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5 Tips to Help Control Construction Costs in 2017
Healthcare construction spending will continue to increase into next year, with an anticipated 5 percent growth over the 2016 projected forecast of $19.6 billion, according to a joint economic forecast by the Associated Builders and Contractors, American Institute of Architects and National Association of Home Builders.
As more facilities are built, healthcare project owners should leverage a valuable tool – construction audits for project owners – to control the costs of the construction projects. This is particularly true for those building for the first time and those that haven’t been involved with projects in recent years.
“Getting an expert involved at the contract phase and in the beginning of construction enables maximum cost saving outcomes for the owner,” says Bill Willbrand, Partner-In-Charge of Real Estate Services for Brown Smith Wallace. “Conducting a construction audit introduces control and a level of certainty in an uncertain environment.”
Brown Smith Wallace, a leading provider of construction cost auditing services for hospitals and healthcare systems, offers five tips for construction owners and facility managers as they look to implement capital construction projects in 2017:
1. Protect your investment with a construction audit. “In our experience,” Willbrand adds, “project owners recover much more than what they pay in fees for the construction audit. We ask questions no one else will.” A construction audit also provides additional financial controls over an owner’s largest capital expenditures, ensuring the project investor’s money is being spent wisely. While each project is different, typically, a construction audit could save 1-3 percent of a project budget between cost recovery and cost avoidance.
2. Craft and fine tune your contract. It’s smart for building owners to consult with experienced professionals from the project’s inception. Involving a construction audit firm in the contract phase often results in increased savings through cost avoidance. Early involvement yields more savings than a stand-alone, closeout audit, which is focused on cost recovery. Bringing in an auditor during the contract negotiation stage will also help an owner determine that its rights under the contract are being protected and its risks are being minimized.
3. Determine an accurate risk profile for your project. Take a look at the project size and duration, as well as contract type. Construction audits are recommended for all projects above the owner’s risk threshold regardless of the type of contract, I.e., Guaranteed Maximum Price, Fixed Price (Lump Sum) or Time and Material (T&M). Self-performed work, shared savings clauses, large contingencies and/or allowances are other reasons to consider a construction audit. Other important considerations are the owner’s experience with construction projects and the owner’s experience with specific contractors. At the same time, complacency with a long-time contractor can also warrant a construction audit since it provides an independent third-party check on the contractors and the project.
4. Establish oversight on project cost structure. While the construction manager and owner’s representative look at the financial aspects of the project, their roles differ from that of an auditor. For example, the recent recession presented tight funding and lowered budgets so that owners began to rely on contractors, to a certain extent, as their cost experts. As a result, contractors and construction managers have gained more influence on the project scope. A construction audit can support the financial well-being of a project and confirm that the project is being well managed and monitored, which generally strengthens the relationship between the business owner and the contractor as they work to complete the project.
5. Look back at the completed project. In the justification of any capital expenditure, there are assumptions made regarding the costs and benefits that will be realized. Taking a look back at the project compares those assumptions to what is later realized, which can help management identify areas where the process may be improved, or pitfalls that may be avoided, on future projects. For larger projects, this generally occurs after one year of operation. Follow-up evaluations may be warranted for projects that experience changing performance over time.