Guest blog: Six ways to control rising commercial construction costs
By Dustin Rohrbach
The good news for the Columbus region is that the construction industry is back! The not-so-good news is a backlog of projects in this growing economy has led to rising construction costs, but the impact can be minimized through a combination of best practices and targeted planning strategies.
According to Engineering News Record, June 2014 costs for commercial construction building and materials were more than two percent above inflation compared to a year ago. As construction activity increases, firms can become more selective in the projects they pursue, resulting in decreased competition in the marketplace. The cost of commodities and common materials also rises as the supply is reduced and demand elevated. Prior to 2014, Danis Columbus, like most construction managers, accounted for zero to three percent inflation and/or general escalation. However, recent local market trends now dictate five to seven percent annual inflation and/or escalation factors for projects that will be delivered in 2015 and beyond.
These six best practices can help control escalating costs:
1) Avoid escalation. Build it now because there will be a premium to wait. This is probably the most important recommendation. Some builders are adding an average of 4.75 percent to estimates for any work to be completed in 2015 and beyond in this region, with some components, such as roofing or insulation, seeing increases of as much as seven percent.
2) Invest in the architect. One aspect of a commercial construction job worth the added expense is at the planning and drawing stage. The best way to hedge against rising construction costs during a project is to lower the risk of unplanned changes. Missed details or sloppy work in commercial construction design can end up costing a lot. Poor preparation result in changes that amounted to 10-15 percent of the original total commercial construction costs. It’s smarter and less nerve-racking to pay sound architects well, rather than stressing over the work of an obscure one that may seem like good deal. A strong architect can save in excess of five percent in change orders alone due to bad details, incomplete drawings, and unsubstantiated assumptions.
3) Consider a design-build approach. To really mitigate the chance of a planning-stage disaster, go with a design-build delivery method. The main advantages an owner gains with a design-build contract is a complete shift of risk from the owner to the design-build team, one sole-source contract (which means streamlined communication/gained efficiencies), a reduction in the project schedule (up to 33 percent), and an average decrease in cost overruns by 12.6 percent.
It’s a common misconception that commercial construction managers make money on change orders that can take place during a project. Almost 100 percent of this cost is passed along to the subcontractors. Construction managers want to avoid this scenario to maintain their reputation for good project management. Hiring one construction manager to initiate a design-build project is fiscally smart.
4) Reclaim materials and systems when possible. On commercial construction retrofits and overhauls, if feasible, reuse existing materials or systems such as air conditioners and plumbing. Savings can be significant. When estimating commercial construction costs, ask construction managers to evaluate the current condition of major building systems rather than simply ordering new. This helps avoid rising costs of construction due to material pricing escalation and inflation. The opportunity to reuse major building components is always an alternative, but evaluating these options from an energy consumption angle is always something we review with our clients prior to making this decision.
5) List your needs … and wants. Start out by knowing the costs up front and having the price locked in from the beginning. The best way to achieve this is through an open-book, cost-plus contract/delivery method and getting the construction manager involved early in the project. This creates a collaborative environment where the list of needs and wants can be evaluated prior to starting construction. Owners can then make decisions on their wish list upfront during design and those changes can be incorporated prior to construction versus during construction when changes will always cost more. Decisions in the middle of a project will cost more for the designer to change the drawings and for the contractor to make the adjustments in the field versus prior to construction when those premiums don’t exist.
6) Use a builder that builds or has a field workforce. This sounds basic, but not all construction managers build. Using a builder that employs its own workforce drives efficiencies that can’t be offered by any construction manager. Construction managers that self-perform are more nimble, can start earlier and can go faster. They even have the ability to quickly step in when subcontractors are underperforming and make up lost time.
There is no one answer to hedge against rising costs in general, but a good commercial construction manager should be able to approach the task holistically and find numerous ways to keep commercial construction costs predictable.
Dustin Rohrbach is vice president in charge of the Columbus office of Danis Building Construction.