment, logistics, and management systems are in place to enable the successful delivery of the project.

Preliminaries cover a broad range of expenses that are necessary for the entire construction project rather than specific phases of work. Essential items such as on-site facilities (eg temporary toilets, offices, or storage areas), scaffolding, on-site lighting, and health and safety provisions are all included as preliminaries. They also account for administrative and managerial costs, such as the fees for project management or site foremen, which are crucial for proper completion of the project.

The nature of preliminaries means that their costs will vary depending on the project. Some are fixed one-off expenses, such as environmental assessments or initial surveys. Others are ongoing costs, like those for temporary utilities, site security, or the salaries of project management staff, which are ongoing costs for the duration of the project.

In construction contracts, preliminaries are usually detailed alongside the work sections which form part of the contract and provide comprehensive detail of the project’s scope and associated costs. Preliminaries are indispensable for creating the infrastructure, ensuring compliance, and enabling seamless construction processes. Together with the work sections they provide a more complete picture of the project costs and requirements.

Including preliminaries in construction contracts is not a legal requirement, although their inclusion provides greater cost transparency and excluding them can obscure the full scope and cost of a project. Without them, clients may find it challenging to understand the broader logistical, administrative, and compliance expenses necessary for successful project delivery.

Most clients expect construction contracts to include provisions addressing essential areas such as administration and project management, on-site setup and preparation, design development and approvals, and compliance with health, safety, and environmental (HSE) regulations.

What qualifies as a preliminary cost?

Any expenses related to the administration of a construction project, including providing staff, materials, and site-based services, are typically categorised as preliminary costs. These costs play a crucial role in ensuring the project is managed effectively but are not tied directly to specific construction activities.

Preliminaries will often include identifiable costs that do not fit neatly into specific work sections. Examples include provisional sums, site security expenses, and a general risk allowance to address unforeseen issues. They also cover fees for temporary utilities such as water and electricity, as well as costs associated with design services, including temporary works design.

Additionally, preliminaries may include necessary expenses for tasks carried out by statutory undertakers, such as utility companies, as well as general charges related to staffing and on-site accommodations. Contracts can also stipulate that preliminaries account for financial bonds, company guarantees, and collateral warranties if required for the project. These elements ensure that the broader logistical and administrative needs of a construction project are adequately addressed.

What can preliminaries in a construction contract include?

Preliminaries set out the wider project costs necessary for a project’s successful execution. They typically include the following, however, as preliminaries are always project specific, this list is not exhaustive:

Project Administration and Management: Costs related to the overall management and coordination of the project. Examples include:

• Fees for project managers and supervisors
• Costs for preparing documentation and ensuring quality assurance.
• Coordination with stakeholders and regular progress reporting. These costs seek to ensure that the project runs smoothly from inception to completion.

On-Site Set-Up and Preparation: All the activities required to prepare the site for construction. This may include:

• Site clearing, grading, and excavation to create a workable foundation.
• Setting up temporary facilities like on-site offices, toilets, and storage areas.
• Installing temporary power, water, and other utilities to support the construction activities.

Design and Planning Approvals: Some preliminaries involve refining the project’s design and ensuring all necessary permissions are in place. These costs might include:

• Paying designers and engineers to finalise technical details.
• Conducting surveys, including environmental or land assessments.
• Securing permits and approvals from local authorities or councils, which are necessary to comply with regulations.

Health and Safety, and Environmental Compliance: Ensuring a safe and compliant construction environment is a critical preliminary expense. This category typically includes:

• Purchasing and providing health and safety equipment for workers.
• Developing and implementing health and safety plans, such as emergency response strategies.
• Environmental compliance measures, including waste management and dust or noise control plans, to meet regulatory standards.

What are the percentage costs for preliminaries in construction?

In construction, preliminary percentages are often used to simplify the calculation and allocation of the preliminary costs across a project. Preliminaries are typically charged as a percentage of the overall construction contract price, and while there is no fixed standard, this percentage generally ranges between 5% and 15%. The exact percentage depends on the nature, scale, and complexity of the project, as well as external factors such as location and regulatory requirements.

For smaller or less complex projects, a lower fixed percentage may suffice for covering preliminaries like site setup, project management, and compliance costs. However, larger and more complex projects often require more nuanced planning and may incur higher preliminary costs due to increased administrative and logistical demands. For instance, public infrastructure projects frequently involve greater regulatory compliance, environmental assessments, and stakeholder coordination, which can push preliminary percentages toward the higher end of the percentage range.

The project’s location also plays a significant role in determining the preliminary cost percentage. Sites that are remote, environmentally sensitive, or difficult to access may require additional preparation, utilities, or safety measures, increasing the preliminary costs. Similarly, projects with higher risks—such as those in flood-prone areas or involving hazardous materials—necessitate more robust mitigation efforts, which can further influence the percentage cost.

While using a percentage can simplify budgeting, it is important for contractors to carefully evaluate the specific needs of their project. A comprehensive cost estimation and budgeting process, including the use of construction accounting software, can help ensure that all preliminary expenses are accurately accounted for without undervaluing the work involved. This approach is particularly important for ensuring profitability and aligning the budget with the project’s unique requirements.

Preliminaries in construction contracts are essential to successfully delivering a project while protecting your profit margin. Contractors, construction companies, and project managers should therefore seek to ensure that all preliminary costs are accounted for in a contract. Failing to include these expenses can lead to unexpected disputes and may strain contingency budgets, ultimately reducing profitability. The complexity of construction projects can sometimes result in overlooked preliminaries. Even small, seemingly insignificant costs can accumulate quickly, creating financial challenges and impacting overall project outcomes and it is therefore important for clients to ensure they are aware of the issues and obtain specialist advice and support where appropriate.

At Newmanor Law, we specialise in assisting with the preparation of construction contracts and liaising with clients and third parties to help clients manage their contracts effectively. For expert guidance tailored to your specific needs, please contact our dedicated construction team for support.