Mythbusters: Exposing the False ‘Truths’ of Construction Pricing
Barry LePatner June 6, 2013, 6 a.m.
Several myths about how the designs for projects are priced—myths that have been propagated by the construction industry in recent decades—must be dispelled if owners are to secure a true competitiveness in determining the final price of their projects.
Here are three myths that must be factually exploded before owners can move forward and not be held captive by the outdated and totally non-transparent hold that the construction industry has over costs today, rendering them 15 to 25 percent in excess of what they would be in a truly transparent market for building.
Myth No. 1: A “True” Market for Construction Pricing Exists Today
An actual market would be a system wherein suppliers, vendors and manufacturers submit bids for their products to the owner during the design phase, so that options for alternative products and pricing would truly bring costs down for all construction in the nation. No such market currently exists.
Myth No. 2: Contractors “Bid out” All Elements of a Project to Secure the Best Price for a Project
General contractors (GCs) and construction managers (CMs) orchestrate teams of subcontractors, suppliers and manufacturers by parceling out the work in a set of design documents for alleged bidding. In fact, little if any bidding goes on, since the GC or CM needs to be certain that the composite of these “bids” will entice an owner to award them a project over competitors. As a result, contractors charge what they believe a particular owner will be willing to pay despite the fact that owners generally have no clue as to how to calculate the true cost for a set of design documents.
Myth No. 3: Fast-Track Projects Deliver the Most Cost-Effective Method for Construction
There is nothing so mislabeled and misleading in the construction world as the so-called “fast-track” method of designing and constructing a project. This methodology, which has been blindly accepted by the owner world without challenge for decades, calls for a CM to sign a contract before the plans and specifications are complete and coordinated. Such a system virtually assures that the project will be plastered with change orders that raise the final cost of a project from 10 to 40 percent or more and extend the completion of the project by months and years.
No owner should allow a project to move forward without the design being completed and priced so that there will be no unwarranted cost overruns or delays that can be fully alleviated if a TruFixedPrice contract is executed by the construction team.