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Managing the Impacts of Inflation on Construction Costs
Cost estimators are at work long before a project breaks ground. They collect and analyze data in order to assess the time, money, materials, and labor required to manufacture a product, construct a building or road, or provide a service. With the onset of the COVID-19 pandemic, as well as other economic conditions, cost estimators at TRITEC have had to implement an alternate strategy to their previously traditional design, bid, and build processes when it comes to estimating the cost of a project.
There is a tremendous amount of in-house preconstruction and construction knowledge at TRITEC, as we utilize recent historical bid data from recently bid and constructed projects. We also engage our subcontractors, with whom we have a long-standing relationship, early in the development stage. As an expert in their field, they can contribute a wealth of information to the project by assisting the design team with respect to their trade (i.e. advising on an efficient layout of a mechanical system, the possibility of utilizing structural wood members in lieu of steel beams and columns, etc.).
Incorporating Input From Subcontractors
It is more important now than ever before to have subcontractor input as early as possible in the design of a project as they can inform the design professionals of any specific material or equipment shortages and recommend manufacturers that have materials & equipment easily procured and readily available to avoid potential delays in the construction schedule. Subcontractors can also inform the project team of impending price increases that they receive from their suppliers. By procuring select materials & equipment early in the project, future added costs due to inflation and/or price-gouging can be avoided.
Cost estimators often collaborate with architects, engineers, consultants (lighting, retail, ADA, Thermal & Moisture, LEED Certification, acoustical, marketing, etc.), contractors, and owners. There are several stages of an estimate: Conceptual Estimate, Schematic Design Estimate, Design Development Estimate, and Construction Document (Final) Estimate. Engaging in subcontractor input early in the project also gives us the opportunity to provide value engineering (VE) recommendations to the owner to help reduce costs without compromising the design intent or structural integrity of the project.
The intent is to obtain cost certainty throughout the preconstruction process at drawing milestones and to maintain the budget to ultimately generate, more expeditiously, a complete and comprehensive guaranteed maximum price (GMP) for each project. This strategy of including project management as well as subcontractor input at such an early stage, allows us to expedite the design process and ultimately the construction schedule. By utilizing this collaborative process we have been able to expedite the start of construction by prioritizing the completion of the site civil drawings and structural building foundations so that site work and building foundation work (the substructure) may begin as the building (the superstructure) construction documents are being finalized.
Forecasting Costs with Data and Current Events
There are many factors that affect an estimate and its accuracy. The most noteworthy factors are the level of completeness of the drawings and specifications, the experience of pricing construction projects, when the product will be manufactured/constructed, the timeframe to construct, material/labor/equipment costs and availability, project complexity, clearly defined scope, accuracy, and the reliability of costs and accounting for future escalations (cost increases) on materials and labor.
Inflation affects the actual cost of manufacturing and delivery of a product, constructing a building, and providing a service. Forecasting the added cost associated with inflation on materials, labor, and equipment is not an easy task, but a necessary one, when compiling an estimate. We rely on historical data (what were the percentage of increases from year-to-year on constructing previous projects), read current articles, and watch the news to see what well-educated economists (reliable sources) have to say about inflation and where the economy will be in the next few years predominantly focusing on the availability of materials and labor.
Providing milestone estimates while going through the design process is instrumental in making sure the project stays on budget and helps to reduce the risk of finding out late in the process that the project doesn’t make sense to construct or manufacture, at this time, from a financial standpoint.