How to Save Money on Your Construction Project -- Before Work Begins!
By Doug Plyler
There are multiple components involved in saving money on a construction project before it begins. Through the combination of a collaborative working environment with procurement, legal, and either internal audit or an external audit group with experience in construction auditing, the Owner can have a stronger position prior to the first shovel hitting the ground on projects administered under a reimbursable (i.e. CMaR, GMP) contract.
Many Owners will solicit proposals from multiple Construction Managers or Contractors. However, in many instances, the proposals received can be an “apples to oranges” comparison from a cost perspective. It is critical to define what is considered to be cost and what is considered to be overhead. It is also critical to ensure any component that is rate driven (i.e. insurance, information technology, etc.) has transparency with regards to actual cost incurred. This approach will ensure competing vendors bid with the same cost criteria as one another. In many instances, an internal/external audit group with experience in construction auditing can assist in this step.
Many Owners utilize either in-house legal counsel or a highly paid legal entity to assist in the drafting of contractual language as well as participate in contractual negotiations. This type of legal representation typically devotes more focus to limiting liability than explicitly defining eligible costs for reimbursement. It is recommended the legal team drafting the Contract work with an internal/external audit group to put the Owner in a stronger position to define allowable/unallowable costs.
Pre-Construction Contract Review
It is recommended an internal/external audit group review the Construction Manager’s proposed billing methodologies and proactively ensure these billing practices are consistent with the executed Contract. Thus, any planned billing practice non- congruent with the Contract can be discussed and collaboratively resolved prior to the submission of payment applications.
If the Owner chooses to be proactive in these three areas, costs can be minimized, control points can be inserted, and the collaborative approach will lend itself to a well-run project from a cost containment perspective.