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How much contingency should you budget for your project?

· November 26, 2013

Contingency is a part of the budget set aside to cover possible project problems.

Generally, contingency is there to cover ‘unknown conditions’ or conditions that could not have reasonably been known. Unknown conditions are a fact of construction and there is really now way to completely avoid them, contingency prepares you for them.

How much contingency you put in the budget depends on how much you know about the project, the age and construction of the structure, and what you can find out about what you can’t see. In new-construction, the unknown condition is generally underground.

There are ways to prepare for these problems:
In remodeling projects, the original plans or some selective demolition can help you find out what is behind walls, underneath floors, and above ceilings In pre 1970’s homes and buildings you might have paint and pipe insulation tested to ensure they do not contain lead or asbestos.

In new-construction, you can have the ground scanned with penetrating radar, and have bores dug to test and investigate what’s underground. All “unearthed” information can help lower the contingency, though a discovery may also increase your budget.

So, how much should you include for contingency in your budget?

I’ve heard so called professionals say, “Include 50% more than what you were thinking your project should cost in your budget for contingency”. Those people are basically pulling that out of… somewhere.

Professionally recognized cost estimating books, tell you contingency should be between 5% to 15% country-wide, though there are exceptions.

The amount of contingency a given project needs depends on how complete and thorough the planning process was, and how many changes an owner makes during construction. The best laid plans are often thrown off by changes. When owners create a thorough and complete plan and don’t make changes during construction contingency is rather predictable.

In my book, I include a table for knowing how much contingency the average person needs on the average residential renovation and new construction project. Here is copy of that chart and information on how to read it:

	No Information	With As-built drawings	With Investigation & Testing
New-Construction	15%	N/A	-5%
Renovation	15%	-5%	-5%

Example: Renovation, No As-Builts, Investigated and Tested

15% – 0 % – 5% = 10%

The top row is project information, the left column is project type. Start with the second “No Information” column and select the project type row 15%. If you have a renovation project and you have the most recent construction drawings or “As-Built Drawings”, subtract 5%. If you have completed non-destructive, destructive and testing as-needed, subtract 5%. The remaining amount is your estimated contingency.

You can see from the chart and the example that the more information you have on the project the less contingency generally needed. Use this chart on your next project to help you estimate the amount of contingency you need.

Categories : Budget, Commercial, Residential

Tags : Construction Budget, LinkedIn, Project Management, Project Planning

Missing a commercial deadline can be like watching a slow-motion train wreck.

Posted by Richard Cartright

· October 11, 2012

Last summer, I went to the county fair and stopped by a booth for a local pre-school that was under construction near my house. I’d been watching construction progress through varying stages, when I would occasionally pass by that direction. I think it was early June when I saw it last. With less than three months to school starting, the amount of work left made me think they would be hard pressed to finish in time for the school year.

When I talked with the owner, it was clear that she was expecting, or hoping, her school would be open for business for the start of the year. She had made commitments with that expectation.

Commercial businesses are critical because time truly is, money. While it’s true that every situation is different, still I can imagine… They already bought the land. They borrowed heavily, leveraging their house (and perhaps even retirement investments) to design and build a beautiful, brand new 8,500 square foot specific-use facility from the ground up with all the landscaping, parking and water retention required by Building Code. They have enrolled kids for the 2012-2013 school year and taken enrollment deposits. They hired teachers and contracted with utility companies and vendors. In addition to payroll and vendor commitments, they most likely started making payments on their debt and they won’t stop hemorrhaging money until they have kids sitting in their school.

I know you can understand how important it is they get the project finished on time. Arguably, all owners want to make sure that their project finishes on time and on budget. It may be even truer for commercial and institutional owners where time is literally tied to money.

Now, I usually don’t drive in that direction of my neighborhood, so I haven’t thought about the school for some time, but the other day my wife and I were talking and for some reason that school came up in our conversation. She tells me that it still isn’t done.

Right about now, I can imagine those owners going a little crazy because the project isn’t finished yet. They cannot get an occupancy permit until it is finished, and they cannot use the facility until they get that permit. At worst, they have to start incurring some vendor and payroll costs. The owners may have to return deposits and they may have to wait a semester or two before students are again enrolled in the school.

When I started casually watching the job progress, I had a sense that all was not well in Camelot. Construction Professionals can easily spot issues that will cause project delays. Sometimes it’s like watching a slow motion train wreck and what’s hard is relating these predictions to an optimistic owner.

In the end, it is always possible to look back and find which events or series of events were responsible for the delays, but it doesn’t matter. This owner is now in the midst of that horrifying construction experience that makes people usually end up saying, “I’ll never do that again!”

While there are some actions that will probably get the project moving again, in construction, it is always better and cheaper to act proactively than reactively. Unfortunately since the deadline has passed, anything the owners do at this point is damage control.

Categories : Uncategorized

Tags : Commercial Construction, Construction Management, LinkedIn, Project Management

11 questions to ask before signing with a contractor.

Posted by Richard Cartright

· October 2, 2012

Before sending out your bid package, talk to multiple companies to get more information about each.

Give each contractor a quick call to conducting a short phone interview as you connect, or you can choose to include a questionnaire as part of a simple interview process. It’s up to you, as it is truly a matter of comfort. If you have a lot or contractors to talk to it is easier to compile the interview questions into a single document that you can ask all of the prospective bidders to fill out and return, than it is to spend a lot of time talking on the phone to each one.

Get to know each contactor by asking them some questions. Here is a list of question that you should ask in order to decide if you want to send a contractor your bid package:

1. How many years have you been in business?

You want to know how much experience the contractor has.

0 – 3 years can mean the contractor is really new to the profession.

4 – 6 years and they should have some good experience under their belt, but there are still a lot conditions they have never encountered.

7 – 10 years; most conditions are old hat and something new is usually nothing to worry about.

+ 10 years and they are well seasoned and have seen just about everything there is to see.

2. How many years of experience do you have in the construction industry?

You want to get an understanding of how skilled the contractor is beyond the existing business. More years of experience in more parts of the construction industry means the more they will recognize each aspect of the job and better respect for the needs of other trades.

3. How large is your work crew and how many are permanent employees?

You want to know how much of the work the contractor expects to handle with their own crew. The more work they do themselves the more they have control over the quality of work activities. The more they outsource, the more opportunity there is for miscommunication and poor coordination.

4. Which trades does your company typically subcontract?

You want to know how ‘involved’ the contractor intends to be in the actual labor. Are they handling the transitions? If so, they may be better able to actually see if there are quality problems. Are they outsourcing or subcontracting out most or all the trades on your project? If so, they may not be watching closely enough to spot potential problems.

5. Do you require a deposit and if so, how much and what is it used for?

You want to know how financially solid the contractor is. Do they have the resources to mobilize and start construction, or ‘do they need a deposit to get started’ or ‘to buy materials’? If they can get going without an ‘upfront’ payment then they are more financially solid than if they need a deposit. I seldom recommend giving the contractor a deposit, but even I do acknowledge that there are times when doing so can be helpful.

6. What is your current workload?

You want to get a feel for how much attention the contractor can give your project. The fewer their staff and the more projects they’re working on, the more you should be concerned they can’t focus long enough to quickly knock out your job.

7. Do you use project schedules to help manage your projects?

You want to know if this company is organized. The more organized the contractor is, the less you’ll have to worry about. It doesn’t mean you won’t have to worry about anything; you’ll still need to inspect your project. The more disorganized the contractor the more likely for there to be problems, delays and the higher the price tag.

8. If we select you, with your current workload when would you be able to start our project and how soon could you finish?

Here is where you just flat out ask them about their production ability and if they could handle your job IF you select them. You want to see if their time frame fits with your planned schedule. Plus, if you select them this gives you some good contractual start and finish dates that the contractor has voluntarily given you.

9. Can you provide references and pictures of similar work you have completed?

Of course you always want to check up on their work. So asking for references should go without saying, still it is important to ask, so we include it on the list.

10. Are you interested in bidding on the project?

It may seem funny, but I find that this is a useful question to ask. Occasionally you’ll find a contractor that actually doesn’t want to give you a bid. When you meet that contractor, they will usually let you know right away. It happens for various reasons which we’ll have to cover in another article. The point is that if they do not want to bid the project, don’t take it personally. Be grateful that you know right away. That way you can just move on and you don’t have to spend any time chasing them for a bid you were never going to get.

11. We checked and noted that you have a ____________ rating with the Better Business Bureau, can you please explain the reason you think you have this rating.

Of course, if the contractor in question is not even listed with the Better Business Bureau, then you don’t even need to worry about asking this question. However, if you checked and you find that a contractor has a bad review or bad rating, ask them about it. Anyone can have that bad experience that follows them for far longer than they’d like and contractors are no different. Maybe the company was victim of a psychopathic ex-employee, an unusually difficult situation, or maybe the bad rep is for a very good reason. You won’t know if you don’t ask.

Categories : Bidding, Commercial, Project Management, Residential Construction

Tags : Contractor Interview, Contractor Questions, LinkedIn, Project Management

Construction coordination can be tricky.

Painted walls and finished floor.

All physical construction work is broken down into parts such as: carpentry, concrete, electrical, flooring and painting to name a few. The same terms used to describe the parts are often used to describe the trade responsible for executing the construction of that part. Each construction trade’s work is unique. For the vast majority of trade work, the labor must be completed by the specific tradesman. You can’t have a painter install flooring and you can’t have a carpenter run the electricity. However, there are tasks between trades that often overlap and can be handled by either of the involved trades.

Here is a simplified example of overlapping tasks:

Let’s say that you want to get the floor replaced in your house, and you want the house interior painted too. The flooring company installs the floor but can’t do any painting. The painting company will paint everything, but cannot install any flooring, baseboard or quarter-round.

The kind of existing floor you have, determines whether you currently have quarter-round (or base-shoe) in place. It is often less expensive to install new quarter-round than to remove, restore and reinstall the existing quarter-round. For this reason, flooring companies often furnish new quarter-round, if it is needed to ‘finish’ the flooring installation. Sometimes the furnished quarter-round is already color coordinated to match the flooring. Sometimes the quarter-round needs painting to match the walls, and sometimes you get the choice.

You can have the house painted, and then have the floor installed, but who paints the quarter-round after the flooring people install it? You can have the flooring people install the floor and quarter-round before the painters paint, but what happens if the painters damage or get paint all over the new floor while painting? What should you do first? How do you coordinate the work between the trades in order to ensure nothing is messed up or missed?

The best approach is to work with the contractors to schedule the coordinated work between the two tradesmen. Here is a simplified example of how that can work:

If the new quarter-round is designed to match the floor, whether or not the old floor has quarter-round, coordination is really easy. Just have the painters come in and paint then have the flooring installers come in afterward to remove the old quarter-round if neccessary and install the new floor and quarter-round afterward.

If the new floor needs no new quarter-round and the old floor has quarter-round, then include the removal of the old quarter-round as part of the painting prep-work. Then have the painters’ paint before having the flooring people install the new floor.

If the quarter-round needs to be painted, getting everything done requires a little more coordination. Include the painting of the new quarter-round in the painters’ contractual scope of work, this way it won’t add any extra cost to the project later. Ask the flooring company to furnish or let you pick up all the quarter-round in advance. Installers often deliver materials in advance to give the materials time to acclimate to the space’s temperature and humidity level before installation, so getting the quarter-round in advance shouldn’t be a problem. This way you can have the painters’ paint the quarter-round while on site for a cost that has already been negotiated.

Have the painters paint before the flooring installation. The painters should protect all of the furniture and paint as contracted. You won’t have to worry much about the floor if you are replacing it anyway. Once the quarter-round is painted and the paint is dry, have the painters set the quarter-round aside.

Coordinate the work so that when the painting company is finished painting the space and the quarter-round, the flooring company can come in the next day (or shortly thereafter) to install the flooring and the painted quarter-round.

Using this sequence ensures that after the floor installation, all that could be left is a tiny bit of touch up painting at the quarter-round nail holes and cut marks. After the floor installation, if the painters need to come back to the site to paint elsewhere, you can have them touch up the quarter-round as needed. However, if the painters have already completed all their work it will cost more to have the painters come back to do the touch up painting. In this case it is more cost effective to include the touch up painting in the flooring company’s contract scope of work, or handle that ‘tiny’ bit yourself like a GC might do.

For each trade that you add it becomes a bit more complicated to coordinate the individual company’s work. In addition, each project and contractor is unique. Some contractors may be willing to take on more work, while others less. It’s important to coordinate the work during the bidding process, in order to make sure that you don’t pay twice to have the same task completed, or become a captive audience during construction because you forgot to include specific tasks.

Help! My contractor is adding additional terms!

Posted by Richard Cartright

· August 23, 2012

The following is a question and answer session from the Norwich Bulletin, followed by a response from Richard Cartright, the Founder of Construction Conductor.

Q: I hired a general contractor to oversee a home renovation to my property, a 988-square-foot two-story farmhouse. The contractor charges me 20 percent plus an hourly rate when he is on the site.

He does not inspect the work his subs do because he says they are professionals and don’t need to be watched. He has come up with two payment plans. Plan A is $5 per hour plus 20 percent ($80,000) and plan B is $50 per hour plus 10 percent ($70,000). If I don’t agree to his terms on things, he says he will be following plan A rather than B. I feel trapped, confused and helpless. Not to mention everything is breaking. Can you help me?

A: by Dwight Barnett, a certified master inspector with the American Society of Home Inspectors. So the general contractor is making 20 percent profit on the work performed by the subcontractors, plus he charges you by the hour when he’s there, but he does not oversee their work. Bad idea!…

The general contractor is responsible for all work completed by the subcontractors….

It’s time to sit this person down and explain that you want a contract with a finalized price, a time frame for completion, a copy of his insurance and licenses, if required, and all permits filed with your local building authority.

Do not pay another dime until you have had the work inspected and approved by a building inspector from the county or by a home inspector of your choice….

If the job is already finished, hire a home inspector to check the completed work, and if there are damages, improper or incomplete repairs, seek the advice of an attorney.

****

Richard Cartright’s Response: Dwight might be a top-notch home inspector and he does have a point about getting the work inspected by a professional inspector, especially since the contractor has stated he will not inspect it. However, in this case his advice doesn’t actually solve the problem.

First, think about the question being asked. While on the surface it seems like an inspection question, the greater question is one of contractual obligation and responsibility.

-Was there a contract put in place when the owner initially hired the contractor?

-What does the contract say? What the contract says and doesn’t say are equally important.

-Is the contract valid? Every state’s laws can differ, but each state recognizes that for a contract to be valid it must contain some basic common clauses.

Answers to these questions help determine the best solution.

What we know from the question asked is that the homeowner hired the contractor and, after the fact, was provided with additional terms and feels trapped by the limited choices. We don’t know the terms of the contract, that may or may not have been, executed by the parties or how much, if any, work has been done. Every project and its circumstances are unique and there are different strategies you would employ depending on the specific circumstances of the project.

For example:

If the project has not started, take a step back and use something like Construction Conductor to assemble a bid package, competitively bid the project, select the best bidder, define your terms and issue contract(s) that protect you and manage the construction. Saving time, money and headaches.

Alternatively, if the project is underway and near completion of any of the critical construction points such as foundations, framing, rough in, commissioning or finishes, immediately get an inspector to inspect the property and get an official report. Use any problems you find in the report to slow the project down, by getting the contractor to address them before continuing. In the meantime, carefully read your contract (assuming you have one) to find out why the contractor thinks they can spring seemingly ‘new’ terms on you during construction. Consult with an independent project manager, and depending on what you find, strategize a solution with your independent project manager. There is no one-size-fits-all solution so don’t even think that you’ll find one.

As far as what is common to pay General Contractors, here is a general rule of thumb:

General contractors generally charge (in nice round numbers) about %10 for overhead, which often includes some project management time and %10 profit on expenses and overhead. They often can charge between $50 and $100 per hour for project management, so when they include it in overhead, they do not include much time for it.

When they charge project management by the hour they should/could /can reduce their overhead cost slightly and are far much more willing to be attentive. For the most part, the whole reason you hire the GC is to oversee the project and the project quality. They are working for themselves, and if you let them they might give you the lowest quality work while telling you it’s the best.

Knowing this, I would work to negotiate the fees and plan to use a professional inspector as part of your ‘Owner Team’, as I talk about in my workbook, to make sure all the contractors are giving you what they contractually owe you. If you still need help feel free to give me a call.

Please ask your construction questions at: https://constructityourself.com/contact/

Categories : Uncategorized

Tags : Construction Contracts, Construction Management, Contractors, LinkedIn

How much time will it take to manage your own Construction Project?

Posted by Richard Cartright

· August 7, 2012

Some owners think a professional construction manager is not needed. They are sure that in just a few short hours per week they can keep in contact with all their subcontractors, make material choices, manage the project’s finances and even deal with the building inspectors. “It shouldn’t be all that hard,” they say to themselves, “why pay for services I don’t need?”

Okay, that’s one way of looking at it. But, before making that decision, it might be a good idea to think about it a bit more; especially to gain an understanding of everything involved in managing a construction project. There’s actually quite a bit of work that needs to be done, even before the project begins. Not only does the project need to be put out to bid, but the schedule needs to be written, the scope of each contract needs to be developed and the plans need to be drawn.

There are some things which need to be done, no matter how big or small the project. Pulling construction permits and dealing with inspectors doesn’t change with size; nor does the selection of carpet and paint colors. No matter how big the project is, these things have to be done.

On the other hand, there are items which are highly dependent upon the project’s size. Developing a schedule, project specifications, plans and blueprints are all items that are affected by the size of the project. Even though there might be an architect generally taking care of the plans and specifications, they do so with the input of the owner. The bigger the project, the more questions they’re going to have and the more time the owner is going to have to spend discussing options, making decisions and checking the plans and specifications.

Then there’s the actual management of the construction work. Communication is key to a successful construction project, not only verbal communication but written and visual communication as well. When ample time isn’t given to properly document decisions that are made and instruction that is given, there is more opportunity for misunderstandings, errors, and even law suits.

Then there’s the need for regular inspections and reports of the project’s progress. Why are regular inspections and progress reports needed? Because without regular inspections, there is no way of knowing whether the contractor is doing the work according to what is expected. How can you know if the change to a position of a wall is actually done, if you don’t check it? How can you know if the right size plumbing pipe is used without measuring it yourself? You can’t count on the contractors doing what you say, without checking their work.

There’s a great management saying, which applies very much to construction, “People do what you inspect, not what you expect.” Never assume your contractors are doing what you expect, unless you take the time to inspect their work. This would be even truer in cases where what you expect isn’t the norm. If you had the architect specify 4” drain pipes for your toilets, and the plumbing contractor is used to using 3” drain pipes, he might very well put in 3”, even though you are expecting 4”. Unless you inspect his work, you’ll never know.

The reality is that daily communication and regular inspections are an absolute necessity for any construction project. All of this needs to be thoroughly documented, to protect you as the owner. If you don’t do so, you are asking for trouble.

The real question isn’t whether or not you can manage your own construction project; it’s whether or not you have a system that helps you organize the time to do so. If you can’t dedicate a couple of hours per day to managing the project, you don’t have enough time. You won’t end up happy with the results, because your contractors will misunderstand you at every turn. Your project won’t be successful, but rather, be a series of ongoing problems for you.

That’s where Construction Conductor and Construction Coaching come in. With Construction Conductor you get a complete understanding of all the terms we talked about above. You get the secrets to using project management best practices and get the tools necessary to ensure every project is a success. You’re taught everything you need to know about practical day-to-day construction management. A dedicated Construction Coach who knows everything that needs to be done and how to do it is has the time and knowledge necessary to ensure that everything on your project is completed and inspected properly. That ultimately saves you time, money, grief and gives you a better finished project.

Categories : Construction Management, Featured, Project Management, Uncategorized

Tags : Construction Management, LinkedIn, Project Management, Project Manager, Residential Remodel