Spotlight Sept/Oct 2007 – 10 Ideas for Coping with Rising Construction Costs

Three years ago, school construction costs in the Intermountain region of the U.S. averaged $105 per square foot. Today, those costs are as high as $155 per square foot. Other areas of the country have seen similar construction cost hikes.

Nonresidential construction spending is expected to rise 8 percent to 10 percent during 2007, according to a February 2007 analysis of construction material and labor costs by the Associated General Contractors of America . Higher costs will fuel the spending rise, with material costs rising from 4 percent to 6 percent and labor costs going up by about 5 percent. Material costs are also expected to increase due to global demand and uncertain supply growth, the report states. Producer prices are projected to rise from 6 percent to 8 percent Unfortunately prices are rising but this doesn’t mean choosing poor quality construction contractors. Using workers with proper licensing such as high risk work can lead to a more efficient build.

Despite rising costs, it is possible — and necessary — to develop and execute strategies to control construction costs.

The following are 10 ideas that can be used in the development of K-12 projects to battle the rising costs of school construction:

1. Evaluate the benefits of construction manager delivery versus design-bid-build: The traditional design-bid-build delivery method, while allowing for market competition, does not allow owners to market their project to a core of experienced subcontractors. Utilizing a construction manager can have the advantage of contact with the most experienced and reputable subcontractors prior to bidding, allowing the CM to represent you in marketing your project. This will help create a partnering mentality which can foster the lowest possible bid numbers. To maintain cost efficiency, it might be a good idea to cherry picker hire in Melbourne.

2. Get the most out of the selected delivery method: Evaluate the advantages and disadvantages of both the CM process and design-bid-build process and determine which method is most beneficial to your project. Consider the CM or contractor’s experience and reputation among subcontractors in the region. If subcontractors in your region do not trust a particular CM or general contractor, it may result in higher bid numbers. When using the design-bid-build method, develop a select bid list of general contractors you are certain will provide the best subcontracting core.

The $102 million renovation and expansion project at Ecker Hill Middle school in Park City, Utah, was divided into two phases and used the construction manager method.

Using the CM delivery method, a school district will have the ability to proactively market the project to the subcontracting community. The reputation of your contracting firm, whether it be a general contractor or construction manager will provide lower bid numbers.

3. Require a Guaranteed Maximum Price: Get a guaranteed maximum price from your CM prior to putting the project out for bid, preferably at the end of the design development stage and before the start of contract documents. Your architect should review the proposed GMP with the architect’s own estimate, and discrepancies between the two estimates should be reconciled in a budget workshop with the owner to arrive at a GMP that is agreed to by the owner, the CM and the architect. Having a GMP in writing before the solicitation of sub-bids will keep the bidding on track to meet the district’s expectations.

4. Select architects and consultants with significant school design experience: Use an experience- and performance-based process to select architectural firms and other consultants. Look for a minimum of 5 to 10 years of experience in school design. Review their approach to the production of construction documents, project management and coordination, and construction administration. Talk to school districts and contractors to verify the performance of proposing architects and their consultants. Find out during the evaluation process whether the architect and the CM or general contractor have worked extensively together. This will improve the effectiveness of the partnership in the eyes of the subcontracting core.

5. Market yourself to subcontractors: Quality subcontractors like to work for reputable construction managers and architects. They also like to work for trustworthy and knowledgeable owners who are interested in a relationship with the subcontracting core.

Subcontractors expect fair treatment and to be paid fairly for their work. Districts that have area factors or reputation problems, which may make them less desirable to bidders, must market themselves to the subcontracting community to change any misconceptions. Districts should determine the mitigating factors that can be presented to subcontractors to help change the perceptions they may have. This process will help projects move to the top of subcontractor priority lists.

The Jordan School District in Herriman, Utah, used a pre-qualified, select GC bid list and design-bid-build method for the 165,000-square-foot Fort Herriman Middle School.

A construction market that is robust with decreasing labor availability allows subcontractors to be selective about the projects they bid. Get to know the region’s best subcontractors and stay in touch to help make your project an attractive opportunity. Although you cannot solicit bid numbers ahead of the actual bidding period, you can make it clear that your district has identified their firm as a quality subcontractor that they would like to have on future projects. Remind them that your district will have more projects in the future and there are long-term opportunities.

6. Require line-item estimates: Demand that your architects and construction managers develop line-item estimates, as opposed to budget estimates based on square footage, throughout the project.

A good conceptual estimator has the experience to fill in the cost of required details and materials, without detailed drawings. This will allow the price to be established from the very beginning. It will also allow the design team to constantly test its designs against accurate budget information. Line-item estimates from both your CM and architect will provide a healthy check and balance for the expected cost of your project and allow a vigorous value engineering debate to take place.

It is essential to require line-item estimates at the concept, the schematic, and design development stages, and at several milestone points during the contract document stage of project development. While this may seem like an overwhelming estimating effort, it will ensure that there are no cost surprises for your project after bidding.

7. Develop a partnership: Make sure that relationships develop among the owner, the architect and the construction manager. Find a way to communicate that a successful project will ultimately satisfy the requirements of each individual member of the partnership. Part of the design process is addressing issues that affect cost by creating the best possible design under the circumstances. Part of construction management is restraining costs without draining the aesthetics or functionality from the project. A partnership that marries a design to cost estimates will produce a successful building.

8. Your architect must assist in marketing the project: The architect’s role in helping subcontractors select your project over another includes several factors.

The quality of the construction documents must be well-known in the region; the architect’s reputation for fairness in dealing with construction issues must be established; the firm’s reputation for proactive problem solving must be well-known; and they must be actively involved in soliciting subcontractors’ interest in your project.

9. Forget the weather when setting your schedule: Most construction projects are bid in the winter and start in the spring for occupancy at the start of the school year. But weather need not be the only factor that determines the bid schedule.

You should also consider how many projects are going to be in the market when you are ready to bid. Too many projects on the market at the same time will strain the available labor force and raise costs. Look for a time of year when subcontractors are coming off projects or have not started a project. It may mean that your occupancy of the facility does not take place at the traditional start of the school year, but it could mean hundreds of thousands of dollars in savings to the construction cost of the facility.

10. Work out bid schedules with other districts: Some school districts have started collaborating with neighboring districts to discuss future building plans. They arrange a schedule that allows each to call for bids during times that are as free as possible from other school projects, giving all the parties the best possible bid climate for labor availability.

Dennis Cecchini, AIA, is a vice president and chairman of the board of MHTN Architects Inc. in Salt Lake City . He is the director of the firm’s K-12 education studio and has more than 30 years of experience developing K-12 education facilities.