Commercial Building Tips: How To Avoid Overbudgetting
A commercial construction project can seem like a never-ending balancing act, like keeping a series of turntables spinning. A plaque represents keeping the project on time. Another turntable is ensuring that construction is completed properly and safely. And another turntable contains the project budget.
A commercial construction budget is influenced by a number of factors. Going over budget can easily occur for reasons beyond the control of the owner, contractor, and project manager, including:
• A sharp increase in material costs during construction.
• Weather fluctuations that delay or stop construction.
• Work stoppages.
• Frequent alterations in design, materials.
Make a list
As one industry writer said, estimating the cost of a project is the first step in containing construction costs. The project budget should list the essential (non-negotiable) as well as the negotiable (aspects of the project that can be reduced, modified, or eliminated to contain costs. Each line item must be researched, sourced, and costed realistically The budget should also include contingency funds.
Cost control challenges
The challenges of cost containment are not always related to line items. There are a number of less obvious but important challenges to staying on budget, including:
• Scope of the project poorly defined.
• Flawed estimation methodology
• Lack of project management policies and controls.
• Unrealistic programming.
• Insufficient comparisons of planned with actual costs.
The big three
This trio of cost containment issues has been mentioned above and is worth mentioning again. If the big three budget problems are managed carefully, you can reduce or eliminate a number of budget overruns:
1. Incomplete Design Documentation – Architect rendering, plans, and specifications provided to the project owner or manager do not always include the in-depth details necessary for a realistic budget.
For. Solution: The contract between the owner and the architect should specify that all members of the architecture team will provide complete details, specifications, documents and drawings related to the project.
2. Pre-Bid Document Review – Some contractors only conduct a general documentation review prior to submitting their bids.
For. Solution: The project owner’s contract language should require that all contractors submitting bids acknowledge, in writing, that they have reviewed all specifications and plans. Offer price must cover all identified work and “express or implied design intent.”
All materials or design changes deemed essential by the contractor for the successful completion of the project (but not identified in the project / owner documentation) must also be included in the bid, along with explanations of additional items.
This requirement should reduce or eliminate the need for contractors to seek additional compensation based on the additional work required for information “not shown on original drawings and specifications.”
3. The low ball offer: An insufficient offer can put the entire project at risk and cause it to far exceed budget.
For. Solution: Request bids only from trusted contractors who have successfully completed similar projects. They must have documentable records of project completion on budget and on time.
Another cost containment option
Another cost containment option is to hire a qualified construction cost estimator. That person or team works with you to help you avoid out-of-control expenses, keep construction costs low, and ensure the project is completed on time.
It’s up to you
Ultimately, it is the project owner and team who are responsible for overseeing each phase, change order, and alteration of the construction project plan. There should be a well-defined process for submitting, reviewing, and authorizing change orders. There should also be continuous monitoring and updating of the budget so that you and your team know where the project stands financially until its completion.