Construction Cost Control When Building A Retirement House In Thailand

How I Attempt To Get Some Construction Cost Control Into Our Retirement House Build Project In Pakchong (Pak Chong), Thailand

Background – Change Of Contract Strategy Demands New Construction Cost Control Approach

We changed the format of the construction contract under which we engaged our new builder after Kanyah terminated the previous builder for poor quality work, tardiness and general poor quality of project management and delivery.

The previous construction contract was a fixed-price contract to build the retirement house in Pakchong (Pak Chong), Thailand, to the Thai Architect’s construction drawings (house plans to the layman) including provision of all labor and supply of all construction materials.

The total contract sum (price) was broken down into staged payments summing (adding up to) the contract value. we paid the builder these staged payments according to his progress. (Actually we paid him in advance which is why we lost so much money when his contract was terminated).

Anyway, the point is this. The project cost control in the construction phase was simple. We had a schedule of payments against progress which we monitored as we paid the builder. Simple.

After Kanyah kicked him off site, she engaged another builder on a fixed price labour-only basis, whereby Kanyah would purchase all the construction materials.

The Labor Content Of the New Contract Is easy To Monitor (But See “Specialist Subcontractors” Below)

This made project cost control in the construction a bit more complicated.

Firstly there is the labor cost, which is monitored in a similar manner to the contract with the previous builder – agreed staged payments measured against progress. As it happens the figure (price) Kanyah agreed with the new builder for the labour only contract was just about the same as the labour only portion left in the previous contract when the builder was terminated.

Secondly there is the materials cost. And Kanyah will be purchasing the materials. This is where I get nervous. Kanyah is not good at record keeping. And…

… We Want To Complete The Build Within The Original Budget (Fat Chance!)

The idea is that since we are now purchasing all the materials we will save the mark-up on materials that existed in the previous builder’s price. If that saving comes somewhere near the money we lost when Kanyah fired the previous builder then we can still complete the house within the original budget.

To achieve this we (we = I) have to closely monitor the amount spent on materials against the amount left in the previous cost.

Kanyah calls me almost daily and gives me a brief progress report and a verbal summary of what she has spent.

Then follows a plea for me to send her more money so that she can buy the materials for the next stage of the works and avoid holding up the builder. The builder has told her that if the materials re not on site when he wants them he will not wait around but will go off to work on another project.

So I intended to A) calculate how much was left in the previous budget to spend on materials and then B) to regularly monitor Kanyah’s spending against that figure.

My Request To Kanyah To Get The Construction Cost Under Control

As I mentioned above, Kanyah is not good at paperwork. (Understatement – she hates it). So I knew I had a job on my plate to persuade her to get together some form of organisation and reporting of the money she is spending. There is no way she can do it. The only way is if i can get her to send me all the receipts and i will organise them and produce the reports.

Look. When I simply ask for photos to be sent to me of the build progress she sometimes ‘hits the roof’ complaining to me that I am putting her under too much pressure and as she puts it ‘pushing her in a corner’.

So I know I am going to have a difficult time to get her to send me the financial data I need to monitor the building costs.

Anyway, I made an example (simply wrote it by hand in a notebook) of the kind of reporting format that I wanted and sent it out to Kanyah. you can see that below, together with a narrative of what happened next.

Are The Costs Of Specialist Subcontractors Included In The Main Builders Fixed Price Labour Cost?

The specialist subcontractor are subcontractor brought in by the main builder and it seems he does not hire them directly, instead Kanyah has to pay them. They are typically the electrical and plumbing specialists.

When Kanyah tells me she has paid a specialist sub contractor – she seems to pay them in lumps of 20,000 Baht (£400 or $600) – I’m not sure if that is in addition to the fixed price agreed with the main builder or it is included in his price.

Seems to me like the main builder has pulled a fast one and the subcontractors costs are in addition to the price Kanyah agreed with him. But I will put the question to Kanyah and hold judgement for the moment. I may be pleasantly surprised. (What do you think?)

The Email I Sent To Kanyah To Attempt To Get Some Form Of Cost Control In Our Retirement House Construction Project

Here is an exact copy of the email I sent to Kanyah to explain what I wanted her to do:-

*26* Control The Money

From: Alan Brown alan(at)retiringinthailand.net via gmail.com

To: Thongplay Brown <Kanyah’s Email@googlemail.com>

Date: Wed, Jun 15, 2011 at 8:12 AM

Subject: *26* Control The Money

———————————————————————————————————-

Kanyah,

We have to control the money.

Last time with Pongsak we didn’t do that and we lost 355,000 Baht (about £7,000). I can’t afford to lose money like that.

Don’t forget why we are building the house – it’s to retire to. The 355,000 would have given us 30,000 Baht for a year income to spend when I have retired. Now I lost that and I’m sad and angry.

So in future we have to control the money.

The contract with Pongsak wa for 1,697,900 (say 1.7 million Baht) and I’m not spending more than that.

Every time you get a receipt I want you to put the date and a number on every receipt. Keep all the receipts together in a file.

Then, at the same time, write the details of the receipt in a notebook. You can the calculate how much you have left to spend.

Every two weeks work out how much money you have in the bank and cash and send to me:-

1. Copy of your Bank Book

2. How much cash you have in your pocket

3. The list of receipts.

Do this now, for all the receipts you have, then do it on the same day every two weeks.

Kanyah, you have to do this.

See attached.

Love

Alan

The Three  Steps To Effective House Construction Cost Control

I considered the following steps necessary to be able to get some form of control over the costs of building our house.

(Remember that I am in the U.K. and Kanyah is in Pakchong (Pak Chong), Thailand, where the retirement house is under construction. Also, please bear in mind that Kanyah hates paperwork, writing and any form of book keeping.)

1. Find out how much money (cash) Kanyah has ready access to, to spend.

2. Find out what Kanyah has spent already on money and labor with the new builder.

3. Find out how much of our original budget is left to spend with the new builder.

And below are the exact attachments to the email – the way I wanted Kanyah to record and report the money she is spending and how I intended her to calculate the comparison with our original budget.

Image of Building Cost Control - Commencing Account Balance Statement

Building Cost Control - Commencing Account Balance Statement

Above, is the calculation to find out how much cash Kanyah has access to immediately. If I then know on a regular basis how much she is spending I will know when and by how much to top up her funds.

Next is the sample list of invoices showing how much Kanyah has spent to date with the new builder.

Image of Building Cost Control - Example of List of Invoices

Building Cost Control - Example of List of Invoices

Above, I had a struggle to get Kanyah to make this list.

On the phone to her I explained that she personally doesn’t have to do the work. I suggested that she give the invoices to one of the daughters of the owners of The Mansion (the apartment hotel where she is staying) and get the girl to do it for pocket money.

Also I told her that there is no need to translate the invoice list from Thai into English, I would have that done by a translation company over the internet. All the girl ahd to d was to write down the list of invoices bay neat handwriting, in the Thai language. Not to difficult I thought.

I could hear the relief from Kanyah when I made that suggestion. It fitted Kanyah’s outlook on life perfectly. Kanyah like to get others to do the difficult stuff for her. Not that she shies away from difficulties I need to add, but that there are certain things she hates doing and if someone else can do them for her then she’s OK with that.

Next comes the calculation to understand how much we have left from the original budget to spend to get the house finished taking into account what we paid both builders. This of course needs regular updating as Kanyah buys materails and pays for the labour. minus

At the time when I made this calculation, we had 359,500 left in the budget.

Image of Building Cost Control - Example of Two-Weekly Balance Sheet

Building Cost Control - Example of Two-Weekly Balance Sheet

Received, The Invoice List Essential To My Construction Cost Control Strategy

Below is the invoice list I received from Kanyah a couple of days later. She had done what I suggested and paid the girl in the hotel 400 Baht to make the list. It’s neatly typewritten in Thai and from the pencil tick marks it looks as though someone has checked it. There is also a handwritten total at the bottom of 169,078 Baht.

Image of Building Cost Control - Actual Invoice List From Thailand (Thai Language) Page 1

Actual Invoice List From Thailand (Thai Language) Page 1

Above page 1 of the invoice list and page 2 below.

Image of Building Cost Control - Actual Invoice List From Thailand (Thai Language) Page 2

Actual Invoice List From Thailand (Thai Language) Page 2

Above, notice the hand written Total of 169,078 Baht.

From the 359,500 left in the budget less the 169,078 Baht spent, there is 190,422 Baht left to spend without busting our original budget.

Kanyah included this invoice which she obtained after the list was completed by the girl:-

Image of Building Cost Control - Typical Invoice From Thailand (Thai Language)

Typical Invoice From Thailand (Thai Language)

Now it’s time to send off the invoice list to the tranlation company.


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4 Responses to “Construction Cost Control – Building A Retirement House In Thailand”

  • David Todd:

    Dear Alan,

    The subbie’s costs should be included as part of the Main Contractor’s lump sum price, unless specifically expressed otherwise in the contract.

    With our new build, for exapmple, the roofing, electrical, plumbing, and tiling are sub’ed out, but the Main Contractor pays the sub-contarctors, not us!!

    Kind regards,

    David Todd 

    [Reply]

    admin Reply:

    David,

    That’s the theory, anyway, but this is Thailand.

    Alan

    [Reply]

  • Kath:

    Hi Alan,
    I have followed your retirement house build project since the beginning.   Enjoy your posts tremendously.  I can help with translating the receipts and the material lists if you like.  I am Thai, married to an American and currently live in the US.  In about 2 more years, we plan to live part time in Thailand. 
    Regards,
    Kath  

    [Reply]

    admin Reply:

    Hi Kath and thanks for getting in touch.

    You’ve been following my story of designing and building a retirement house in Pakchong (Pak Chong), Thailand, from the beginning eh! Well that’s a long time, well over a year I would say. It’s a good thing you enjoy the posts then!

    Being a Thai you must be laughing at some of the things going on and my reaction to them. You are almost the only Thai so far who has made a comment so I (and I’m sure the readers) would appreciate more comments/observations from you to show the Thai perspective.

    Thanks also for the offer to help with Thai language translation that would be a great help. I’ll be in touch separately about that. The Thai translation company I am using at the moment do a good job but aren’t very reliable. A familiar story?

    Living in the USA, eh? I have met quite a few Americans married to Thais through the website. Very friendly and helpful, all of them. You must be dying to get back to living in Thailand. How often do you visit?

    Anyway, Kath thanks again for the comment and hope you still keep reading and enjoying the posts.

    Alan

    [Reply]

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