Keeping a commercial construction project on budget requires determination, vigilance, creativity in problem-solving, and diplomacy. It begins almost at the moment a project is conceived and continues throughout the entire construction period.
There are many reasons a commercial construction project will go over budget. Some causes simply can’t be adequately assessed or budgeted, such as delays and materials losses caused by a natural disaster. But many causes relate to poor planning and even weaknesses in the budgeting process itself.
Typical Cost Control Problems
Cost overruns on a construction project happen, despite the most careful planning and control efforts. Some common causes for overruns include:
- Lack of a well-defined project scope.
- Poor estimating methods (or standards).
- Out of sequence start/completion activities.
- Inadequate comparison of planned-to-actual costs.
- Unanticipated technical problems.
- Poor (or no) project management policy and control practices.
- Faulty schedule resulting in overtime or idle time expenses.
- Escalating materials prices.
Three Big Mistakes
Review some of the more egregious construction cost overruns of recent years and you might see a familiar pattern to budget overruns. They are commonly made mistakes that can be adjusted and corrected during the contracting phase of a project.
Managing these three weak areas may mitigate or eliminate many of the problems listed above:
- Incomplete document design: a project owner may hand over the architect’s plans and specs to the contractor believing that every detail has been identified. In truth, the owner-architect agreement often only requires the architect to present the plans and specs of a general design intent. The complete in-depth details may not be included. The lack of complete design information places the contractor in the position of demanding more money for work that had not been clearly defined in the plans and specs. Multiple change orders and budget overruns result.
- Resolution: the owner-architect agreement should specify that the architect will provide a 100% complete set of drawings, specs, and all related documents prepared by engineers (and others working on the project). Responsibility for overages caused by incomplete design falls back on the architect, not the contractor.
- Complete review of documents prior to bidding: the contractor may seek additional compensation for necessary work that, according to the contractor, was “not shown on the plans and specifications.”
- Resolution: the project owner’s contract language should stipulate that all contractors wishing to submit bids must affirm they have reviewed the plans and specs and fully understand the scope and intent of the project. Their price should cover all necessary work to fulfil the “implied or express design intent.”
- The lowest bid: the project owner may face many pressures from investors, shareholders, and board members to accept the lowest bid. But lowest isn’t always the best. Underbidding can be risky and costly.
- Resolution: work with trusted contractors who have completed projects similar to the current one. The contractor with a track record of successful on-time and in-budget builds is far more likely to be able to produce the same results for your project.
The root of successful budget containment lies in allowing a sufficient amount of planning time to thoroughly define the scope, schedule, quality, risk, resources, and budget for the construction project before the bid invitations are sent out to contractors.