Why Do Projects Go Over Budget?
Bruce Stebbing, a registered architect and PQS, working in Yellowknife, Northwest Territories, shares his perspective ...
Why do construction projects go over budget? The answer, in a word, is "change." Projects have probably been exceeding their budgets since the beginning of time, and it is a problem that continues to this day.
The time between when the budget is set and the actual construction tenders are received can be a long time on some projects, particularly if there is a long time spent on planning and design. During that time, if the budget doesn't factor in inflation adequately, there will be a discrepancy. Other economic changes are related to the supply and demand for labor, equipment, and materials. In addition, regulatory fees, permit costs, legal costs, utility costs, financing costs, and other business overhead costs may increase.
In addition to economic changes, the following factors can also affect a project budget ...
Changing the scope of work during planning, design, tendering, construction, and commissioning. It's necessary to revise the project budget to include every change in the scope of the project (no matter how small).
Changes in site conditions. Change in geotechnical components can result in unforeseen costs. Therefore, it is cost effective to do a very thorough geotechnical analysis and methodical, detailed planning to mitigate the effects of unforeseen conditions.
The type of contract. Multiple contracts and multiple tenders on a project, or phasing the construction, can lead to additional costs for mobilization and demobilization, and coordination of various contracts that might not have been anticipated in the original project estimate, particularly if the project budget was developed based on a traditional type of contract and tendering process.
Delays in the project schedule. These delays can be caused by poor weather conditions, poor productivity, strikes or lockouts, a lack of labor, equipment and material supplies, or financing delays. A slow response from the design team on a variety of issues can cause delays as well, particularly when the contractor is waiting for answers that are necessary to proceed.
The design team. Some contractors will add an additional cost based on the frustration factor that results from dealing with various design teams, depending on their ability to work with the design team and the quality of their work (if they have had previous experience with a particular design team).
The type of general contractors. If subcontractors have had difficulty dealing with the general contractors bidding on a project, then they might add a frustration factor to their bids, which would increase the total cost of the tenders.
The timing of the tender. If the project is tendered when contractors are busy, then supply and demand will dictate that the price will be higher than tendering a project when contractors are hungry for work. It is important to try to anticipate the bidding climate at the time of tendering when the project budget is being prepared.
So, how do you deal with all of these changes and increases in project costs? One way is to include a contingency at all stages of a project to account for an increase in the project costs. At the early stages of a project, it is necessary to clearly define the entire scope of the project and all the project requirements. Try to forecast what can go wrong and anticipate where additional costs may be expected. Write how change and additional costs will be dealt with into the contract documents.
Lighting Efficiency Coalition Advocates Change
A coalition of energy-efficiency advocates recently announced plans for proposed legislative action to encourage the incorporation of high-efficiency lighting technologies in office settings. The call to action was introduced by Netherlands-based Philips Electronics, Senator Mark Pryor (D-AR), Congressman Don Manzullo (R-IL), and the Lighting Efficiency Coalition. The Philips-led coalition (comprised of the Alliance to Save Energy, the American Council for an Energy Efficient Economy, Californians Against Waste, the Natural Resources Defense Council, and Earth Day Network) proposes to enact public policies that would provide incentives for consumers and businesses to purchase more energy-efficient products and to set technology-neutral performance standards that will phase out the least efficient products, such as the 128-year-old incandescent lamp.
Legislation could also include policy measures in the areas of green procurement, environmental performance targets, and financial incentives to secure participation from leading manufacturers. The coalition supports the planned phase-out of inefficient lamps through the substitution of existing energy-efficient alternatives, including compact fluorescent lamps (CFLs), energy-saving halogen lamps, and light-emitting diodes (LEDs). To support the initiative, Philips will seek a phase-out of inefficient incandescent lamps by 2016. According to Philips, if adopted across the United States, energy-efficient lighting would save consumers and businesses approximately $18 billion annually on electricity bills, and more than 158 million tons of carbon-dioxide emissions would be eliminated.
July: The Office Building Show
BOMA Intl. and Buildings magazine have joined together to produce The Office Building Show, featuring the most powerful, esteemed, and innovative suppliers in the industry. The Office Building Show, held in conjunction with The BOMA Congress, is an all-inclusive exhibition for the most successful professionals in commercial real estate. If you are responsible for purchasing products and services for your buildings, The Office Building Show is an essential resource that will help you buy smarter and more efficiently than ever before. Make sure to mark your calendars: From July 21 through July 24, you'll want to be at the Jacob K. Javits Convention Center in New York City for this remarkable event.