Image courtesy Ken Teegardin. Creative Commons License.
It is all too easy for a commercial construction job to get out of hand in regards to budget. It is the responsibility of the building owner to know and understand their budget and work hard to remain under budget if they wish to avoid losing money on their project. It is best for a building owner to remain involved and vigilant during the entire construction project, working closely with the general contractor. Ultimately, the power to make all decisions is in the hands of the owner.
A “change order” is when the initial contract and design is amended to reflect circumstances. Sometimes, things need to change and this can lead to higher costs than expected. Whether there was an error in the original design, a change requested by the owner or contractor, a job-site surprise, or changing and substituting of materials, change orders will happen.
Cost overruns for a construction project of 15-20% are normal but this doesn’t always have to be the case. Most cost overruns are avoidable. Purdue University found in a study that “time delays, cost overruns and change orders are generally due to factors such as design errors, unexpected site conditions, increases in project scope, weather conditions, and other project changes.”
Cost overruns have several negative impacts on the building owner:
- Increased total cost of the building.
- Decreased Return on Investment in the long run
- A later project completion date
- A damaged business relationship with the contractor
- Increased pressure by money lenders
- The owner experiencing financial difficulties
By choosing a general contractor who is highly experienced, many cost overruns due to common errors will be avoided. An experienced contractor will know what to do in the event of adverse weather and they will know, before building ever begins, if a design will work well or not. In addition, they will also know the best place to find quality, yet affordable materials.
Another tip for avoiding going over budget is to choose a design-build contracting firm. This means that the designing and building are all done by one entity. This ensures that the designer and the builder are working closely to provide their shared customer with a building in a timely and cost effective manner. If it is not possible to choose one business for designing and building, make sure to choose two businesses that will work well together. Communication is key.
Change orders and cost overruns can be avoided with careful planning and designing before construction begins and with smart thinking during the construction process.