10 Ways to Control Construction Costs

Every construction project faces problems. But addressing those problems with finesse can be the difference between a successful project and one that faces costs that are spiraling out of control.

by Robert W. Barone, R.A.

A construction project is a very risky proposition, and there is generally little room to absorb unanticipated higher costs and remain a profitable venture.

In fact, it is virtually inevitable that all construction projects will have problems. If a developer goes into a project thinking he or she won't encounter problems, it is probably a first project.

Most problems related to a construction project translate into a cost, budgeted or unbudgeted. Some costs are controllable, others not. As a result, it is important to mitigate the impact of eventual problems through proper planning. The following 10 points should be considered during the planning stages of a project to help control the cost impact of unavoidable problems.

1. Make sure the design team has experience in the proposed project type. It is important that the team has experience assembling a complete and well coordinated set of documents for the proposed project, reducing the number of requests for information from the contractor.
   
   
2. Have the drawings reviewed by a value engineering consultant to identify items or systems that could save costs by being omitted, substituted, or re-designed without loss of performance or appearance. Also, as part of the bid package, request that the subcontractors provide recommendations for cost reductions. They usually have some of the best ideas. Before adopting any of the options that would result in modification to the drawings and specs, obtain sign-offs from the appropriate designers-of-record and other members of the project team.
   
   
3. A well-coordinated and complete set of drawings and specifications may be for naught if the construction agreement is loose. Use an agreement that is tailored to the project and well thought-out. Establish unit costs and mark-ups for change orders and scope changes. Clearly define all reimbursable costs and, if appropriate, place a cap on general condition costs.
   
   
4. Review the construction schedule. Claims for delays are frequent. Make sure the construction schedule is well thought-out and realistic, especially if it is to be used as a contract document.
   
   
5. Determine whether the contractor is bondable. Some contractors are unable to obtain bonding for a number of reasons - a poor track record, lack of experience with the scope and size of a project, or exceeding bonding capacity. This may give some insight into their ability to perform.
   
   
6. Since construction costs are difficult to control, audit them monthly. Contracts quickly generate extensive requisition papers, yet developers and owners may not have anyone on staff with either the time or expertise to examine each invoice. Audit the invoices against the contracts to prevent duplicate billings, inappropriately claimed reimbursable costs, incorrect payroll burden charges, etc.
   
   
7. If working on a construction management (CM) or cost-of-the-work-plus-a-fee contract basis, have the CM prepare and certify a monthly anticipated job cost report. This spreadsheet-type schedule will provide such information as original line item budgets, actual subcontract costs, pending and approved change orders, and the projected costs for each line item.
   
   
8. Obtain trade payment breakdowns from every subcontractor. Check them to make sure they are well defined, detailed, and not "front loaded." Use them to organize and control disbursements.
   
   
9. Require that each subcontractor's payment requisition be accompanied by a partial waive-of-lien as a condition to receive progress payments. Become knowledgeable about the lien laws in the state that the project is located.
   
   
10. As any construction veteran will tell you, all projects have their problems; how a developer plans and reacts to the ordinary and extraordinary ones will shape the success of the project.

Robert W. Barone, R.A. is senior vice president of Inspection & Valuation International in White Plains, N.Y.