The Difference Between Construction Budget and Program Budget

July 26th, 2019 - By

Every client has a budget, and that budget is always a factor in many crucial design and construction decisions. Often, clients can become confused by the different types of budgets, such as the “program budget” versus the “construction budget.” However, when the look and feel of the final building are at stake, there’s no room for confusion.

What causes this confusion?

First, budgeting for ALL costs associated with a construction project can be a challenge. While every contract between the owner and their construction firm is unique, very few include all the costs the end-user can expect to incur on their project. Different delivery methods of construction services will also greatly affect the responsibility of who purchases what. (Need a refresher on delivery methods? Check out our handy video.) It’s very important, then, to separate the “construction” budget from the “program” or “project” budget for the owner to understand their purchasing responsibilities and true project costs.

So, what’s typically not included in the construction budget?

The most common items that are not traditionally part of the construction budget are fixtures, furniture, and equipment, or FF&E. Another way of looking at it: items not constructed by skilled craftsmen, not part of a building’s operating systems, or that can be easily moved around the building fall into this category. Think desks, chairs, computers, and phones. At Nabholz, we tell clients that if you could turn the building upside down and shake it, anything that falls out is probably FF&E.

And what’s the deal with design fees?

Another area that can confuse owners: design fees, which might or might not be included in the construction budget. This is where the delivery method comes in, as it will establish the difference between the construction and program budgets. For example, under a design-build delivery method, the design fees are the construction firm’s responsibility and thus are included in the construction budget. However, in almost every other delivery method, such as design-bid-build or construction manager at-risk, the design fees are completely separate from the construction budget and are paid for by the end-user.

So how do I navigate through all of this?

Communicate, communicate, communicate. Every project is different, and different types of construction also affect the program budget. Consider the major difference between undertaking a remodel versus building a brand new building – one requires land, while the other doesn’t. The price of purchasing this new land is something that has to be considered in the budget. Really, every project has a unique overall budget, including what falls under the construction budget and the program budget. The most important thing for owners to remember is to engage in conversation about costs and budgets early on in the development process to avoid any surprises in the end.

More of a visual learner? Check out this video breaking down construction budget vs. program budget.


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