Resolution Experts, PC

Project Design is the First Defense Against Excess Costs

The project's design is the first opportunity for the project owner ("Owner") to:

  1. Control construction cost, and
  2. Establish a foundation for avoiding excess charges from the general contractor (GC).

It is a fact that Owners that are actively involved in their project's design will reap many benefits. One benefit will be a greater understanding of the project's cost and cost control options. This is because engaged Owners become more knowledgeable regarding the design options, how these options impact the cost of the project, and critical cost control insight.

This article discusses how a completed design, or design that is as compete as possible under the circumstances, can help the project Owner avoid unplanned cost growth and potential over-billings from the general contractor (GC).

It is an undeniable truth that the more complete a design is, the stronger the Owner's position will be with regard to avoiding unplanned cost growth and GC overbillings. Obviously the ideal situation for an Owner is to have a completed design so that the Owner can solicit a fixed price contract. Unfortunately in the real world, this is not always an obtainable goal. Frequently there are unknowns resulting in the creation of contingency funds, unexpected conditions that result in change orders, and situations where the Owner simply cannot finalize the design of a project element necessitating the establishment of budget allowances.

The savvy Owner will prepare for these situations (i.e., change orders, contingencies, and allowances) by establishing protocol and procedures (i.e., internal controls) that will protect the Owner's interests when these situations arise.

The type of construction performed for the Owner will dictate the extent to which the design can be completed before engaging a GC. Owners generally find themselves in one of three situations.

  1. New Construction:The design should be 100% complete for ground-up/new construction projects (i.e., building a structure completely from scratch) unless time to complete is the overriding concern.
  2. Renovation:The design should be as complete as possible for renovation construction projects (i.e., adding to or remodeling an existing in-tact structure).
  3. Restoration:The design will be difficult to fully complete for restoration construction project (i.e., post-disaster repair consisting of stabilization or debris removal and follow up repair), however the final performance specifications should be defined for the GC.

The more unknowns in a construction project, the more likely the design will be incomplete. The Owner will generally have to pay the cost of overcoming these unknowns when these unknowns are finally faced. For example design of a restoration project will depend on what is behind the walls which is likely to be unknown until after the CG has stripped the walls and can see exactly what was previously hidden. Similarly, work on a renovation project may depend on elements of the project that are unknowable until after the project is underway. When these hidden elements (e.g., asbestos, mold, structural deficiencies, obsolete wiring) are discovered, they will result in changes. The cost of overcoming these changes will necessarily be negotiated with the GC. In these situations the Owner will be forced to negotiate the price with the GC since the changes cannot be priced by competitive bidding in the competitive marketplace.

This puts the Owner at risk of cost escalation and GC excess charges. The more unknowns (i.e., the more incomplete the design), the higher risk of change orders, contingency fund usage, and budget busting growth of allowance set-asides. Therefore, to control costs on a project the Owner must endeavor to begin with a design that is as complete as possible.

To the extent that the design is not complete, the Owner must build stronger project controls in

  1. The GC bid solicitation package,
  2. The GC contract,
  3. The subcontractor bid solicitation procedures, and
  4. The project oversight procedures (e.g., change order approval, monthly monitoring, and contract close out).

Look for future articles from ResX that will explore the preceding project controls in more detail.

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