Saving on Construction Costs Is Within Every Owner’s Grasp
Barry LePatner July 4, 2013, 3:44 p.m.
As I have discussed in previous columns, owners, investors, and builders would be well served if they followed the following three steps for any and all construction projects:
- Avoid “Fast-track” Projects
- Contractually require the construction team to assume the risk of completing the project on time and on budget
- Retain an independent cost estimator to provide the owner with the cost of the completed design documents before sending them off to bid
This is smart business on a case-by-case basis, but let’s talk about the greater effect these tactics would have on the country at large.
Construction in the United States is a $1 trillion a year industry—a powerful sector that impacts the overall economy. A one-time improvement in construction productivity of 10 percent would boost America’s GDP by $100 billion. That sum, compounded annually at 3 percent for 30 years, would mean a real per capita income over $273 billion higher in 2037 than if the construction industry remains unreformed.
Improving construction would lead to more, safer buildings and better infrastructure—bridges, highways, railroads, and tunnels. Similarly, lower housing construction costs would allow an even higher percentage of Americans to purchase their own homes and enjoy a true ownership stake in their country. Perhaps most enticingly of all, lower construction costs would spell lower taxes.
Lower construction costs would also result in lower rents, some of which would be passed onto consumers, while others would swell corporate profits—never a bad thing in a country where most people own corporate securities, if not directly then through intermediaries like banks, insurers, or mutual funds.
The construction industry itself would of course also be a big winner if it could increase productivity. Lower prices stimulate demand for building, so there would be even more construction work to go around. The least efficient construction workers and firms might lose out, but the wages and profits of the rest would increase, perhaps dramatically.
As a matter of precedent, this is what happened when agricultural and manufacturing productivity soared in the eighteenth, nineteenth, and twentieth centuries. People shifted out of agriculture into manufacturing and out of manufacturing into services, boosting their productivity, real wages, and standard of living along the way. Construction should be no different.
Construction firms are notoriously small and specialized. Over 80% of all construction workers are employed by firms of ten or less. Today, it is not unusual for 50 or more firms to take part in the design and construction of large projects like industrial facilities. Even tiny home renovation projects may require the input of half-a-dozen companies.
Getting owners and just one firm onto the same page is difficult enough. Needing scores of firms and the owner and its architects and engineers to work together challenges the imagination and is a potential recipe for fiscal disaster. As it is currently constituted, the industry invites such disasters. Almost always, these problems result in additional project costs and delays that the owner will most likely absorb.
By following the rules set out above, owners, investors and builders will do better and be able to typically save 5-15 percent, on a project, and in some cases up to 40 percent more over what less knowledgeable owners would save in comparable situations.
Do not be intimidated by any architect, contractor, or construction manager who challenges these suggestions. Remember, these companies want your business and have much room to be flexible. If you explain that the project you proffer includes the suggestions above because you want a more collaborative and claims–free project, you will be rewarded with a team that accepts your business goals and will harvest considerable cost savings.
Each project stands on its own, but savings like this can help improve project profitability and, at the same time, rebuild the country.