Shell Cost vs. Finish Cost: Understanding Construction Costs Early in the Design Process
In our never-ending struggle to explain construction costs to clients, we sometimes resort to the shell cost vs. finish cost estimating method. What is the difference between shell and finish? Finish cost is what most people think of when discussing construction cost. In other words, its the cost of the entire project including all materials from foundation to roof and all exterior and interior finish materials. Finishes are cabinetry, flooring, wall surfaces, tile, HVAC, plumbing fittings, light fixtures and accessories- the entire lot. Conversely, shell cost is a stripped down, bare bones version of the project that typically includes only those systems necessary to create a weathered-in structure such as foundation, framing, weather-proofing, doors and windows, exterior finishes, roofing, HVAC, rough electrical and plumbing. As you can imagine determining shell cost for a project is a much more expedient exercise that determining the finish cost which can be useful in testing the viability for a project early in the process.
Why do we need to make this distinction? We use Shell cost to identify all of the components of a project that are both necessary and have no price variability. For example, a foundation is typically just a foundation meant to anchor the building to the ground: the structural engineer creates a design using reinforced concrete meeting certain specifications and it doesn’t really matter where the concrete comes from or who places the reinforcing bars we, (the client and the architect) just want the work done in accordance with the design at the least expensive price. Similarly, for the framing we want it to be erected in accordance with design documents and no more is expected. Think of buying a base model of a car: we do not want extras, just wheels, engine, body and controls, road ready. Distinguishing the shell cost gives us a baseline cost for those necessary items where cost can’t be squeezed any further.
There are no real options to the components that vary the price.
What this does through deduction is identify all of the rest of the components of the design that *do* have cost variability through their options. For example, flooring; flooring can be wood, carpet, stone, tile, vinyl the list goes on. Not only this, but any chosen flooring type can have myriad sizes, colors finishes, patterns, etc. In other words, finishes are made contain many variables that carry cost implications. Getting a list of price variable components into the hands of the client allows the client to exercise a degree of control over the cost of their project and conveniently gives them their shopping list.
Along the way in the design process, materials, colors and final interior layout can be determined with finish costs in mind. These are items with a lot of moving parts that affect the cost but we are in control of them as the design develops. The design therefore gets tailored to come in less expensive or more expensive based on decisions along the way.
Also, early in the process, as a rule of practice, we would like to get a contractor involved to provide ballpark pricing. At the early stages, there is not going to be accurate pricing for finishes because the information is not developed and the drawings may not include that information but with preliminary engineering drawings, a contractor will be able to provide pricing of the shell costs. Then there is much more clarity for where the direction of the design is going with respect to the finishes.
Shell pricing in the preliminary pricing exercise allows us to see clearly a group of things that stay unchanged. Then the value engineering decisions for the rest of the items can be made more easily.