What is failure cost in construction?

Failure cost is all the additional cost in a construction project caused by errors, rework, delays or poor coordination between parties. Across the European construction sector, an estimated 8 to 15 percent of project value is lost to failure costs — a figure measured in billions of euros each year.

Types of failure costs

Failure costs arise at many points in the process:

Design errors

• Unclear drawings — lead to incorrect execution
• Wrong calculations — must be corrected
• Conflicting disciplines — services clash with structure
• Insufficient detailing — improvisation on site

Execution errors

• Wrong material delivered — must be returned
• Wrong installation — break, repair, redo
• Bad-weather working — damage to half-finished work
• Insufficient temporary works — bracing, propping, safety

Logistics errors

• Late delivery — work stoppage
• Early delivery — storage and damage
• Wrong products — returns and delays
• Poor sequencing — multiple trades clashing

Communication errors

• Unclear instructions — misunderstood
• Changes not communicated — old version executed
• No lessons learned — repeat mistakes

Application

Failure-cost reduction is increasingly important. Methods include:

Lean construction

• Just-in-time delivery — less stock and damage
• Pull planning — work paced by downstream trades
• Continuous improvement — fix errors immediately
• Visual management — make information visible

Building Information Modelling (BIM)

BIM helps by:

• 3D clash detection — services versus structure
• Single source of truth — no design discrepancies
• Quantity take-off — less material waste
• Supply chain integration — JIT delivery

Supply-chain collaboration

• Early contractor involvement — engage builder during design
• Open-book pricing — transparency between parties
• Risk sharing — incentive for quality
• Past performance — score on previous projects

Common causes

The top 5 causes of failure costs:

1. Insufficient preparation — rushing into execution
2. Poor communication — parties talking past each other
3. Changes during execution — variations and rework
4. Time pressure — mistakes due to haste
5. Skill shortages — lack of trade knowledge

Example calculation

A construction project budgeted at €5 million typically loses:

• Low failure cost (5%) — €250,000
• Average (10%) — €500,000
• High (15%) — €750,000

Reducing this by 5% already saves €250,000.

Related terms

• Construction process
• Building defect
• Lean construction
• BIM
• Past performance

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