By Dustin Rohrbach
Construction managers across the U.S. are being challenged to develop creative solutions in response to rising construction costs. According to Engineering News Record, costs for commercial construction building and materials were up more than two percent above inflation when 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 common materials also rises as the supply is reduced and demand elevated. Prior to 2014, most construction managers accounted for zero to three percent inflation and/or general escalation. However, the most recent market trends now dictate five to seven percent annual inflation and/or escalation factors for projects that will be delivered in 2015 and beyond.
Below are tips owners or facility managers can use to control increasing costs:
- Avoid escalation. This is probably the most important recommendation. Some components of a project (roofing/insulation as an example), may require adding up to seven percent to an estimate for appreciation. It sounds simple, but if you are considering a construction project, the advice is straightforward: build it now because there will be a premium if you wait.
- Invest in the architect. One aspect of a commercial construction job worth the added expense is at the planning and design stage. The best protection 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. Disordered preparation can result in changes that amounted to 10 to 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 inexperienced group that may seem like good deal. If the architect is strong, you could save in excess of five percent in change orders alone due to bad details, incomplete drawings, unsubstantiated assumptions, etc.
- Consider a Design-Build Approach. If you want to really lessen 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.
- Reclaim materials and systems when possible. On commercial construction retrofits and over hauls, if feasible, use existing materials or systems such as air conditioners and plumbing. The savings can be significant. When working with your construction manager to estimate commercial construction costs, ask them to evaluate the current condition of major building systems rather than simply ordering new. This helps avoid rising costs of construction from material pricing escalation.
- 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 under performing.
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 several ways to keep commercial construction costs predictable.
Dustin Rohrbach is vice president in charge of the Columbus office of Danis Building Construction.