Leisure + Culture
Hotel Build Cost Guide Maximising Value
Contents 01 Introduction
04
02 Design
08
Design Guidelines
12
Area Schedule
26
03 Cost
32
Cost Drivers
36
Cost Planning
46
Cost Models
52
04 Procurement
66
05 Summary
76
06 Contact Details
Back Cover
Introduction At AECOM we offer a range of services that meet the development and asset management needs of hotel owners, operators and developers from initial feasibility through to planning, design, construction and operation.
Before there is a design, there is an idea for a hotel. Assessing the feasibility of a hotel development requires you to understand what the market opportunity, needs of the market and cost of the development are.
4: INTRODUCTION
This guide explains the relationship relationship between the design and the costs of hotel development development and demonstrates the benefits of obtaining obtaining cost advice throughout each stage of the development lifecycle.
Based on outline information about the type and size of hotel product and the amenities that the market requires, the cost consultant is able to provide an initial cost estimate to inform the development appraisal. During the design phase, understanding the way in which the design of a hotel can influence the cost can help ensure that the correct choices are made at the earliest stages of a project and will avoid expensive re-design and cost in use.
Once the design is complete the next step is to procure a contractor to undertake the construction of the hotel. This requires an understanding of the various procurement options available to achieve the right balance between price and risk. This guide does not provide all of the answers but it will provide the reader with an understanding of the important relationship between the design and the cost of a hotel and the benefits of obtaining cost advice at each stage of the development process.
By providing an analysis of cost by area and function, the cost consultant’s advice will ensure that costs are being allocated to those parts of the hotel that will deliver the best return on investment over the lifecycle of the asset.
INTRODUCTION :7
DESIGN
Understanding the way in which the design of a hotel influences the cost means that the correct choices are made at the earliest stages of a project and avoids expensive re-design and cost in use.
Design guidelines Food and beverage outlets Food and beverage outlets and restaurant requirements vary by location and hotel type. However, a good rule of thumb is to provide restaurant seats ranging from 0.75 to 1.2 times the number of guestrooms. This does not take into account specific requirements for conferences, functions or banqueting, for which additional provision will need to be made in, or adjacent to, the function suites.
12: DESIGN
Most luxury hotels will have at least two restaurants but some hotels operating at the upper levels of the market can offer up to four or five different types of restaurants. Generally, there will be a main allday dining area that serves as the main breakfast area in the morning and can be converted into lunch and dinner venues with different settings. The restaurant dining area is calculated on the basis of an area-per-seat allowance. This allowance varies between about 1.5 to 2.5m² per seat, depending on the style and mode of operation of the venue. Further allowances should be made for the service stations and circulation space within restaurants.
Lounges and bars
Meeting and function rooms
A hotel is also likely to have a number of lounges and bars. The seating capacity allowance for these ranges from 0.5 to 0.9 times the number of hotel guestrooms. The area calculation is made on an area-per-seat basis.
Ballroom / banquet hall While many major hotel chains have their own design and area guidelines for the capacities of a ballroom / banquet hall, a minimum size would be in the region of 750m². The general allowance for calculation of the net area of the ballroom / banquet hall is in the region of 1.20m² per seat. The minimum total number of seats is the equivalent of 1.5 to 2.0 times the number of guestrooms.
Kitchens, storage and support areas are excluded from these area calculations. Kitchens are calculated as food preparation areas and form part of the back of house and support areas.
DESIGN :15
Junior ballroom and function rooms
Pre-function areas / break-out space
In addition to a main ballroom / banquet hall, the hotel may have a junior ballroom and smaller function rooms. A junior ballroom typically has a seating capacity of 400 to 500 people.
These should be approximately 33% of the area of the ballroom, banquet hall, junior ballroom, function and meeting rooms.
Function rooms that double up as meeting rooms should be a series of rooms catering for groups of 20 to 50 people. There should be at least three of this type of function room. In addition, there may be a provision for a boardroom with a size of around 50m². The total capacity of the function / meeting rooms should be in the proportion of approximately 0.5 times the number of hotel rooms. Essential for all function suites is the concept of flexible meeting spaces, allowing for changes in shape, and size by means of acoustic, sliding / folding partitions. Each potential function area must be able to be serviced separately.
16: DESIGN
Support areas All of the above areas exclude supporting areas such as furniture stores, restrooms, general storage, AV control rooms, interpreters’ rooms and so on. As a rule of thumb, these would be allowed on a square metre per seat basis.
General public areas The general public area of a hotel may include: (a) Business centre, including • A reception / waiting area • A secretarial area • A small conference /
meeting room • Small booths / ofces
(b) Health club / fitness centre Space should be allocated for: •
An entry area
• Common facilities such as
reception, examining room and nurse’s room
(c) Commercial space These spaces are often let out. Often there are around four to five such outlets in the hotel. (d) Front lobby and front office This covers the main entrance lobby, which should be a generous space. The area allowance is calculated on the basis of a square metre per hotel room. Supporting the main entrance lobby is the lobby waiting area. An allowance is made for 20 people on the basis of 2.3m² per person. These areas generally have higher or doublevolume ceilings and pricing should take this into account.
• A beauty centre • A men’s and women’s spa • A tness centre and gymnasium • A spa restaurant / juice bar • Employee facilities such as
lockers, lounge and restroom
DESIGN :17
Back of house, support and services areas Provisions should be made for male and female restrooms, with the female restroom slightly larger to allow extra space for a vanity area. A janitor’s room is also required to store cleaning equipment. A further allocation is made for a reception desk area together with a front office. As a guide, 1.75m length is assumed for each workstation at the reception desk. One workstation is required for every 75 rooms. A width of 1.5m is allowed for working space behind the counter and a width of 4m is allowed for guest queues in front of the counter.
These are the non-public areas of the hotel. There should be minimal interior designer’s input for these areas, except for some of the offices. The spaces occupied under this category include: (a) Administration and service areas The administration and service areas include various departmental offices, such as: • Front ofce support containing
the office of the front office manager and credit manager, telephone operator’s room, cashier’s room and counting room. • Safe-deposit box, stationery
storage, general office and pantry.
18: DESIGN
• Executive ofces containing
the offices of the general manager, resident manager, food and beverage manager, assistant food and beverage manager, general office areas, executive boardroom and storage. • Sales ofces containing the
office of the sales director, sales manager, market analyst, sales executives, group sales co-ordinator, public relations manager, reservations manager, general office, conference room and storage.
• Catering / banquet ofces
containing the offices of the catering manager, banquet representatives, convention services and secretarial area. • Accounting ofces containing
the offices of the financial controller, assistant financial controller, accounting work area, payroll manager, general office and storage and men’s and women’s restrooms.
DESIGN :21
(b) Food preparation, support and service areas Food preparation and service areas include support spaces for various departments, such as: • Food preparation, main and
support kitchens containing production kitchens supporting the banquet hall and function rooms, kitchens for the various restaurants, bakery / pastry shop and offices for the executive chef and room service manager. Area calculations are generally made on the basis of area per seat. Alternatively, as a general guide, an area equivalent to 40% of restaurant net areas would make up the kitchen areas.
22: DESIGN
• Storage areas containing
storage for dry food, refrigerated food (cold rooms), beverages, refrigerated beverages, ballroom liquor, the service bar, silverware, chinaware, glassware, utensils and stewards’ and janitors’ rooms. Area calculations are generally made on the basis of an area per seat for food storage supporting the kitchens, and area per key for general storage. Generally, storage areas will be in the region of 30 to 50% of net total food preparation areas.
• Service entrance areas
containing areas for the loading dock and truck parking bays, receiving areas, receiving office, office for the purchasing manager, purchasing department, security / timekeeper, flower shop storage, trash holding area, wet garbage refrigeration area, can wash, garbage compactor, empty bottle storage, refrigerated storage for food, employee entrance area, compressor rooms and the like.
• Housekeeping areas
containing offices of the executive and assistant housekeeper, housekeeping clerks, seamstress, fitting rooms and storage for linen, supplies, lost and found, uniform and uniform-issue rooms. • Laundry areas containing the
laundry and valet office, laundry room, soiled linen sorting area, guest laundry area, valet service room, supplies storage and compressor room.
DESIGN :23
• Area calculations for
housekeeping and laundry areas are generally made on the basis of area per key of the hotel. Requirements for laundry facilities will vary between locations and between operators. In many instances, the laundering of bedsheets and towels is outsourced. If so, the requirements for in-house laundries are limited to a small number of domestic machines. • Engineering areas containing
offices of the engineering director, assistant engineer, general maintenance and secretary, paint shop, carpentry shop, upholstery shop, plumbing / refrigeration shop, electrical shop, key shop, TV repair shop, parts storage, energy management computer room and janitor’s store.
24: DESIGN
• Mechanical areas usually cover
two major locations, one of which is normally in the basement, the other on the upper level or roof space of the hotel. • Mechanical areas in the
basement contain the engineer’s control room, engineer’s office, toilet and locker, janitor room, boiler rooms, fire control pump rooms, electrical sub-stations, electrical rooms and wet riser tanks. • Mechanical areas in the
upper levels can contain the air handling units, domestic water tanks, sprinkler tanks, wet riser tanks, condenser water storage tanks, electrical, switch and power rooms, although these may also be housed at the basement level if space allows.
(c) Employee facilities Employee facilities areas include spaces for: • Human resources ofce
containing rooms for the personnel manager, assistant personnel manager, interviewing, training manager, training, first aid application and storage. • Employee areas containing
staff lockers and shower areas, toilets, dining and recreation areas. If not provided in the feasibility study or the business plan, the number of employees can be calculated on the basis of employees per key. For five-star hotels, the range can be from 1 to 1.5 employees per key. The changing and locker areas are generally based on area per employee.
DESIGN :25
Area schedule Using functional area data from previous projects and from operators’ standard requirements, it is possible to create a reasonably accurate assessment of the space requirements for a hotel. This can form the basis of preliminary budget calculations for a hotel of a particular standard with a stated number of rooms and ancillary functions (restaurants, fitness, spa, banqueting and so on) in advance of the development of any design. The hotel area schedule must, therefore, be based on realistic numbers. Any gross over or under allowance of areas would cause a distortion of the forecast cost.
26: DESIGN
The area allowances must of course be tested against other hotels of similar standard in the geographical region, to check that it is competitive. Ideally, the market feasibility study provides a suggested high level area program based on market requirements. A preliminary budget costing for a hotel development can be generated quite quickly and efficiently, based on data for similar existing hotels, design criteria of major hotels and knowledge of the market. This includes setting the number of hotel room bays and keys and the total seating capacities for food and beverage outlets, entertainment lounges, banquet, ballroom and meeting facilities. It should also cover the capacity of the health club facilities and the size and number of retail outlets.
Worked example based on a luxury hotel Bays
Keys
Total bays
1. King rooms
1
200
200
2. Queen rooms
1
100
100
3. Accessible rooms
1
20
20
1
55
55
1. Junior suites
2
40
80
2. Executive suites
3
10
30
4. Presidential suites
5
2
10
5. Club lounge
5
-
5
427
500
A. Standard guest rooms
(circa 5% of total room count)
4. Other standard rooms (eg twin)
B. Suites
Total
Based on the above configuration, the total number of bedroom bays is 500 and the total number of keys is 427 – about 85% of the total number of bays.
Typical total area allowances for luxury hotels vary around the world, from circa 80m² to over 120m² of gross floor area (excluding parking and external areas) per bay. Hotels in more Western locations tend to have smaller bedrooms than those in the Middle East or Asia. A 500-bay five-star hotel could therefore be expected to have a range of gross floor area of between 40,000 to 60,000m².
DESIGN :29
The breakdown between the bedroom zone, public areas and back of house for a notional 500bay, 50,000m² hotel would be:
A. Guestrooms and suites
22,500 to 30,000m²
55 - 60%
B. Public area
10,000 to 15,000m²
20 - 30%
7,500 to 12,500m²
15 - 25%
C. Back-of-house administrative, support and services areas
Hotel total gross area40,000 - 57,000m²
Based on the above hotel floor areas, the gross area per bay ranges between 80 to 115m².
100%
The net areas of the bedrooms (including bathrooms) varies according to geographical location, from a low of about 35m² up to about 55m² but typically between 40 and 50m² net bedroom area is a good guide
COST
By providing an analysis of cost by area and function, the cost consultant is able to ensure that costs are allocated to those parts of the hotel that deliver the best return on investment over the lifecycle of the asset.
Cost drivers The major cost drivers of a hotel development include:
h. The level of provision and facilities of rooms
a. Site location, shape, conditions, means of access and visibility
i. The storey height – if exceptionally high, it will need a heavier structure, more complex foundations, additional lifts and firefighting installations
b. Position of the hotel in the development c. The shape and form of the building d. The external facades, particularly the extent of glazing and cladding e. The level of sophistication of building services and fireprotection systems f. Particular requirements of the chosen hotel operator g. Shape and layout of the guestrooms zone, particularly if this is a tower
36: COST
j. Location of function rooms.
One major impact on the cost of the structure is the location of the main function room or ballroom. The ballroom should not be located directly below the hotel guestrooms tower, as it requires column-free space that is difficult and expensive to accommodate and is likely to require the introduction of transfer structures at the base of the guestroom tower
The choice of guest room configuration can affect area efficiency by as much as 20% of the gross floor area.
38: COST
Another area for careful consideration is the location of the bank of guest and service lifts rising up to the guestrooms. These should be located centrally to the guestroom block and the guest lifts should descend into the entrance lobby, where pedestrian traffic can be monitored by the front desk. A third major consideration is the configuration of the guestroom block, particularly if this is in the form of a tower. Analysis shows that some shapes and configurations of a guestroom tower yield more cost-effective solutions than others. In fact, the choice of configuration can affect the area efficiency by as much as 20% of the gross floor area.
Ideally, the efficiency of the guestroom zone should be in the region of 75%for a tightly designed, double-loaded corridor layout. However, for a single- loaded corridor or atrium layout, the efficiency can drop as low as 60%. Obviously, the higher the efficiency, the more economical the construction cost. It is critical to ensure the design is economical without sacrificing the design intent. Due to the multiplier effect of having many floors in the guestroom zone, minor differences or inefficiencies can have a major impact on the construction cost.
The following factors must be considered: a. Number of guestrooms per floor b. Lift location and escape
staircase cores c. Shape of guestroom tower, as it affects the wall-to-floor ratios d. Corridor configuration
COST :39
A limiting factor of the number of guestrooms per floor is the local authority building code requirement for fire evacuation, which is controlled by the distance between fire-escape stairs. In a tower, an optimum number of guestrooms would be in the region of 16 to 24 rooms per floor if only two fireescape stairs are envisaged. This ratio also facilitates efficient housekeeping. Increases in the number of rooms per floor can trigger the need for additional fire-escape stairs and additional lifts. This in turn may require the lift core to be increased in size, with its corresponding increase in gross floor and elevation areas leading to an increase in construction costs.
40: COST
A guestroom tower may take various plan shapes, ranging from rectangular to circular, triangular, curved or offset. It has been proven that the most efficient shape is generally rectangular, with a double loaded corridor configuration. Curved and circular shaped towers will involve higher costs because of non-standard room bays and panelled or faceted glazing. Architects may opt for an approach to maximise views from the guestrooms to accommodate the often narrow site, but there is a cost premium to this and this choice should be scrutinised.
Typical guestroom layout Guestroom sizes are generally standardised. For a five-star hotel it would be rectangular in shape, in the region of 40 to 50m² net area inclusive of sleeping area and bathroom. Some developers or designers may attempt to provide larger and odd-shaped rooms which may not be economical. Good workable dimensions are approximately 4.5m by 9.1m. The width should not be excessive, as it increases the length of the corridors, the cost of the structure and affects the external walls of the bedroom zone.
Examples of different configurations are shown below.
The single-loaded corridor configuration is less efficient as the corridor serves only one set of guestrooms. Efficiency is in the region of 65% or less.
The double-loaded corridor configuration is efficient, with one single corridor serving guestrooms on both sides. Efficiency is in the region of 70 to 75%.
42: COST
The offset configuration is the most efficient configuration in terms of accommodating
The rectangular configuration is not efficient,
more rooms per floor, with minimum effect on
as it requires additional corridor lengths to
external walls and finishes. Efficiency is in the
serve end rooms. Efficiency is in the region of
region of 75%
65% or less.
COST :43
The triangular configuration provides inefficient space for the central core. The corner rooms are odd-shaped. Efficiency is likely to be below 65%.
The atrium configuration is served by singleloaded corridors, which reduce efficiency. Though it may provide an opportunity for glass elevators, there is a cost premium. Smoke extraction and an extra premium for roof construction is a major consideration. Efficiency is likely to be around 60%.
44: COST
The circular configuration may have shorter corridors but it is a challenge to design efficient room space, especially in relation to the location of the bathroom. The central core, where the lifts, housekeeping and fire-escape stairs are located, will determine the floor area. It is unlikely to achieve efficiency beyond 70%
COST :45
Cost planning Cost planning is typically done in two stages. The first stage involves an initial order of magnitude costing or cost appraisal. This usually takes place before any designs have been produced, and is based on available cost data and past experience of hotel projects of comparable standard, together with an understanding of the current market trends. The second stage involves more detailed cost planning based on design information procured specifically for the particular project.
46: COST
Initial order of magnitude costing Using benchmarked area data, a preliminary schedule of all functional areas in the hotel is made based on outline information about the hotel’s market position, the recommended type of hotel product, and the amenities the market requires. This produces a reasonably accurate estimate of overall gross constructed area. Based on this preliminary area schedule, the estimated construction cost for the hotel is calculated. This is usually done both on a cost per square metre basis and on the basis of a cost per bedroom or key, using historical benchmark data collated from similar projects. Assuming that both calculations produce answers in the same ‘ballpark’, it is likely the hotel design is reasonably efficient.
Our cost consultants are wary of hotels with, for example, unusually large or extensive restaurants, conference facilities, health clubs, suites or other unusual facilities that skew the comparative calculation by increasing the cost per key without perhaps significantly affecting the cost per square metre. For any such ‘unusual’ hotels, further discussion with the developer is advisable to ensure that his requirements have been accurately captured. An initial cost prepared on a $/m² should, however, be more reliable.
COST :47
With the preliminary costings in place, a construction cost cashflow forecast is prepared, based on the estimated time required to carry out the design, procure the right contractor and then build and fit-out the hotel. The results of this cash-flow study give an indication of the likely draw-down of the funds throughout the construction of the hotel to allow developers and investors to assess the need for, and cost of, funding. The construction cost consultant then works with the developer and the design team to review and modify the scope and nature of the hotel design, and the corresponding construction cost.
48: COST
This review process may be repeated a number of times until the developer arrives at a financially viable scheme that yields the required target profitability. In this way, a budget is refined and set for construction of the hotel and the developer is given the confidence in his viability calculations to give the go-ahead to proceed to the next stage of the project.
Detailed cost planning The developer’s design team should design the hotel to provide the functional areas necessary to meet the hotel operator’s requirements within the constraints of the approved budget. The construction cost consultant costs the design and prepares an initial cost plan that breaks down the cost of each element of the building into smaller, more identifiable and manageable items. The cost plan is fine-tuned to try to make sure that firstly, overall costs fall within the targeted budget and secondly, that the spread of the expenditure is about right – ie the money is being spent on those elements which are customer facing or affect the operating costs of the building – and therefore improve the potential viability of the scheme.
This may involve a valueengineering (VE) process, carried out with the construction cost consultant guiding the designers by using analyses and benchmark comparisons with other hotel projects. All cost elements are scrutinised for efficiency in design and whether they add value to the hotel. Our construction cost consultants, who are well-versed with the various cost drivers of a hotel development, share their knowledge and experience with the design team, challenging and being challenged, thereby maximising the value and effectiveness of the hotel building.
COST :49
The construction cost consultant may suggest alternative construction methods and advise on the range of products and materials available in the market that are within the allowable budget, from which the architects and interior designers can then select. Once the preliminary designs are completed and have been checked to remain within budget, the construction cost consultant compiles all the information into a final detailed cost plan that is distributed to the developer and consultants. This defines the design intent and the agreed budget to which the developer and design team should adhere.
50: COST
The initial budgeting process minimizes time spent pursuing design options that are either not affordable or do not produce the required financial return.
Construction cost consultants share their knowledge and experience with the design team, challenging and being challenged, thereby maximising the value and effectiveness of the hotel building.
COST :51
Cost models
*
Europe Spain
TOTAL TOTAL USD
USD/m 2 (GBA)
USD/key
8,544 m2
153 keys
%
Structure and envelope Internal fit-out Building services On-cost FF&E External works
6,072,299 1,667,432 1,667,432 11,027,489 11,027,489 7,062,250 ,062,2 50 5,819,339 263,350 263,35 0
711 195 1,291 827 681 31
39,688 10,898 72,075 72,07 5 46,158 46,158 38,035 1,721 1,721
19% 5% 35% 22% 18% 1%
Total
31,912 31 ,912,,160
3,735
208,576 208, 576
100%
* Cost models based on a mid-market product 52: COST
Russia
USD/m 2 (GBA)
USD/key
8,544 m2
153 keys
6,493,440 358,848 5,510,880 3,740,300 3,740,300 5,615,579 854,400
760 42 645 438 657 100
42,441 2,345 36,019 24,446 36,703 36,703 5,584
29% 2% 24% 17% 25% 4%
22,573,447 22,573,4 47
2,642
147,539 147 ,539
100%
TOTAL TOTAL USD
%
COST :53
United Kingdom
TOTAL TOTAL USD
USD/m 2 (GBA)
USD/key
8,544 m2
153 keys
%
Structure and envelope Internal fit-out Building services On-cost FF&E External works
7,800,037 3,785,50 3,785,507 7 7,543,701 5,197 5,197,200 ,200 5,819,339 263,350 263,35 0
913 443 883 608 681 31
50,981 24,742 49,305 49,30 5 33,969 33,96 9 38,035 1,721 1,721
26% 12% 25% 17% 19% 1%
Total
30,409,134 30,409,134
3,559
198,753
100%
Cost models
*
Middle East Dubai
TOTAL USD
USD/m2 (GBA)
USD/key
8,544 m2
153 keys
%
Structure and envelope Internal fit-out Building services On-cost FF&E External works
5,885,147 3,022,309 6,289,284 4,250,100 5,356,243 351,767
689 354 736 497 627 41
38,465 19,754 41,106 27,778 35,008 2,299
23% 12% 25% 17% 21% 1%
Total
25,154,850
2,944
164,411
100%
* Cost models based on a UK mid-market product. The equivalent product in the Middle East is a budget product 56: COST
Qatar
USD/m2 (GBA)
USD/key
8,544 m2
153 keys
8,116,800 3,844,800 8,116,800 3,844,800 9,825,600 427,200
950 450 950 450 1,150 50
53,051 25,129 53,051 25,129 64,220 2,792
24% 11% 24% 11% 29% 1%
34,176,000
4,000
223,373
100%
TOTAL USD
%
COST :57
Saudi Arabia
TOTAL USD
USD/m2 (GBA)
USD/key
8,544 m2
153 keys
%
Structure and envelope Internal fit-out Building services On-cost FF&E External works
5,002,375 2,568,963 5,345,891 3,612,585 4,552,807 299,002
585 301 626 423 533 35
32,695 16,791 34,940 23,612 29,757 1,954
23% 12% 25% 17% 21% 1%
Total
21,381,623
2,503
139,749
100%
58: COST
Cost models
*
Africa South Africa
TOTAL USD
USD/m2 (GBA)
USD/key
8,544 m2
153 keys
%
Structure and envelope Internal fit-out Building services On-cost FF&E External works
3,875,822 1,380,676 5,598,122 2,808,660 2,136,503 146,327
454 162 655 329 250 17
25,332 9,024 36,589 18,357 13,964 956
24% 9% 35% 18% 13% 1%
Total
15,946,110
1,866
104,223
100%
* Cost models based on a mid-market product 60: COST
Nigeria
USD/m2 (GBA)
USD/key
8,544 m2
153 keys
6,965,981 2,496,952 10,076,620 5,055,780 3,845,742 263,389
815 292 1,179 592 450 31
45,529 16,320 65,860 33,044 25,136 1,721
24% 9% 35% 18% 13% 1%
28,704,464
3,360
187,611
100%
TOTAL USD
%
COST :61
Nairobi
TOTAL USD
USD/m2 (GBA)
USD/key
8,544 m2
153 keys
%
Structure and envelope Internal fit-out Building services On-cost FF&E External works
3,978,504 1,243,969 5,080,700 2,821,440 3,281,781 160,960
466 146 595 330 384 19
26,003 8,131 33,207 18,441 21,450 1,052
24% 8% 31% 17% 20% 1%
Total
16,567,354
1,939
108,283
100%
62: COST
Cost per key analysis Based on a mid-market hotel
250,000 FF&E Excluding FF&E 200,000
150,000
100,000
50,000
0 K U
n i a p S
a i s s u R
i a b u D
r a t a Q
a i b a r A i d u a S
a c i r f A h t u o S
a i r e g i N
i b o r i a N
Cost/m2 analysis Based on a mid-market hotel
FF&E Excluding FF&E 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 K U
n i a p S
a i s s u R
i a b u D
r a t a Q
a i b a r A i d u a S
a c i r f A h t u o S
a i r e g i N
i b o r i a N
PROCU
EMENT
Selecting a contractor to undertake the construction of the hotel requires an understanding of the procurement options available to ensure that the right balance between price and risk is achieved.
Procurement Having completed the cost planning process, agreed a budget and scope of work and received the go-ahead from the developer to proceed to the next stage, the construction cost consultant advises on the most appropriate procurement approach for the particular blend of time, cost and quality that relates to the hotel project.
Every project is different, and it is important that the choice of the most appropriate procurement route and the selection and pre-qualification of potential contractors for the project is carefully considered. Even the best cost plans will be undermined if the wrong choice of contract or contractor is made or if the design information on which the contract is let is incomplete or of poor quality.
70: PROCUREMENT
The three most commonly encountered forms of procurement for hotels are briefly described below:
Traditional lump sum Traditional lump-sum contracts, based on full bills of quantities or priced schedules of work, provide an essential means of letting and cost managing the work as it proceeds. However, they do require all design to be finalised and detailed, and complete documentation to be prepared before going to tender, which takes time and the overall life of a project is therefore usually longer using this route. Careful planning and interfacing of, for example, the interior design with the main building works can reduce the impact on the master programme.
72: PROCUREMENT
The main advantage of completing the design before construction commences is the fact that the contract cost is established in advance of entering into the contract and work starting on site. The cost risk to the developer is therefore relatively low. Control of design and quality remains largely in the hands of the developer and the design team. If properly set up and administered, this can be a good form of contracting to produce a high-quality hotel.
Design and build The design and build (d+b) approach needs a clearly stated set of requirements, setting out in detail those parts of the finished hotel that are important to the developer or hotel operator (for example, the finishes to the public areas or the performance of the services installations, but not necessarily the detail of how the main structure is put together) but without producing full design documentation.
The contract price is based on the contractor satisfying these requirements while leaving a significant part of the design, particularly the detailed design development, to the contractor. The perceived lack of control by the developer over quality issues may lead to compromises by the builder despite the design team often being novated to the contractor. This is a good and usually cost-efficient form of contracting for reasonably standard, repetitive types of hotel such as budget lodges and branded mid-market hotels. It is less often used for luxury, fivestar hotels.
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Construction management The construction management (CM) approach, where the work is let under a series of smaller individual trade contracts under the management of a specialist construction management company, can provide programme advantages but may expose the developer to greater cost risks. This is because the out-turn cost (end cost) is not known until the last trade package is agreed. This construction management approach also does not provide the developer with a single point of responsibility for the construction works, which developers might see as a disadvantage. It requires a much greater involvement by the developer, in dealing with individual trade contracts and package contractors.
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This approach is often used on large or complex hotel projects where making a quick start on site, before the whole design is completed, is important in order to minimise the overall duration of construction. Careful consideration of all factors is needed before proceeding down this procurement route. A modified version of this method can be used where, part way through the design and procurement process, the contractor warrants the cost by providing a guaranteed maximum price (GMP), usually including a premium cost to reflect the additional risk he is taking on. Any savings achieved within the GMP are shared between the developer and the contractor in a predetermined proportion, thereby creating an equitable risksharing arrangement.
Procurement management The cost consultant will be actively involved in establishing detailed procurement strategy to cope with the client’s master programme. If some packages of work need to be procured at an early stage to meet the programme, the cost consultant will actively participate in the pre-qualification and selection of suitable contractors, including sourcing internationally, if required. AECOM’s experience and global presence allows us to put together the necessary tender documentation and recommend the appointment of appropriate contractors for these packages in a timely manner
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SUMMA
RY
Summary This guide explains the relationship between the design and the costs of hotel development and demonstrates the benefits of obtaining cost advice throughout each stage of the development lifecycle.
Successful hotel development requires not only an understanding of the market, but also the ability to design and procure the right product at the right price. To achieve this you need to understand the relationship between design and cost and have knowledge of the latest technologies, materials, prices and construction methods. Combined with the knowledge of how hotels operate, this ensures that you have the right balance between capital expenditure and operating costs.
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From initial feasibility through design, procurement and construction, the role of the construction cost consultant is key. We hope that you have found this guide a useful source of information and guidance for your hotel projects. We would welcome the chance to discuss it with you in greater detail. At AECOM we offer a range of services that meet the development and asset management needs of hotel owners, operators and developers from initial feasibility through to planning, design, construction and operation.
