Addressing Unpredictability in Construction Costs

As COVID-19 swept across the globe in 2020, nearly every sector of the US economy was impacted, including the construction industry, which faced supply chain issues, labor shortages, and rising material costs. Now, in the latter half of 2021, as the world is fluctuating between a receding pandemic and variant surges, there is a lingering sense of uncertainty. While the construction industry as a whole is in a strong position (nearly back to pre-pandemic levels), rising costs are a reality project owners and contractors are facing.

At Otak, one of our roles as engineers, architects, planners, and project managers is to help our clients navigate and mitigate the unpredictability of cost variations. This requires accurately projecting the future cost and availability of specific materials and using a collaborative approach and design process that considers all the variables and factors impacting a project’s Total Installed Cost, many of which need to be identified before entering the design phase.

Pre-Design Risk Management

Kevin Dooley, Otak Senior Project Engineer, stresses the importance of gathering accurate data for a project prior to beginning the design. He specifically cites the need for accurate survey and geotechnical data as being critical, stating, “we don’t want to do a design based on an aerial photograph, only to later discover the soil at the project site is not optimal, and the top two feet need to be removed. That’s a significant cost to have to absorb. When we uncover unforeseen site conditions in the early conceptual design stage, we can plan accordingly and eliminate costly surprises.”

Much of the preliminary work that aids in risk management also yields better project outcomes. Kevin explains that Otak’s teams “put in more time in the beginning because we’re doing a lot of research and groundwork that is foundational to good design.” This research includes the aforementioned site analysis, as well as reviewing historical local data relative to materials and construction costs, inflation trends, and current market conditions. “There is a large body of statistical and historical data we can tap into, as well as Otak’s own extensive database of project information,” Matt Marshall, Otak Regional Business Development Manager, says. He adds that “we can apply that data and weigh the options with our clients before deciding which direction to go.”

Despite rising costs in general, Scott Belonger, Otak Senior Project Engineer, points out the need to “verify actual costs and not assume that everything is going up. The commonly held perception may be that prices are up by fifty percent for a specific material, but in reality, we may find the price hasn’t really changed.” Knowing upfront the reality of costs, and communicating those costs to clients, allows teams to effectively proceed with designs and for clients to predictably budget for capital projects. It may take more time upfront, but ultimately, this due diligence saves time and costs in the end.

Integrated Design Approach

Otak’s integrated multidisciplinary approach allows for a full range of expertise and alternate perspectives in project design and helps ensure multiple factors and contingencies have been considered. Collaborating with a team of colleagues, sub-consultants, and partners aids in this process. As Kevin Timmins, Otak Vice President and Water Resource Engineer, says, “it makes us more aware of all the different parts of a given project. It deepens our understanding, not just with the work that each of us does, but also makes it easier to anticipate potential problems and costs.”

Strong relationships with contractors and sub-consultant partners also help project managers paint an accurate picture of total projected costs. “We’ve worked with some sub-consultants enough times now that we know what to expect their services to cost under different situations,” Kevin says. “Having that understanding, we can help our clients build a more reliable project budget.”

Budget Management

Helping clients navigate and manage project costs goes beyond accurately predicting expenditures—it also identifies how a project can be completed within their budget. As Scott explains, “there are a couple of ways we can do this. We can scale back the project or identify ways we can phase in work to reduce the immediate scope, but efficiently add to it in the future.” This requires working collaboratively with clients to ensure they are fully aware of their options and that priority objectives are met for any given project.

Another approach is working with clients to find additional funding sources, which sometimes involves looking at other slated projects in a given area and planning projects in conjunction.

At the end of the day, effectively managing costs, budgets, and removing unpredictability boil down to accurate data, collaboration, and open communication. As Scott and Kevin Timmins both state, “it comes down to us working with the owner to find the best solutions based on a complete cost picture and maintaining regular communication throughout the design process.”