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How to find big savings in construction projects
How to find big savings in construction projects
How to find big savings in construction projects
How to find big savings in construction projects
How to find big savings in construction projects
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How to find big savings in construction projects

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How To Find Big Savings In Construction Projects …

How To Find Big Savings In Construction Projects
Construction administration involves numerous people, permits, legally binding contracts, competitive bids, and a substantial amount of time and money. Yet there are ways to guard against spiraling construction costs and expanded deadlines for project completion.
Knowing what to expect - including the places costs typically "hide" - provides an edge for efficiently managing the construction process.
Step one
A well-defined interview process will assist you in selecting the best construction manager (CM) for the job. Be thorough; replacing the CM once the job has begun is costly and raises serious questions of liability.
For renovation work, invite only CMs with considerable related experience. Interview previous clients to determine the CM's ability to handle change orders, unforeseen elements and client decisions.
Insist that the project executive, project manager and project superintendent assigned to the job be present at the interview. (The executive represents the company, the manager spends the owner's money and the superintendent is the on-site contact.) Closely observe the interaction between these people. A successful project can hinge on the working relationship between them.
Require all interviewing CMs to submit a detailed account of what they heard and agreed to at the interview. This important document will reflect the CM's understanding of your conditions and form the basis for contract negotiations. This document will also serve to suppress potential disputes arising from construction contract issues.
Where costs hide
The construction contract between the owner and CM is a legally binding contract but its terms are not universal. The owner should negotiate the specifics of the contract requirements and the particular needs of the project.
The more knowledgeable the owner - often represented by the facility executive - is about the nature of the terms of the contract, the greater the awareness of the potential for hidden costs. Uninformed owners can unwittingly agree to pay more money for a longer period of time than necessary.
Demonstrate your understanding of the construction process by first knowing the unit prices and labor costs of every item you agree to purchase and negotiating the following standard construction contract line items.
• General Conditions. General Conditions should only be those non-construction costs that are necessary to get the job done and are directly applicable to the project. All general conditions should be a line item amount agreed to and guaranteed before the start of construction. Typical components of general conditions include funds for a site office, on-site project administration labor and necessary office equipment. Do not accept an amount that is expressed as a percentage of the cost.
Substantial savings can be realized by asking the right questions about general conditions. For example, question the site office requirements presented by the CM, including how much new equipment is necessary. Who should assume the cost of purchasing and installing the computer equipment and software the CM lists as a site office requirement?
• Overhead. Overhead is the CM's cost of doing business. Should the owner be responsible for that cost? An argument can be made that the owner need only pay for costs directly applicable to this specific project, and not for costs the CM incurs on other jobs. This line item in particular is often the subject of legal disputes. Do not be afraid to eliminate elements of cost contained in this category and, again, do not accept an amount that is expressed as a percentage of the work.
• Hourly Wages. Agree to pay only the wages for work on your project. The actual hourly wages, taxes and benefits (not a multiple of these) are the owner's responsibility. Time off and educational seminars are not. Avoid a situation where you are asked to pay wages for a general superintendent or any other part-time super

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  • 1. How To Find Big Savings In ConstructionProjectsConstruction administration involves numerous people, permits, legally binding contracts,competitive bids, and a substantial amount of time and money. Yet there are ways to guard againstspiraling construction costs and expanded deadlines for project completion.Knowing what to expect - including the places costs typically "hide" - provides an edge forefficiently managing the construction process.Step oneA well-defined interview process will assist you in selecting the best construction manager (CM)for the job. Be thorough; replacing the CM once the job has begun is costly and raises seriousquestions of liability.For renovation work, invite only CMs with considerable related experience. Interview previousclients to determine the CMs ability to handle change orders, unforeseen elements and clientdecisions.Insist that the project executive, project manager and project superintendent assigned to the jobbe present at the interview. (The executive represents the company, the manager spends theowners money and the superintendent is the on-site contact.) Closely observe the interactionbetween these people. A successful project can hinge on the working relationship between them.Require all interviewing CMs to submit a detailed account of what they heard and agreed to atthe interview. This important document will reflect the CMs understanding of your conditionsand form the basis for contract negotiations. This document will also serve to suppress potentialdisputes arising from construction contract issues.Where costs hide
  • 2. The construction contract between the owner and CM is a legally binding contract but its termsare not universal. The owner should negotiate the specifics of the contract requirements and theparticular needs of the project.The more knowledgeable the owner - often represented by the facility executive - is about thenature of the terms of the contract, the greater the awareness of the potential for hidden costs.Uninformed owners can unwittingly agree to pay more money for a longer period of time thannecessary.Demonstrate your understanding of the construction process by first knowing the unit prices andlabor costs of every item you agree to purchase and negotiating the following standardconstruction contract line items.• General Conditions. General Conditions should only be those non-construction costs that arenecessary to get the job done and are directly applicable to the project. All general conditionsshould be a line item amount agreed to and guaranteed before the start of construction. Typicalcomponents of general conditions include funds for a site office, on-site project administrationlabor and necessary office equipment. Do not accept an amount that is expressed as a percentageof the cost.Substantial savings can be realized by asking the right questions about general conditions. Forexample, question the site office requirements presented by the CM, including how much newequipment is necessary. Who should assume the cost of purchasing and installing the computerequipment and software the CM lists as a site office requirement?• Overhead. Overhead is the CMs cost of doing business. Should the owner be responsible forthat cost? An argument can be made that the owner need only pay for costs directly applicable tothis specific project, and not for costs the CM incurs on other jobs. This line item in particular isoften the subject of legal disputes. Do not be afraid to eliminate elements of cost contained inthis category and, again, do not accept an amount that is expressed as a percentage of the work.• Hourly Wages. Agree to pay only the wages for work on your project. The actual hourly wages,taxes and benefits (not a multiple of these) are the owners responsibility. Time off andeducational seminars are not. Avoid a situation where you are asked to pay wages for a generalsuperintendent or any other part-time supervisory personnel.• Construction Fees. To determine a fair construction fee, negotiate a percentage based only onthe cost of the work. Be careful of the language of the contract. All fees are a direct percentageof the cost of the work, before the contingency and general conditions are added. A fair 4 percentconstruction fee could be 4.5 percent if taken as a percentage of a cumulative total. On multi-million dollar jobs, this can represent a substantial amount of money.Insist that the fee be converted from a percentage to a fixed amount before construction starts.Once construction starts and the potential for change orders (that can increase the cost of thework) exists, the fee will continue to rise without limit. Dont allow the construction budget to becompromised in this way.
  • 3. • Contingency Fee. Most CMs require that a contingency fee be built into the guaranteedmaximum price. The only responsible way to manage the necessary contingency fee is to insistthat it be jointly controlled by the owner and the CM. Neither the design nor the constructionprocess is a perfect science; CMs will insist that they need to "manage their risk" with thecontingency fee. Maintaining some control over the allocation of funds will enable the owner tobest justify the expenses.When negotiating the contract, the owner must "buy the schedule" with the cost of constructionand guard against it slipping. Extending the construction phase is a costly decision.Agree on the completion date of the project and insist that a penalty be levied if the project isdelayed. Do not agree, however, to a bonus if the project is finished before the scheduleddelivery date. The CM might deserve a bonus for early delivery if extraordinary problems wereovercome, but does not necessarily deserve bonus dollars for performing the job you hired themto do.Change orders and substitutionsIn negotiating the change order procedure in the construction contract, the owner should demanda "no work stoppage" clause. Too much time can be wasted if work ceases in anticipation of ageneral agreement of change order amounts and schedule implications.When presented with a change order, the architect should consider both the money and time theCM is looking to add to the job. Each is open for discussion. Dont wonder why construction isntfinished and then discover the architect has authorized an additional week of accumulatedchange orders.While the CM should aggressively pursue reasonable substitutions on your behalf, be sure you oryour architect knows the cost of the originally specified product and the cost of the alternative.The construction contract should state clearly that cost savings realized by the substitution for aspecified product go directly to the owner. Here, too, substantial savings can be realized.As your architects last element of control over the quality of the project, the punch list must be athorough process. Accompany the architect to look at the job. Try to anticipate any problems thatmay arise once the space is occupied. If a fault is discovered after the owner has released theCM, the issue will be more difficult, time consuming, and expensive to remedy.Secrets of a successful renovationTo successfully manage a renovation process while the facility remains in operation, consider thefollowing ways to minimize cost and disruption:• What you see is not what you get. In most cases, the older the building you are occupying andrenovating, the greater the potential discrepancy between the budgeted and actual costs of therenovation. Work with an architect and a CM who have enough renovation experience to
  • 4. anticipate potential unforeseen elements (electrical, mechanical, environmental and codecompliance) and to quantify the cost of the work before the construction contract is signed.• Designating a "swing space." If your project requires renovating existing spaces while you areoccupying them, provide a "swing space" for temporary use by each displaced department as itspermanent space is modified. To determine the order in which the areas are renovated, consultwith department managers and the CM to minimize the disruption to company productivity andmaximize the efficiency of the renovating and moving processes.• Building a "smart" addition. If your renovation includes building an addition onto the space youare occupying, minimize traffic, dust and noise by building as much of the addition as possiblebefore breaking through to connect with the existing spaces.• Establishing a presence. As the facility manager, your knowledge of the facility and dailyoperations makes your presence in the process invaluable. Attend weekly construction meetingsand address issues before they become magnified and more costly. Often, because of your vastknowledge of the building and its systems, you will understand the issues and can offer aworkable solution more readily than the construction team.Opening the lines of communicationPrecise communication with all of the individuals involved in the process, especially the clientsyou service and the employees who must be accommodated, is essential. One extreme case - therenovation of a hospital emergency room - demanded the cooperation of the local police,ambulance services, and other area hospitals to reroute and accept patients.Common scenarios involve notifying staff of an activity or a move (start date, duration,specifics), discussing the arrangement for temporary facilities, ensuring safety and security, andproviding additional signs to redirect visitors. The more accurate the construction schedule andthe more open the lines of communication, the more efficient and less expensive the process.Weekly progress coordination meetings should be attended by building administrators,maintenance and engineering staffs, and each subcontractor to review progress. Detailed meetingminutes should be distributed both internally and to the appropriate regulatory officials. Theseminutes will be the core documentation vehicle for the project.Not every owner or facility manager has the time, interest or expertise to devote to projectmanagement.The owner can still protect his or her interests by hiring an advocate to coordinate and overseethe construction process. As the owners representative, this individual defines the developmentprocess, negotiates project contracts, schedules and monitors all stages of the constructionprocess, and coordinates communication between participants.
  • 5. The fee for this service can be offset by substantial savings in construction costs. Many clientshire these experts to "fix" a project that is already in trouble, but an advocate is most valuable ifconsulted from the start.Julian Arhire is a Manager with DtiCorp.com – DtiCorp.com carries more than 35,000 HVACproducts, including industrial, commercial and residential parts and equipment fromHoneywell, Johnson Contols, Robertshaw, Jandy, Grundfos, Armstrong and more.

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