Controlling Cost on Your Construction Project

Posted by Craig Jones on Mar 20, 2018 8:00:00 AM

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I’ve worked as a general contractor for over 30 years and the number one question I get asked is, “How can we reduce project costs?” Over time, I have learned that although there are things that we (your contractor) have no control over, there are still several creative ways we can help, and better yet, there are factors that you (the client) can control yourselves to reduce your final bill. So what are they? 

We've partnered with The Bridge Group to offer 2 perspectives on how to save money on your next construction project. The Bridge Group offers tips to Construction Managers, Facility Managers and Operation Teams to lower construction costs in their blog post, Three Simple Ways to Control the Cost of your Next Construction Project.

Alternatively, I've outlined these 3 key cost contributors below, and how you (the client / end user) can take matters into your own hands to reduce costs.

Cost driving factors that your contractor has NO control over

  • Commodity prices are rising making the cost to produce and ship materials for your project higher.
    • Copper is up 47%
    • Crude oil is up 34%
    • Metal studs are up 20% and projected to increase 20% - 30% more
    • Drywall is projected to increase another 5%

  • Assembly Bill 1701 went into effect on January 1, 2018, which now makes general contractors (GCs) financially responsible for any subcontractor who fails to pay their employees, even if the GC has paid the subcontractor for the work completed. This requires GCs to assume liability for unpaid wages, fringe and other benefit payments or contributions, including interest owed by subcontractors to their employees. Ultimately, this new law will likely lead to higher construction costs.

  • The new OSHA Silica rules have caused subcontractors to implement new procedures and safety measures on their projects to comply with such rules, which has the potential to increase project costs.

  • Several natural disasters have also impacted costs: Hurricane’s Harvey and Irma resulted in $200 billion in damage and the Northern and Southern California wildfires increased our already taxed housing situation which all cause further stress on construction materials and labor.


Areas your general contractor can help reduce costs

  • Understand city plan check and inspection lead times to factor into the schedule and avoid overtime labor costs

  • Prepare effective schedules during pre-construction to sequence the workflow and maximize efficient manpower usage

  • Involve AV, IT, cabling, and security subcontractors (and the Owner stakeholder for these trades) early in pre-construction so that design is final and priced into the project to eliminate change orders during construction

  • Set realistic construction schedules - if the schedule is too short, subcontractors will price labor higher to meet schedule demands

  • Order materials early on projects so that no overtime is necessary for installation

  • Work closely with the design team to select readily available materials and products

  • Hire key subcontractors early to coordinate with the design team and existing building conditions to eliminate pricing contingencies

  • Use new technology to streamline the design and construction process. Some examples of new technology are mobile applications and cloud storage for quick access to important documents; laser scanning to help capture accurate space conditions and drones to help survey the space from a different vantage point.

  • Use modularization and prefabrication when possible to reduce field labor costs


How YOU can control your own costs

There are ways that you can take costs into your own hands while selecting and conceptualizing your space. We’ve created a tool called the Bay Area Cost Comparison to help guide you towards a less expensive project. This white paper will give you an idea of what an average project might cost in your area, what factors drive cost escalation, and what cost saving measures to look for.

Here are the most important factors that you can control to reduce your own construction project:

  • Pay attention to the existing conditions while selecting your space. The current condition of things like restrooms, drywall, floors, window shades, etc. can either save, or cost you a lot of money.
  • Mind the 3 F’s: fixtures, finishes and features. Work closely with your contractor to determine material cost and availability when selecting finishes like millwork, flooring, ceiling and special features like stairs, Audio Visual or kitchen appliances. Light fixture type, lighting distributors, control systems and existing wiring will also drive your costs.

  • Examine your HVAC system’s existing condition to check the condition of the  medium pressure loop, VAV boxes, ductwork and controls. Replacing any of these elements can be costly.

Tips for Construction Managers & Facility Management professionals

The Bridge Group outlines their tips for construction professionals to strategize cost saving measures for their clients in their blog post, Three Simple Ways to Control the Cost of your Next Construction Project.

 

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 START CONTROLLING YOUR CONSTRUCTION COSTS HERE

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Topics: costs, Construction costs, construction regulation, AB 1701, Silica, schedule, budget, controlling costs, OSHA, plan check, general contractor, reduce cost

Why does my office tenant improvement cost so much?

Posted by Craig Jones on Apr 25, 2017 2:35:18 PM

It’s a great question.  There are many factors that drive construction costs, most of which are controlled by the market and supply and demand (manpower, lead times, code changes and commodity pricing). Here is my take on the key factors driving current construction costs.

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Title 24 regulations are costly

Title 24, or California’s Energy Code, is a hot topic in construction. It is a set of standards and regulations aimed to reduce California’s energy consumption. The Title 24 energy standards have changed twice in the past 2 years, each time driving up the price of construction. The 1st change decreased the amount of allowable use of energy for lighting, making it mandatory for contractors to switch from fluorescent lighting (cheaper) to LED lighting (energy efficient, but more expensive). This first revision also mandated each new electrical outlet to have a duplicate one within 6 feet that will automatically shut off when not in use (another added cost). The 2nd revision of the Title 24 code affected HVAC systems, requiring contractors to opt for Spiral duct (made of sheet metal) instead of Alumaflex (flexible duct).  Spiral Duct is more expensive than Alumaflex because of the cost of material and the additional labor it takes to install.


Manpower is at a premium

Clients are asking, “With Apple’s spaceship campus and other large Bay Area projects finishing, can we expect lower costs?” Seems logical, and I raised the same question to our subcontractors, but it’s unanimous that costs are actually rising. One of our subcontractors stated it best, “Unions are still lacking the manpower to meet project demands, so they pull workers from out of state and the project ends up taking more labor hours than we anticipated.” These “traveling” tradesmen often have lower productivity rates because they are not Bay Area residents and don’t have an incentive to work quickly for our local unions to move up the ladder. Instead, they do the job they are contracted to do so they can return home and find local work. The lower productivity rates increase the amount of tradesman to complete the same work and can prolong the construction project which results in increased costs.


Big Bay Area projects fill the pipeline

I’ve heard more Apple projects are upcoming, along with more projects from tech titans like Google. On top of tech are the SF Airport projects ($3+ billion of work), the SF Oceanwide Center ($1.5 billion) and the Warriors Arena ($1 billion) that are keeping the Bay Area very busy in construction.  This means the “travelers” are still needed. We also have certain trades that are very impacted, like Millwork (cabinetry and finished wood products) and Glazing (glass), which brings us back to outsourcing work and lower productivity rates. So what does all this mean? It means that with all these big projects on the horizon and impacted trades, we don’t expect construction costs to reduce in 2017 and into 2018.

 

Takeaways

  • It’s unlikely that construction costs will reduce from 2017 to 2018.
  • Economic slowdown effect: In my experience, I have found on average, it takes 18 months for the construction industry to catch up to the fluctuations of a market slowdown and then a market recovery. So although the rising vacancy and unemployment rates signal an economic downturn, construction activity will remain strong for the next 18 months.
  • Hot Market effect: Yes, the Bay Area construction market is hot. However, large scale projects drain resources, causing trades to outsource and lose productivity which drives costs upward.

Topics: Construction costs, Bay Area Trends, Real Estate, Construction Real Estate