How to control costs on my construction project?

What a question! This is probably the most sought after answer within the construction industry. How do we control the cost of any construction project? This has been a goal for all owners, since the inception of the construction project. The horror stories of projects doubling or tripling in price are part of the weekend cocktail party conversations, and fodder for neighborhood gossip. Construction prices will always escalate, and never decrease, once the contract is signed. Unfortunately this statement has a lot of merit, and requires a conversation regarding the means and methods of cost control on your construction project.

There are several different construction management approaches to control costs on a construction project. Unfortunately there are also several management techniques, that basically steal the money from a legitimate contractor, as well as techniques on the other side, that steal the money from the owner. The following are explanations of various techniques and management methods that are used to add money to the contract by the builder, and on the other side, control the pocketbook for the owner.

Builder’s techniques of inflating the value of the contract;

1.) A builder will price only what is on the documents provided to them by the owner. This may initially appear to be a logical method of creating a proposal. Identify the written scope of work and price it accordingly. The trick that many builders like to play, is to very blatantly follow the written word. If the scope of work is construct a patio of stone, the builder will use the most inexpensive stone available, will set the stone in minimum sand and will not clean up. If the scope of work is to install shelving in the garage, the builder will provide a cost for installing shelving in the garage. If the garage is full of material, the builder will ask for additional money to remove the material, store it, and then return the material into the garage. If the builder is required to install a grab bar in a new home, the blocking may not be provided under the proposal, due to the lack of the statement ” install appropriate blocking” In other words, nothing will be taken granted, if the item is identified, it will be priced, if not, it will be added as additional cost as the project moves forward.

2.) Unknown or hidden conditions. This term is a tremendously powerful term and is creatively used by builders. This term can be interpreted as any item that is found under, beneath or above an established surface. For example, during excavation, a concrete foundation is found, this is an unknown or hidden condition and will justify additional cost. If during the demolition of what had been described as a sheetrock wall, concrete is discovered, this is an unknown or hidden condition. Pipes, conduits, insulation, asbestos, etc. are items that can be discovered and would be identified as unknown or hidden conditions resulting in additional costs to the owner.

3.) Structural deficiencies. During the construction, a structural deficiency is discovered, a floor joist is penetrated, a roof rafter was cut too short and does not have proper bearing. Any item that can be determined to be deficient due to a structural issue falls under this category. What makes this identification of structural deficiency is that the owner is usually not proficient in determining if the issue is real, or simply another means of allowing the contractor to make additional money. The structural issue or identification is quite powerful when it comes to convincing an uninformed owner that additional cost is justified. What owner will not pay for the repair or replacement of a structural element of the project? The contractor will argue the safety factor of the needed repair, and will, in most cases be paid to correct or replace, whether the structural element needed it, or not.

4.) Deterioration of items that were scheduled to remain. This is a popular money maker, because once again, the identification as well as the decree of scope, is difficult to determine for the lay person. An owner, unless cognizant of structural issues or how the item should look, will have a difficult time deciphering the accuracy of the scope. Again falling under the structural category, what owner will not pay the additional cost to make their project safe? A great leveraging tool for the contractor.

5.) Environmental issues. Within this category is mold, asbestos, PCB’s, lead, arsenic, etc. Again, the owner usually has very little expertise in the establishment of proof, or acknowledgement of the severity of this type of issue. Environmental concerns are extremely easy ways of adding to the projects costs. The determination of the reality of the actual issue is an entire other factor.

6.) Additional scope items. There are contractors who specialize in the promotion of additional work. Once the contractor has commenced on the project, they start to identify all the additional work items that could be done to better the project, in their opinion. The ability to promote additional work through suggested additional scope, is a common means of increasing the contract value once the project has commenced. The rationale is always, it’s a lot less expensive to do the work now than later.

7.) Simply made up items. Yes, unfortunately there are some contractors that find it funny as well as a challenge to create additional work items and present them to the owner. For example green board in the bathrooms. A normal contractor would always anticipate the use of moisture resistant sheetrock in the bathroom areas. The contractor that is focused on methods of obtaining additional work, would inform the owner that they should use moisture resistant sheetrock in all the wet areas and would charge additional for this. They should have included this sheetrock when they bid the project, however, the owner would have no way of understanding this, unless they were experienced in construction. There are literally hundreds of possible additional work opportunities on a normal construction project, if the owner is not understanding of normal construction.

Owner’s management techniques to control additional work;

1.) Create a professional contract that has been developed by either a professional construction consultant, or a professional construction lawyer.

2.) Create a precise and clear scope of work, inclusive of all necessary work items required to provide a complete and comprehensive project.

3.) Include construction phrases that address the insistence on adherence to standard building practices.

a.) Contractor shall comply with all City, State and Federal Building Code requirements in the performance of this contract.

b.) Contractor shall include all necessary blocking and other structurally approved means and methods for installation of all cabinetry, shelving, and other accessories mounted on walls, floors or ceilings.

c.) Contractor shall use moisture resistant sheetrock in all wet areas, inclusive of bathrooms, wet walls , etc.

d.) Contractor shall use mold resistant sheetrock in all below grade construction, basically any sheetrock used in the basement level.

e.) Contractor shall include all necessary equipment to access all areas of the project.

f.) Contractor shall include all cleanup on a daily basis, inclusive of necessary dumpsters.

g.) Contractor shall include a full final cleanup of all finished work, inclusive of wash and wax floors, window cleaning, etc.

h.) Contractor shall properly label all electrical panels in a clear and concise manner.

  1. ) Contractor shall provide an as-built of all hidden conditions.

j.) Contractor shall provide daily photos, clearly labeled for all work performed on the project.

k.) Contractor shall provide a loose leaf notebook with all operating instructions, warranty and guarantee information and all miscellaneous paperwork for all equipment and material installed on the project.

These are only a few of the suggested clauses that should be included in the construction contract, as well as managed on the jobsite on a daily basis.

4.) Owner should insist on a formal method of communicating additional work items on the project. This is called a Change order notification procedure. This procedure demands that the builder present a change order notification document, that specifically identifies the additional work item, the cost, as well as the influence this item has on the project schedule. The owner should notify the builder that no additional work will be paid for, if the change order notification document is not officially signed by the owner as approved.

5.) The owner must remain diligent with payments to the contractor. Any additional costs incurred that the contractor is invoicing must be accompanied by a signed approved change order, which the contractor must attach to the invoice. This procedure, if it is intended to control costs, must be strictly adhered to by the owner, to make the contractor aware that no additional costs will be financed without a signed change order from the owner.

6.) The owner should have a weekly meeting with the contractor to formally review the progress on the project. This meeting should have an agenda item that identifies any anticipated additional work that will be presented as a change order to the owner. Lack of notification by the builder to the owner should not be allowed.

7.) The owner should react immediately to any indication that the contractor is performing additional work that is not approved. This reaction should be a formal text, email, letter, etc that notifies the contractor, that any additional work not accompanied by a signed and approved change order will not be funded.

Controlling costs on a construction project is a very difficult task. Books have been written to identify procedures to ensure that additional costs do not accumulate on a project. Unfortunately, the construction business is a business about making money. In addition, there are several builders and contractors, that pride themselves on making money through the additional work that develops on projects. I have been involved with several builders that make the creation and subsequent payment, of additional work items, a key part of their business model. Contractors will actually accept a construction project at cost, or even below cost, knowing that the project will provide an opportunity for extras, that they can inflate and make money on.

It is extremely difficult for an individual that has not experienced the construction industry to manage and control additional costs. This is why I recommend the use of a professional construction consultant to be involved with an individual’s construction project. Although difficult to analytically prove, the use of an professional consultant to control costs, will probably save the owner money on the project in the long run.

Change orders, additional work due to lack of accurate and factual construction documentation is commonplace. These types of change orders are very difficult to manage and control. If the architect or engineer provides an inaccurate, or incomplete job on the projects documents, the contractor has opportunities to produce additional work tickets. As we have stated in other portions of this website, the money spent on having good and complete construction documents is money well spent. A good set of documents will not have omissions, that will provide reasons for the contractor to claim additional work. There will always be the hidden conditions, the environmental impact issues, the structural deterioration possibilities, however, if the documents are well done, at least the initial foundation will not support claims for additional work.

Cost control remains one of the most difficult tasks of the owner. The ability to control costs is basic to the selection of the builder, the quality of the construction documents, the accuracy of the actual projects current condition as well as the strength and management capabilities of the owner.

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