A commercial construction project can seem like a never-ending balancing act, like keeping a series of plates spinning. One plate represents keeping the project on schedule. Another spinning plate is ensuring that construction is completed properly and safely. And still another spinning plate is containing the project budget.
A commercial construction budget is influenced by a number of factors. Exceeding the budget can easily occur for reasons beyond the control of the owner, contractor, and project manager, including:
• A sharp increase in materials costs during construction.
• Weather fluctuations that slow or halt construction.
• Work stoppages.
• Frequent alterations to the design, materials.
Make a list
As one industry writer stated, estimating a project’s cost is the first step of construction cost containment. The project budget should list the essentials (non-negotiables) as well as the negotiables (the aspects of the project that can be reduced, modified, or eliminated in order to contain costs. Each line item should be carefully researched, sourced, and have a realistic cost applied to it. The budget should also include contingency funding.
Cost control challenges
Cost containment challenges are not always line item-related. There are a number of less-obvious but significant challenges to staying on budget, including:
• Poorly defined scope of project.
• Flawed estimating methodology
• Lack of project management policies and controls.
• Unrealistic scheduling.
• Insufficient planned-to-actual cost comparisons.
The big three
This trio of cost containment issues has been stated before and they are worth stating again. If The Big Three of budget issues are carefully managed, you can reduce or eliminate a number of budget overruns:
1. Incomplete design documentation: the architect’s rendering, plans, and specs that are turned over to the owner or project manager do not always include the in-depth details necessary for realistic budgeting.
a. Solution: the contract between the owner and architect should specify that all members of the architecture team will provide complete details, specs, documents, and drawings related to the project.
2. Pre-bidding document review: some contractors do only a general review of documentation before submitting their bids.
a. Solution: the language of the project owner’s contract should require all contractors who submit bids to acknowledge, in writing, that they have reviewed all specifications and plans. The bid price should cover all identified and “implied or express design intent” work.
Any materials or changes to design that the contractor feels are essential to successful completion of the project (but weren’t identified in the project/owner’s documentation) also should be included in the bid, along with explanations for the additional items.
This requirement should reduce or eliminate the need for contractors to seek additional compensation based on additional work necessitated by information “not shown on the original plans and specifications.”
3. The low-ball bid: underbidding can put the entire project at risk and cause it to far exceed the budget.
a. Solution: solicit bids only from trusted contractors who have successfully completed similar projects. They should have documentable records of completing projects on budget and on time.
Another cost containment option
Another cost containment option is to hire a skilled construction cost estimator. That person or team works with you to help you avoid out-of-control expenses, keep construction costs down, and ensure the project is completed within the agreed-upon timeframe.
It’s up to you
Ultimately, it is the owner and project team who are responsible for overseeing each phase, change order, and plan alteration to the construction project. There should be a well-defined process for change order submittal, review, and authorization. There also should be continual monitoring and updating of the budget so that you and your team know where the project financially stands all the way to completion.