Building control costs: Money matters

As of 1 April this year, local authority building control departments have been able to set their own fees.

For years, councils were required to decide what their standard fees were, publish them and charge accordingly. That was fine in the days when there was no competition. However, when rivals were introduced in the form of approved inspectors, local authorities were stuck with this system and, unlike the approved inspectors, couldn’t quote on a job-by-job basis. So inspectors knew exactly what councils would charge, and could undercut them on the big, lucrative jobs, leaving councils with the unprofitable, small domestic work.

Why have local authority building control fees been deregulated?

Local authorities have traditionally set pre-fixed charges for building control in three schedules: for small works, for housing and for all other work. Typically they have published fee scales for work up to about £1m but rarely more.

The charges were linked to the floor area or estimated cost of the building work, not the actual cost of carrying out the building control function. So under the old system, you would pay the council a fixed fee, regardless of the level of service provided. If the site needed more inspections than expected, you didn’t have to pay more - but if the local authority didn’t inspect at all, you didn’t get a refund.

This charging regime was considered inflexible and restrictive, and often resulted in unfair charging in that large jobs would subsidise smaller ones, and in large surpluses which were creamed off by the local authority to subsidise other services.

So the government’s aim with the deregulation is to “bring more flexibility, accuracy, fairness and transparency into the regime”. It wants a more level playing field between local authority building control and approved inspectors, who have provided a competing building control service for more than 20 years.

The proposals also aim to support the introduction of a risk assessment approach to inspections of building work, a key part of the changes coming through the Future of Building Control programme. This will allow councils to focus their resources on higher-risk building projects - for example, where the job is particularly complex or builder has a poor record - but also adopt a lighter touch approach to low-risk projects.

So what’s changed?

Following a consultation last spring, the government agreed to a number of key changes to the charging regime. What we have now are the Building (Local Authority Charging) Regulations 2010.

These state that local authorities must have an open and transparent scheme to set charges. Anyone applying for building control must be clear about the charging framework and how charges have been, or will be, calculated.

The biggest change is that fees must reflect the true cost of providing the building control function. There can be no more deliberate cross subsidisation and the local authority must publish its average hourly rate.

Councils can continue setting pre-fixed standard charges (albeit with much greater now are the Building (Local Authority Charging) Regulations 2010. These state that local authorities must have an open and transparent scheme to set charges. Anyone applying for building control must be clear on the charging framework and how charges have been, or will be, calculated.

The biggest change is that fees must reflect the true cost of providing the building control function. There can be no more deliberate cross-subsidisation and the local authority must publish its average hourly rate.

Councils can continue setting pre-fixed standard charges (albeit with greater detail about the level of service this buys), or can provide a written quotation on a project-by-project basis, as approved inspectors do now.

Quotations must be entirely open about any other factors being taken into account, including whether innovative or high-risk construction techniques are being used, any use of specialists and the anticipated number of inspections. There can be no discounts on fees to developers who have signed up to the LABC partner authority scheme as it does not have a formal legal status.

Local authorities must set their charges with the overriding aim of breaking even. They must review charges at the end of each financial year, taking into account surpluses or deficits made in earlier years and they must achieve full cost recovery.

Councils can also now charge for detailed technical pre-application advice over an hour and other supplementary work, such as additional inspections. They must also give refunds if they have less input on a project than they anticipated. In practice, though, these may be rare - as the communities department guidance says: “We do not expect local authorities to set their charges artificially low to win work from approved inspectors and then routinely increase them later on, nor do we expect them to set charges high where they are operating in effect as a monopoly and routinely need to give refunds.”

New accounting requirements are also included, which are intended to make charging more transparent and accountable. These include a requirement to publish an annual report within six months of the end of the financial year.

When will these changes take effect?

The new regulations came into effect on 1 April, but in reality most councils will wait until 1 October, the deadline for bringing in the charging regime.

This is because the changes have come at exactly the wrong time for the public sector, as clients start scrutinising costs more carefully and demanding better value. Most councils now see they can make more money under the old system and will pressure the building control department to maximise income before 1 October.

What will we see in future?

It is likely most local authorities will use standard charges for smaller projects as this is cheaper to administer, and go for the customised quotation (hourly rate build-up) for larger projects. Professional building control body LABC has published a model charging scheme for councils, but they do not have to use this.

Local authorities will have to set a “trigger point”, which is the value of job where the charging regime switches from standardised fees to customised quotations. Councils will need to make it clear which approach they will adopt for different types of project. The interesting thing to watch will be the medium-sized projects and where councils set the “trigger point”.

A larger authority may, for example, set the trigger point at an estimated cost of £200,000 or more, whereas a smaller authority may calculate the charge for all schemes with an estimated cost above £100,000 individually. So expect to continue seeing varying charging regimes between authorities, and even price competition between them.

The general consensus is that lower end fees (for domestic building projects such as extensions, loft conversions and green refurbishments) will go up as councils factor in how much time these jobs really take. Higher end fees (for larger, more complex commercial and multi-use projects) will go down. Procurement departments will have a field day checking contracts and service plans to try to compare like with like.

Whatever happens, it will benefit anyone working on domestic jobs to get their building control applications in before 1 October, as the old charges will apply to any project received by the council before it brings in the new scheme.

How will these changes affect other council services?

One big complaint from building control departments had always been that any surpluses were never ring-fenced for building control. The money usually disappeared into the general local authority pot to subsidise other council services.

The new regulations mean that such surpluses should not happen in the first place, and if there are surpluses, they cannot be used to fund other local authority services but can only be used to improve the building control service to clients. So the issue now arises of whether other services will have to put up their fees too as a result of the changes.

How will all this affect compliance?

There are two issues here - how the changes will impact on the incidence of unauthorised work, and how they will impact on reputable builders.

The major concern is that, as fees increase for smaller jobs (to reflect the time they actually take), more people may be tempted to skip building control altogether. The communities department is alert to this risk, and says councils must “make every effort to keep their costs to a minimum to ensure that charges remain affordable and competitive and do not encourage people to circumvent the Building Regulations”.

A balance needs to be struck because, if local authorities keep charges as they are for small jobs and cut the quality of service, there could also be a drop in compliance rates. However, the communities department has said that it does not expect to see this happening and will be monitoring councils to ensure that the changes are implemented, that councils no longer make large surpluses and that compliance levels do not fall. How exactly they will do this monitoring is not yet clear.

Improving compliance rates could mean increased costs if builders need more inspections than originally quoted. Clients particularly concerned about Part L, for example, might request a specific level of support - but expect to see additional fees levied for that.

Otherwise, workmanship that is faulty and that needs to be rectified and re-inspected will result in additional charges. The government hopes this will add an extra incentive for applicants and builders to raise their standards and improve compliance with regulations, so that “good” builders pay less and “bad” builders pay more.

Steve Evans is an approved inspector with the National House-Building Council and formerly chief building control surveyor at Milton Keynes council