By: Kevin Duffy
December 18, 2020
Just like creating a project schedule, budgeting is an essential step in setting up any successful construction project. Whether it’s a do-it-yourself bathroom renovation or a complex multi-million dollar ground up construction project, it is helpful to have an approximate cost for the project. While owners and property managers typically think of the actual costs for construction as a good place to start budgeting, there are often more layers involved in a project – particularly in an exterior restoration project – than you may expect. Some of these costs can be carried by the Contractor, but having an understanding of these costs can help an owner understand why a contractor may submit a bid that is much higher than initially anticipated.
To start, there is the obvious cost of the physical work. In order to get the Contractor on board and ensure a successful bid, there will likely be an engineer or architect on the team. Their service fees can usually be budgeted on a lump sum or percentage-of-the-project-basis, depending on the comfort level of the Owner with the engineering or architecture firm, as well as their fee schedule.
In addition to the Engineer or Architect, an environmental testing agency may also be involved. If the building is from the 1980’s or older, there may be lead or asbestos containing material present within some of the building components that require removal and replacement. The initial testing usually costs a few thousand dollars; however, if the results are positive, the cost of abatement can vary based on the amount of lead or asbestos containing materials that are identified and where they are located. At times, access to perform abatement at certain locations, such as window sealant or cavity wall flashings, can be difficult to access and may increase the overall cost. Although there are typical budgetary numbers that can be assumed for these items, it is prudent and more beneficial to have a sense of what materials require abatement before a budget is created.
Depending on the location of the construction project, there could be associated costs due to safety oversight requirements. A third-party safety inspector is responsible for ensuring that the work is conducted in accordance with OSHA and local regulatory standards. Since the safety consultant has to be on site whenever the contractor is, these costs can rapidly increase a project’s costs and are entirely dependent on the contractor’s schedule.
Again, dependent on the municipality of the project, there may also be costs associated with various police or fire details. If there are open torches for welding or roofing on site, a fire watch or fire detail may be required. Similar to the safety consultants, these individuals must be on site whenever that equipment is being utilized. Additionally, police details may be required if a street closure permit is needed for cranes or other large equipment being utilized.
If the Owner of the site or building has particular insurance requirements, there may be an upcharge from the Contractor to carry the cost of the insurance that is beyond their normal amounts. Additional insurance is often required with building owners who are responsible for numerous buildings that need the additional liability protection.
The Authority Having Jurisdiction, such as the local building department, will also have a set of fees associated with pulling permits for the projects. Normally, these are a certain percentage of the project and may vary from one half of a percent to 2 or 3%, contingent on the type of work and the specific rules of the municipality.
There may be costs associated with different shutdowns and relocations. For example, on parking garage restoration projects, areas of the garage will be required to be shut down to allow for concrete and coating repairs. While those areas are shut down, the parking company will lose revenue associated with those parking spots, so it is important to keep the project on schedule to ensure minimal lost revenue and services income for the garage company.
On top of the soft costs that should be factored into the project budget, there is the potential for hidden conditions. This is especially important to consider in construction and exterior restoration projects. Even if destructive probes are conducted prior to the design phase, there is always the potential for varying or unknown conditions within a particular wall or roof assembly that require a different method of repair that drives up costs. Sullivan Engineering recommends having a contingency of approximately 10% to 20% for each project in order to account for these unforeseen conditions.
While all of these costs can be significant, the process of generating an accurate and workable budget is not insurmountable. The first step to getting an accurate project budget together is to understand the expenses.
Once a building owner is capable of knowing the costs, a plan can be formed to determine how much work may be covered within a specific budget. If an owner needs funding through construction loans, soft costs should also be included to avoid unnecessarily stopping a project before completion. A proactive approach to forming a construction budget is key to a successful plan for any construction project.