Few adages are more apt, more often, than “time is money.”
Whether you’re building a new school, office space or even your dream home, time is a major concern for every construction project. From the moment a levy is passed, budget is approved, or loan is granted, the spending power of those dollars begins to decrease.
There are a variety of factors that contribute to that pattern. Some, like inflation, are obvious. Others—such as changing regulations or labor shortages—less so. Here are three of the most common, and why they should incentivize you to keep your project moving forward as swiftly as possible.
Materials and labor are on the rise
According to Turner Construction’s Cost Index, building costs have increased 4-5% percent annually since 2013. (That’s a 20% fluctuation in five years.) And with the uncertainty of tariffs continuing to loom, that annual increase is likely to remain consistent, if not driven slightly higher.
In addition, a tight labor market has led to a shortage of skilled workers and tradesmen. Eighty percent of contractors have reported difficulty hiring skilled workers, according to the Associated General Contractors of America (AGC). And despite predictions that construction jobs are expected to increase 21.4% by 2022—making it one of the fastest-growing industries in the U.S., there are fewer qualified plumbers and electricians, pipe-fitters and carpenters entering the job market today. This shortage pushes wages higher, inflating the price of labor.
These two factors may prove to be temporary, but construction costs are based on the here and now. Ultimately, these increased costs are passed along to the end-user.
What does that mean for your project? A delay of just six months will diminish your spending power by around 2.5%. Consider this: the average cost of a new middle school designed for 624 pupils was estimated at just over $16.2 million in 2014. At 2.5%, that’s nearly half a million dollars of lost time. (If you would like to see how delays will impact your budget in the coming years, check out the US Inflation Calculator.
Inflation never stops
General inflation is another culprit of diminished purchasing power. According to the Consumer Price Index, U.S. consumers experienced a 1.6% inflation rate in 2018. It may not seem like much, but that slight change year over year can have a major impact on a delayed project as the months (and sometimes years) go by. The average construction costs for a new office building in 2018 ranged between $100-$150 per square foot. If your 25,000-square-foot project is delayed just 12 months, you’re losing around $60,000 in spending power.
The price of money
It’s getting more expensive to borrow money. Interest rates rose four times in 2018, and while they’ve remained steady as of this writing (in June 2019), it’s generally true that borrowing costs are going up. The sooner you can lock in your construction at a lower rate, the better for your bottom line.
New regulations can force unexpected costs
Changing government regulations are one of the most common, yet frequently overlooked, factors impacting project costs. For example, in 2017, Ohio added a new requirement for new schools and day care centers within the code council’s 250-mph-windspeed map. Any new school with an occupancy rating of at least 50 students must construct a storm shelter on premises. This regulation—which includes very precise specifications, as most building codes do—must be met by every single school, up to 12th grade, that begins construction after the change takes effect in September 2019. Being aware of shifting regulations and working with your construction partners to stay ahead of them can have a major impact on how far your overall budget will go.
There’s no such thing as average
Every project is unique; it’s never been done before. And that’s what can make it so difficult to accurate predict the bottom line. There are a bevy of factors that make a big difference: construction delivery model, site selection, historic renovation, new build or addition, scheduling and phasing; even furniture availability can have an impact. Each has its fixed and variable costs that add or subtract from the bottom line.
It’s not all doom and gloom
I have been estimating construction project costs for the last seven years, so I’ve seen it all. And while I’m not able to predict the future, I can tell you this: the market always corrects itself. There will be natural fluctuations in materials and labor. Contingency budgets are designed to absorb delays and changes.
If you’re concerned about how construction delays may impact not just your project timeline, but also your project budget, there are a few things to consider:
- Allow for the unexpected. Contingency budgets are designed to absorb unexpected changes, delays, field changes and other unknowns. SHP normally recommends a contingency budget of 3-5% for new construction and 5-7% on renovation. (Curious as to why the contingency budget is higher on remodels? It comes down to discovery: we can only explore so much in pre-construction.)
- Poor communication is the root of most delays. Major construction projects require lots of people doing different, often complex jobs in tandem. Not only that, but they often include multiple stakeholders—sub-contractors, vendors, end-users, inspectors and more—each of whom have a specific part to play. Detailed timelines, clear expectations, frequent community and using the right technology in the field can help ensure everyone stays up to date and working in lock-step with one another.
- Do your best to fast-track approvals. Lagging approvals are one of the most common and most frustrating causes of construction delays. You can reduce them by clearly identifying who will be responsible for approvals and stressing the importance of timeliness before your project breaks ground.
- Be prepared to reprioritize. Construction contingency budgets may allow for the unexpected … but they’ll only stretch so far. Money doesn’t grow on trees. Before beginning any construction project, make a list of must-haves and like-to-haves that can be reprioritized if and when dollars need to be reallocated. If moving in on-time is your priority, for example, be prepared to spend a little more.
No matter what, just remember that the sooner you start—the less you waste.