Unplanned cost spikes can feel like a wrench being thrown into the gears of a well-oiled machine. They disrupt plans, wreak havoc on a project, and increase stress levels within your team. And while it may seem paradoxical to prepare for the unexpected, it's totally possible to gear up for cost and schedule changes effectively.
But where do you begin?
If you want to get a better handle on costs during preconstruction, our latest webinar is chock full of insights that can help. Featuring input from Ken Simonson, the Chief Economist for the Associated General Contractors of America (AGC), and Sue Bhattacharjee, the Director of Preconstruction at Herrero Builders, this webinar offers a snapshot of current construction problems, solutions, and trends.
The webinar also sheds light on how contractors can improve the accuracy of estimates and takeoffs with adaptable construction technology.
Read on as we revisit some of our discussion's top tips and tricks.
Want to catch the entire webinar? Watch it on demand below.
Ken starts the discussion by sharing the AGC's economic data and outlook for the industry in three areas: labor, supply chain, and materials. Here's a quick breakdown of the organization's findings.
According to Ken, while the unemployment rate in construction is low (3.6% as of May 2023), the industry is still having trouble recruiting workers because of a shrinking wage premium.
The construction sector has typically paid workers higher wages (i.e., a wage premium) to encourage them to work at job sites. Ken says that this premium has averaged 21.5% from 2000 to 2019 but shrunk during the pandemic when businesses like restaurants and delivery companies dramatically increased their starting pay for minimum wage.
"So the premium shrank down to 15%. It's back up, but only to 18%," states Ken. "That was more than the overall private sector, but it still hasn't brought the premium back to where it was. And I think it's going to have to go even higher in an era when many jobs can be done remotely or on a hybrid basis or with flexible hours."
On the Materials side, the AGC finds that while steel and lumber pricing has improved, "subcontractor pricing is still going up at very elevated rates, nearly double-digits."
Ken continues, "There are materials—some that historically had not gone up rapidly, such as concrete products—that are rising at double-digit rates. So it very much depends on what you buy."
Then there's the supply chain. While the situation has gotten better for materials like steel and lumber, Ken remarks that "there are still a lot of specifics that can keep a job from being finished."
"The one I hear about the most is transformers and electrical switchgear, even the so-called meter cans you put on the outside of the building. There are many other specific items, including door hardware, truck parts, or equipment parts. A lot of things can derail staying on schedule."
All this to say that the construction industry is navigating a complex web of challenges across labor, materials, and supply chain. But don't worry—there are steps you can take to navigate these issues.
After the economic recap, the conversation turned to how contractors can mitigate the issues above. As Director of Preconstruction at Herrero Builders, Sue Bhattacharjee knows that a big part of the work occurs during the project's early stages.
Here are some of the ways that Herrero Builders address these challenges.
Unexpected costs can be just that—unexpected. But that doesn't mean these issues can't be resolved. Teams can often work out pricing and lead time changes by paying attention to industry data and being upfront at every project stage (especially at the beginning).
Sue brings up two scenarios of how this can take place. When dealing with unexpected changes for a project with a six-month construction time and three or four months of preconstruction, you can have candid conversations with clients and say something along the lines of "Well, this is what you expect, but this is what we think we will get here on time based on the current lead times."
Not all clients will be receptive to this, but Sue says more and more owners recognize the realities of today's construction landscape. As such, they're often willing to work with contractors to find solutions.
"Those discussions have become a lot more common than what used to happen five, six years ago," adds Sue.
For bigger, multi-year projects, Sue says you sometimes need to "make a decision about when you are going to make the decision."
This means monitoring economic and industry trends and finalizing decisions when you have the most accurate and up-to-date information. This might mean waiting for a quarterly economic forecast, a supplier's annual report, or until a particular global situation stabilizes.
Monitoring these indicators enables contractors and clients to make more informed decisions and reduce risk.
Regardless of what types of projects you're dealing with, Sue says it's all about transparency and collaboration.
"These discussions have become more commonplace now. I think that is really how I see a lot of pre-planning happening. It's just more visible. Everybody is getting involved. It's not a general contractor's problem, and it's not the design team's problem. It's everybody on the project team, and everybody's wanting that success."
According to Sue, one of the most important things teams can do to mitigate downstream costs is to set up contingency buckets.
She says there needs to be a conversation "on what contingencies mean because the team needs to understand how and where they would be spending those monies."
Sue continues, "A lot of times, the initial budgets are done so far ahead that the design is still not baked. And then you have your SD budget, your DD budget, and your construction budget. But having the right amount of contingency will always give you the grand total for your client so that when the client goes and asks their bosses for money, they would never have to go back and ask for additional money."
Technology also plays a role in cost mitigation, so if you're not leveraging tools in your preconstruction planning and processes (and beyond), it's high time to do so.
As for what tools to use? Sue Sue says that Autodesk BuildingConnected has helped them make data-backed bidding decisions.
"The main thing I love about BuildingConnected is you can leverage that database for future bids. You know who has won what projects. You could also see how many times one subcontractor has submitted bids, has been invited, or has submitted. And it's all a snapshot, so you're not having to go look for things."
Sue also uses Revit and Assemble to refine quantity takeoffs and estimation.
"Assemble is able to itemize every single component of the model, and you can assign unit cost. Then it'll give you the overall price for that scope of work."
She adds, "It helps especially when you're doing target value design where the owner is asking for pricing every month or every week for some scopes. It is priceless as to how you can get through with that."
Contractors deal with many challenges that impact costs, including labor shortages and material price hikes. The best way to handle these hurdles is to get ahead early on. Keep an eye on any changes, and openly communicate them with clients so you can come up with solutions together.
Throughout all of this, be sure to leverage digital tools to help you optimize resource allocation and make informed decisions.
Want to learn more about how you can nail your costs during preconstruction? Catch our webinar with Ken and Sue on demand.