Construction Costs and How to Manage Them
BUILDING DIALOGUE: Bridging the Gap
Since the economy rebounded from the Great Recession, rising construction costs have become a hot topic in the real estate community, particularly here in Colorado, where growth has outpaced the national average and it seems like a new building goes up every day.
That growth has resulted in higher construction costs for two reasons. The first, most obvious reason is a labor shortage (the downside of an otherwise welcome sub-3 percent unemployment rate). However, the second, perhaps less vocalized truth is that the local construction market has worked for so long at such an exhausting pace that it takes more to motivate them to keep it up. During the downturn, we saw construction firms mostly surviving by dramatically lowering their labor costs. Those reduced rates drove everyone to work extra hours in order to earn enough revenue to remain open. As the economy returned to a more robust position, sometime in 2012, we saw prices return to a more typical position. The difference is that here in Colorado, the economy rebounded so quickly and strongly that the construction industry continued to work those hours to keep up with our market expansion. For the last 10 years, local construction teams have either been working overtime to survive or working overtime to service a dynamic, robust economy. And with almost $5.5 billion in projects on the horizon, including several large-scale projects such as the major expansion at DIA, it’s no wonder the labor market is overworked. Eventually those costs had to rise to make it worth the breakneck pace.
While the next downturn is likely on its way in some form, the local market remains strong – and growing. So, the question is what can you do about continually rising construction costs given the velocity of the real estate market?
Bring Construction Behind the Design Curtain
There are lots of ways to approach managing construction costs. Some prefer hard bids. Some companies and owner’s representatives see the low numbers on bid opening day and feel success. Then, during the project, they welcome the competition and aggressive attention to every last cost. Government projects tend to favor this approach as it avoids the perception of favoritism.
However, in more than 25 years of seeing projects through from design through move-in, the truth is nothing beats a strong team rowing together in the same direction. By negotiating with general contractors early, requiring full transparency, and then bringing them behind the design curtain, and folding them deeply into the design process, you create teams that are better equipped to manage spikes in construction costs.
Clearly before a construction team can start contributing, the design team needs to first assess a client’s needs. The architect and design team need to work through a good deal of the design process, bringing key concepts into focus. However, before the concept or schematic design phase is complete, it’s ideal to have the contractor join the team.
Including the construction team early on enables the design team to have live, up-to-date pricing. It lets the contractors weigh in early, before construction documents are finished and, therefore, expensive to change. As the executors of the design, it just makes sense to get their input. There are countless ways to approach any design problem or the architectural fabric that makes up a building or space. Having the folks “in the trenches” share their feedback should be more than a “nice to have”; it should really be a requirement.
Reap the Benefits of Real-Time Problem Solving
Take, for example, our experience for a recent client who wanted shipping containers on their floor. Our initial approach was to cut down containers and bring the pieces up to the suite. We thought that would be the only way to honor the design. However, the weight was extreme and the challenges of bringing them dozens of floors above the ground became a real concern. We began to wonder if we could recreate the look and feel without true parts. Our team studied shipping containers around town, in shipping yards, and online, trying to figure out ways to recreate it that would pass muster. Then we reached out to our general contractor. Drawing on their suppliers and subcontractors, they helped us come up with a great solution that achieved the look, feel and durability we sought for the design element – all while keeping the budget on track and the project on schedule.
On another project, we needed a flooring system with a specialized backing in order to maintain the project’s high level of acoustic requirements. While carpet is sound-absorbent and would have been a good target product, the client’s brand needs called for a harder surface. Thankfully the general contractor was on board and able to connect us directly with their installer. Rather than just talking with the product reps, we were able to obtain additional information directly from the source that improved our approach. We ultimately found a highly sound-absorbent product that looked and felt the way it needed to, with the added bonus of being easy to maintain and well within the budget.
Most recently, we designed a reception desk that will be a key element of the project, setting the tone for the entire design. We expected it to be heavy, but the final weight far exceeded all expectations. We needed a creative approach to distributing its weight and to bringing it up onto the floor. Further complicating matters, the desk was being carved in Europe and timing was an issue.
Since our teams had been deeply aligned even before construction began, we had established a sense of trust and collaboration. We openly discussed costs, schedules and ideas to troubleshoot the issue. Together the solution we came up with brought the cost back in line, shortened the delivery time, maintained the schedule, and also managed to preserve the design.
These stories are not unique. In talking with fellow architects and contractors, there are countless examples where a cohesive building team has benefitted a project. The key is bringing the construction team on board early on and then really including them in the process. It sparks better ideas and approaches. It lowers miscommunication and dramatically improves both pricing and pre-ordering of long-lead items. It is a no-brainer.
Of course, full transparency of labor and material costs is critical. However, the best way to reduce costs is shorten construction schedules, identify materials that best satisfy project needs, and coordinate the way projects are built. We might not be able to give contractors the much-deserved rest they need or all of a sudden find a surplus of qualified laborers, but by working together closely and soliciting meaningful input, we stand a much better chance of combating high construction costs.
Published in the December 2018 issue of Building Dialogue.