Commercial Construction Tips: How to Stay on Budget

Keeping a commercial construction project within budget requires determination, vigilance, creative problem-solving, and diplomacy. It begins almost the moment a project is conceived and continues throughout the construction period.

There are many reasons why a commercial construction project will go over budget. Some causes simply cannot be adequately assessed or budgeted for, such as delays and property losses caused by a natural disaster. But many causes are related to poor planning and even weaknesses in the budgeting process itself.

Typical cost control problems

Cost overruns on a construction project do occur, despite the most careful planning and control efforts. Some common causes of cost overruns include:

• Lack of a well-defined scope of the project.
• Poor estimation methods (or standards).
• Start/end activities out of sequence.
• Inadequate comparison of planned and actual costs.
• Unforeseen technical problems.
• Poor (or non-existent) project management policies and control practices.
• Defective schedule resulting in overtime or downtime expenses.
• Rising prices of materials.

three big mistakes

Review some of the most egregious construction cost overruns in recent years and you may see a familiar pattern to budget overruns. They are commonly made mistakes that can be adjusted and corrected during the contracting phase of a project.

Managing these three weak areas can mitigate or eliminate many of the problems listed above:

• Incomplete Document Layout: a project owner may hand over the architect’s plans and specifications to the contractor believing that all details have been identified. In truth, the owner-architect agreement often only requires the architect to submit plans and specifications of a general design intent. Full and detailed details may not be included. The lack of complete design information puts the contractor in the position of demanding more money for work that was not clearly defined in the plans and specifications. Multiple change orders and budget overruns result.
• Resolution: the owner-architect agreement should specify that the architect will provide a 100% complete set of drawings, specifications, and all related documents prepared by engineers (and other people working on the project). The responsibility for excesses caused by an incomplete design rests with the architect, not the contractor.

• Full review of documents before bidding: the contractor may request additional compensation for necessary work that the contractor claimed was “not listed on the plans and specifications.”
• Resolution: The project owner’s contract language should state that all contractors wishing to bid must affirm that they have reviewed the plans and specifications and fully understand the scope and intent of the project. Your price must cover all work necessary to fulfill the “express or implied design intent.”

• Lowest offer: the project owner may face a lot of pressure from investors, shareholders and board members to accept the lowest offer. But the lowest is not always the best. Underbidding can be risky and expensive.
• Resolution– Work with trusted contractors who have completed projects similar to your current one. The contractor with a track record of successfully building on time and on budget is much more likely to produce the same results for your project.

The root of successful budget containment lies in allowing a sufficient amount of planning time to fully define the scope, schedule, quality, risk, resources, and budget for the construction project. prior to invitations to bid are sent to contractors.