We seem to be running into this more often these days, what can we do to help mitigate ‘over- budget’ submissions?
Sincerely,
Not Enough Funds
Dear Not Enough Funds,
We have certainly seen a rise in ‘over-budget’ submissions recently. With the instability in the current market bidders seem to be struggling to lock in pricing without building in a buffer especially for longer duration projects. We saw the pandemic collapse many long-standing, well-established companies and know that many others are still struggling and just barely holding on. With the shortage of skilled trades, rising costs for materials and labour in addition to the lack of supply, there are still so many uncertainties. These shortages and supply-chain disruptions have a significant impact and are widespread.
Some areas to focus on when building a project budget that may assist in helping mitigate submissions being over budget:
- Cost Analysis Estimates from a quantity surveyor
- Establishing a detailed scope of work
- Continue to refine cost estimates during design, Class D through to Class A
- Resource Management
- Economic effects for projects of longer duration
- Building Site (historical/heritage sites, waterlogged soils, geological formations etc.)
- Location (remote, travel for materials and workers)
- Products/materials (overseas goods lead time, exchange rates, shipping costs/delays, product availability etc.)
- Exchange rates
- Wage regulations
- Labour shortages
Focusing on some of these areas when preparing for budgets will help to assist in Budget overrun especially for major long running projects.
For construction projects, Cost Estimating (forecasting the cost of the procurement) can drastically help to ensure accurate budgets are set in place up front which is critical.
Estimates rely on many things such as:
- Material Pricing – historical costs & buying cycle phases with market fluctuations.
- Quantity – measuring material and labour required to complete the project.
- Labour Hour– Measuring output of a single worker.
- Rate Hour – Per hour paid to Skilled Tradesman.
- Equipment – Renting or using heavy machinery and how quickly project complete with or without use.
- Subcontractors – Cost for Specialized Trades to be added to project costs.
- Escalation – inflation costs for longer running projects, including escalation for future projects.
- Contingency – Unforeseeable Items that arise. Including Design/Construction contingencies.
- Overhead & Profit – Addition of profit margin by Contractors/Subcontractors.
- Lean Construction and Cost Control – Using Lean Management to reduce waste without affecting productivity. This can result in significant cost savings for a project.
- Sustainability and LEED Certification – costs for using environmentally friendly materials and also increased administrative costs to ensure LEED standards compliance. LEED as well as other standards will drive costs higher, ensure that any standards are accounted for in estimates.
These estimates should be prepared by a qualified individual or a team depending on the type and size of the project.
Failing to obtain up front accurate cost estimates will have negative impacts on your project before it even starts. Precise cost estimates are impossible especially in the current market, however as many tools as possible should be used and be completed by a cost consultant if possible.
Using some of these tools up front to help develop accurate budget requirements may help to alleviate the ‘over-budget’ submissions currently being received by agencies on their procurements.
Sincerely,
Erb