By following a risk-minimizing process, the design professional can control project costs.
As design professionals, we like to believe that we have control over project costs and that bids will come in within budget. Our clients expect us to exercise our professional judgments in developing a realistic project budget that allows a design satisfying their needs. They further expect that when the bids are received, one or more of these bids will be within this budget. Needless to say, we know that the outcome will vary from client to client, project to project, and bid to bid.
How is the budget determined?
Generally, the project budget is established by factoring costs from previous projects and the use of estimating guides that determine dollars-per-square-foot costs. This budget may be developed prior to, during, or at the end of design.
At times, contractors or construction management consultants are brought in to assist in developing the budget. This budget is then used by the client to get funding approval. Once the project is approved, it's put out for bid.
What happens during bidding?
What we perceive as a linear, predictable process can become chaotic and beyond our control. Why? Because bids may be prepared on an entirely different set of assumptions; these may be in response to market conditions that are not reflected in estimating guides or data bases from previous projects.
There are numerous factors that determine the bids.
* The number of contractors bidding on the project.
* The bidders' level of experience in your project type.
* The number of projects that were bid the week before.
* The availability of the labor pool to do the work.
* The availability of experienced foremen to supervise the installation.
* The availability of materials, etc.
Example of problem project
Recently, we were involved in a simple retail strip center project with a developer who also acted as the general contractor. Our design was straight forward and the pricing was prepared by the developer. Believing that there would not be any problems, the budget was confirmed based on market conditions and the project put out for bid. As it turned out, the bids came in more than 30% over budget. What went wrong?
The most likely cause for the higher-than-expected bids was a dramatic change in market conditions in the few weeks prior to the bids coming in. The subcontractors probably acquired large amounts of work before putting together their bids for this project. Since they had plenty of work, their prices went up.
Another reason was the required use of specially experienced and skilled subcontractors because of unique site conditions. This limited the number of subcontractors that could do the work.
There was not enough time for alternate design solutions to reduce cost since lease agreements required that the project be completed as originally scheduled. The project went ahead but was plagued with problems to the end.
While this example may be extreme and hopefully rare, it does demonstrate that even the best planned projects can get out of control. Had we not involved the developer in the pricing and confirming of market conditions, we could have very easily been faced with a redesign situation.
How to minimize your risk
It's difficult to maintain a great deal of control in unforeseen circumstances such as changes in the market. The best way to handle these situations is to take proactive steps to minimize your risk. Instituting the following steps in our risk-minimizing process will help you achieve this goal.
1. Prepare a predesign report.
2. Hire a professional cost estimator.
3. Create quality documents.
4. Stay involved in the construction administration process.
While each of these steps viewed separately may not seem new or innovative, when assembled into a process, the results can be beneficial to any design professional.
This risk-minimizing process, when applied, does help you control project costs from initial design, during the construction document phase, and through construction. It requires that you take an active role throughout the entire process. In many ways, it's going back to the basics and doing the job right.
The process won't eliminate the occasional surprise, but it will help you to be better equipped to handle whatever snags come up along the way. Also, your client will appreciate the value added service.
Let's look at each step in detail.
The predesign report
The predesign report is the key to the process. This report is prepared prior to the schematic phase of a project and addresses the who, why, what, when, and where questions that exists for every project.
So often we and our clients rush ahead without having a clear vision of the project. Concerns over a design that best takes into account cost, schedule, and client's needs must be addressed. Many times these items are not mutually inclusive. If these items aren't addressed early, they becomes very difficult to change once the construction documents are completed.
The predesign report is a mental exercise in design with a minimal amount of drawing work. For very few dollars alternatives can be studied, problems identified and resolved, schedules reviewed, and budgets established. The ideal report will have one or more solutions with corresponding costs and a schedule identified.
This report can be used by your client's management to choose the solution that works best for them, secure funding for the project, and confirm the schedule. When the client gives approval, you have a clear direction in which to proceed.
When using the predesign report, you'll be surprised how much clients appreciate it. They feel it gives them more involvement in the process. Keeping the client more involved earlier in the project makes your job as the design professional easier and reduces your risks for budget, schedule, and redesign problems.
Professional cost estimating
A professional cost estimator is an individual who does cost estimating as a full-time profession. Since cost estimating is a small portion of the design professional's total responsibility, it's important that we have a clear understanding of how this process works. We must know the order-of-magnitude cost to provide an appropriate design as well as to guide us in determining our fee. This magnitude of cost may not be accurate enough to reflect the final design and project phasing; however, it must reflect the costs associated with a difficult installation and must include existing industry conditions at bid time.
Professional cost estimators fall into two categories: contractors and cost consultants. Both can be used for establishing the budget for your design. Each has advantages and disadvantages.
Contractors. Contractors must do cost estimating to secure their work and, to some degree, profit from it. At the time of bidding, they provide the market value of your design. When they bid your project, they usually have a completed design to work from and are responding to the current market conditions.
The dynamics at work here are in analogous to the value of a used car. The actual value of a used car is not based upon the sum of its parts, but really what someone else is willing to pay for it.
Our experience has been that most contractors have difficulty doing cost estimating with conceptual design. Their estimating programs are based on counting actual numbers of devices, light fixtures, etc. During a conceptual design, usually there are no drawings and the contractor must base the cost estimate on experience. As the design progresses and more information is available, the cost estimate may change, resulting in large jumps in costs late in game and may result in a redesign.
The positive aspect of using contractors is that typically they charge little or no cost for their services. However, keep in mind that you get what you pay for.
Cost consultants. Cost consultants carry a number of different labels: from construction managers to professional cost estimators. They use their years of experience and data bases to determine the costs for your design. To determine budgets, they use a combination of per-square-foot costs and itemized take-offs. The accuracy of their budgets is only as dependable as the data and experiences they are basing them on. To use the used car analogy, they basically determine a "Blue Book" cost of the project.
Cost consultants, in contrast to contractors, are very good at conceptual pricing. They are very skilled at applying per-square-foot cost on written information that might be available in the predesign phase of a project. As the design progresses, they modify and enhance the budget as more design information is available. However, their budget is just as vulnerable to market fluctuations at the time of bid as the ones you have in development. In any case, cost consultants are better able to get their budget to be closer to the actual cost than your ball park estimates.
Cost consultants, like any design professional, are paid on a fee-for-service basis. Whomever is paying for their services must be determined at the beginning of the project, during contract negotiations.
You'll find that professional cost estimators, either contractors or consultants, will enhance your team and allow for better bid results within the [+ or -] 5% range. The additional expense and effort to manage them will be well worth the results.
Quality documents
Documentation is probably the one item in the construction process that the design professional has the most control of. Work smart and use it wisely.
Obviously, if the contractor is unable to determine what your design intent is, bidding on it and constructing it will be very difficult. The detail and complexity of the documents will change depending on the delivery system employed (i.e. partnering, design/build, design/bid/build, etc).
The documents must always contain the information necessary for the contractor to bid the project and do the work. It's the responsibility of the design professional to assess the project complexities and the potential contractors' bidding the project to determine what goes into the documents. For example, the content of documents for a new 32 unit, stick-frame apartment building is much different than that for an uninterrupted power supply (UPS) system replacement at a 24 x 7 (24 hrs per day, 7 days a week) data center. Over detailing for the apartment building could result in higher bids since the contractors could perceive the project to be more complex than intended. It could also result in lower profits for you, since you gave the contractors more information than what they needed to do their work.
Under detailing for the UPS system replacement could be disastrous. While the documents to replace the UPS system could be simple and straight forward, the documents to keep the data center functioning during the replacement are complex. Depending on available space, maintenance windows, and the design of the distribution system, you may have to provide existing condition documents, phasing documents, and final installation documents to accurately describe to the bidding contractors what has to be done. Under detailed documents could easily result in low bids and excessive change orders as the contractor sorts out the actual requirements of the project.
Construction administration
So, things are going well. You've had a successful predesign report with a good design solution that fits the client's needs and budget. The professional cost estimator you employed verified the design and budget and provided an accurate cost estimate that the client used to establish the construction budget. The construction documents are clear and describe your intent. The bids come in within budget and minimal questions asked during bidding. The low bid contractor appears to be qualified and is awarded the project. As such, you now think that your work is complete and that you can focus on the next project. Think again! You must also institute a construction administration process.
Construction administration is the process that allows you to stay in control during the construction phase. So often, the design professional's involvement is reduced substantially during what is the most critical phase of the project: the interpretation of your design intent and the actual construction of it.
Every project a design professional works with is unique. Your design is an interpretation of your client's needs and your solution in response to the physical conditions present. Try as you might, construction documents cannot cover every aspect of the project. Likewise, the contractor isn't looking at the documents through your eyes and with your understanding. For this reason, it's in the best interest of the project that you be involved throughout all of its phases.
Your involvement in the construction administration is very simple. Your responsibilities include the following.
* Preparing the construction schedule in joint cooperation with the contractor.
* Chairing weekly site meetings.
* Preparing the meeting agenda and publishing the notes.
* Performing a job site inspection with the contractor's foreman prior to each meeting.
Typical agenda items in the construction site meeting include a review of progress (based on your observations); work that will be performed that week; status of schedule and necessary modifications; resolution of problems from the last meeting that haven't been resolved; new issues; and scheduling of shut-downs that will occur during the week.
It's important that the client, the contractor's project manager, and all foremen are present at these meetings.
The purpose of this process is not to manage the construction. The contractor is still responsible for all contractual obligations. You're merely maintaining active involvement in the project to assure a positive outcome. You'll be available when questions about your design arise (which they will) and you'll be in a position to respond quickly and provide interpretation.
Putting the process to work
Using the following real life example, let's see how the process works. This project was complex and consisted of replacing the electrical distribution system in an existing building, which was over 100 years old. Its electrical distribution system was not adequately documented, its electrical rooms did not provide adequate clearances for the old system, let alone a new system, and the client wanted a distribution system with capacity for the offices of the next century. That was the easy part.
What made this project so difficult was that the building was a 24 x 7 facility and had to stay in operation while its entire distribution system was replaced.
Finally, the client required a design\bid\build delivery process, needed a firm cost of construction to get funding, and could not have cost overruns.
By all rights, this was destined to join the list of projects that prematurely age design professionals. Well, it didn't. We were able to sell the client on our process and followed it to the end.
Predesign report. The predesign phase was used to look at different options and establish a preliminary budget and schedule. We then determined what the final design would be. In addition, we determined that additional space had to be provided at each electrical room to run new bus risers and install new panelboards while keeping the existing equipment in operation. The basic design intent was then approved by the client.
Cost estimating. To develop the construction budget that would be recommended to our client, we worked with two electrical contractors during the construction document phase. As the design was developed, these contractors independently reviewed the design for constructability and cost. When we received the final cost estimates from both contractors, we reviewed both in detail with our client. The actual budget submitted to our client's management was in between the two cost estimates (not averaged) and included various construction contingencies. Our rationale on the recommended budget was based upon our knowledge of the contractors and what we believed their methods of bidding were.
Quality documents. Our construction documents were very detailed. We knew that if we didn't communicate our design intent to the bidding contractors, we could have unplanned outages and cost overruns. All electrical rooms, riser locations, etc. were field measured to verify actual equipment locations (existing and new). This information went into existing condition drawings. Next, we prepared phasing drawings that provided a step-by-step replacement of existing equipment and risers with new equipment and risers. Temporary equipment and feeders were detailed. The final drawings showed the installed system after removal of all existing equipment and temporary equipment. These drawings became the record drawings that were turned over to the client.
In conjunction with the drawings, a written narrative was included in the specifications, describing the phasing of the work and the intended outcome. The project was bid and came in within budget.
Construction administration. The project went into the construction phase and we employed the construction administration process previously described. The project was completed within budget, in less time scheduled, and without unplanned outages. The facility stayed operational during the entire project.
The process helped us to satisfy all of our clients needs. The completed project provided our client with a distribution system capable of supporting their needs well into the next century.
To put this project into perspective the following work was accomplished.
* Removal of two 3000A, 120/208V electrical services and bus risers.
* Removal of all branch circuit panelboards.
* Installation of 3000A, 120/208V and 480/277V electrical services. Modifications were made to an existing 3000A 120/208V electrical service.
* Installation of four 120/208V bus risers and all new branch circuit panel boards.
* Installation of one 480/277V bus riser for future mechanical systems.
* Installation of one 480/277V emergency power bus riser with an associated power distribution system.
James Moravek, P.E. is Vice President of Hammel Green and Abrahamson, an architectural and engineering firm in Minneapolis, Minn.