Uncovering Top 5 Hidden Commercial Construction Cost Overruns

When planning a commercial construction project, the estimated price is not always the cost of the project. There are many factors, including spec and design changes, material substitutions, and other unforeseen circumstances that can lead to cost overruns. Here are five ways you can minimize costly surprises when managing your construction project:

Incomplete Specs

Sometimes the specs submitted to the commercial contractor are not complete or accurate.  It commonly occurs when the contractor meets with the business owner or developer and discovers that the materials or design is not accurately specified in the architectural drawings. Updating the plans to ensure the project meets the owner’s requirements can result in unanticipated cost overruns.

Inaccurate Estimate

Estimating the cost of a commercial construction project is not an exact science. And underestimating the price of a ground-up construction project or building renovation can result in cost overruns. Also, an inexperienced contractor may have bid too low and require a significant investment to complete the project. Depending on the contract and delivery method, you could be liable for making up the difference. When hiring a commercial contractor, make sure you compare the estimate with your original plans and concept. If the bid seems to be too low – it probably is. 

Change Orders

Your commercial contractor will prepare a bid estimate based upon the project plans you submit. So, when the owner or project manager decides to make changes during the construction project, no matter how minor it may appear to be, a change order is created. And every change order can add to the cost of the project. Making frequent construction changes on the fly can result in excessive cost overruns.

Site Problems

Although the commercial contractor will conduct a site visit, it is impossible to predict every unforeseen occurrence. In some cases, unexpected site or building problems may not be discovered until construction begins. For instance, a problem with the soil or runoff may not be detected until workers are preparing for the foundation or hidden structural damage in a building renovation is not found until after demolishing a wall. These and other unforeseen issues can cause cost overruns.

Material Availability

There are times when material that is specified in a bid proposal is not available when construction begins causing delays or substitution changes that could alter the original cost in the bid. In other cases, the building owner may decide to make material changes after installation resulting in additional fees and construction delays.

How to Minimize Cost Overruns

There are several ways business owners and developers can minimize cost overruns.

Contingency Fund:

Your construction project should budget a contingency fund of at least 10% of the total bid estimate. A contingency fund can help minimize the impact of any surprises during construction.

Choose a Design-Build Contractor:

A design-build commercial contractor has the resources of the architectural design and the construction teams under a single entity. Having both the design and construction team working together streamlines the construction project, improves efficiencies and communications, and reduces costs.

Ask for a Hard Bid:

Ask your commercial contractor if they offer a hard-bid delivery method. When a contractor provides a hard-bid estimate, they are guaranteeing the entire project as specified will not exceed the quoted price. This type of delivery method can eliminate surprise cost overruns. It’s one reason why government agencies and large corporate entities prefer this delivery method.