Owners Beware, Part II: Five Ways to Avoid Cost Overruns on Any Construction Project
In my last column, I discussed four important facts about the design and construction of large projects. Now let’s take a look at five achievable solutions for avoiding cost overruns:
Solution No. 1: The design team contracts should clearly require that the architect and engineers produce complete and coordinated drawings. A “fast track” model—wherein construction starts before the design documents are complete—always ensures that unwarranted cost overruns will eventuate, adding 15 to 30 percent or more to the owner’s budget.
Solution No. 2: During the design phase, a short list of construction managers should be invited to do a “constructability review” that will assist the design team in creating drawings that are buildable and include cost-saving features that are best secured from contractors. On one recent project that our firm led as project managers, ideas generated during this constructability review shaved six weeks off the schedule.
Solution No. 3: The owner must secure a detailed independent cost estimate of the designs before going out to bid. In this fashion, the owner will know the true cost of the work and no longer be totally reliant upon self-serving “bids” by construction managers who dictate the individual line items from among their subcontractors and vendors.
Solution No. 4: Contractors working from complete and coordinated design documents should sign contracts that require them to provide a “true fixed price” for all items specified on the design documents. Since they will have already reviewed the designs with the architect and engineers, they should certify that they will perform this work without recourse to unwarranted claims for errors and omissions in the design.
Solution No. 5: Contractors should agree that once they are provided complete and coordinated design documents, there are no more guessing games as to the scope of the work, and they will not be unable to provide assurances of completing the project on schedule.
Adopting the above proven methodologies will ensure that owners have equal bargaining power with the construction industry when negotiating the cost of their projects large and small. Owners will know the price of the work before they secure bids from contractors, and they will be able to gain the confidence of a secure budget for their projects, free and clear of the omnipresent cost overruns that seem to strangle all projects under construction in our nation today.