Project Management Archives

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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

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

How fees consume your project budget.

Posted by Richard Cartright

· July 24, 2012

Every Project Costs Money

People know that every project has materials, labor, and equipment costs, but people often forget about the cost of design, permitting, and management fees. All of these costs and fees can be reasonably predicted, and the more you know about the project details, the more accurately you can predict project costs.

People may opt out of including something to try and save money, but excluding important things like permits fees and design when needed, commonly has unintended circumstances. So how can the owner save on construction costs? on small jobs, you can manage the project yourself and save the cost of a General Contractor.

Owner Representatives or Owner Agents use special tools and systems and inject objectively comprehensive knowledge to streamline how projects are designed and built, saving time and money. By helping you make the right decisions the O.R. is the most effective way to keep costs low.

An Owner Representative is worth much more than the cost and can cost less than a General Contractor.

The following calculator helps you see how fees affect the amount available to purchase material and labor. Input a project budget in the green field on the calculator and using the drop-down-boxes on the left, “include” or “exclude” the Fee items to see how the costs consume your project budget.

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This calculator simplifies the fee calculation, so fees shown may not reflect actual project fees.

It is intended to showing how various fees can affect the project budget and illustrating the point that: Owner Representation saves more money than it costs.

Here is a little more about the logic used to build the calculator:

The percentages reflect common project averages.
Owners legal, unique conditions, special costs, and owner purchased items are not included because they are too project specific to average for this model.
Contingency is 15% of the project budget, but commonly fluctuates between 5% and 20% cost of construction.
Savings realized using an O.R. is reflected in an average reduction in design and contingency.

Categories : Uncategorized

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

Tricks Contractors Use to Make Their Bids Look Lower

Posted by Richard Cartright

· April 9, 2012

The world of construction is very competitive. Most jobs are awarded to the lowest bidder, regardless of any other considerations. Since contractors need work in order for their businesses to survive, they can become somewhat desperate, doing a number of things to lower the apparent cost of their bids; not all of which are totally ethical.

The contractors who utilize these tactics are able to bid lower, because they are aware that they can make up for the difference after the contract is signed. More than anything, they are depending upon the idea that once the job is started, the customer will need pretty serious grounds to break the contact. So, they can find ways of increasing the contract price, without making the owner angry enough to cancel their contract and award it to somebody else.

So, what are some of these “tricks” which contractors use?

Providing Inadequate Allowances – There are a number of items which need to be paid for as part of the project, which the contractor needs to include in his bid. These include such things as utility hookups, building permits and liability insurance for the job site. By lowering the allowances, then “discovering” that these items cost more than expected, the contractor has a somewhat legitimate excuse to pass that change through to the owner. Another way that inadequate allowances are included is when decorative items must be selected by the owner. A $1,000 lighting allowance may be included in the bid, meaning that the cost includes $1,000 worth of lighting fixtures, to be selected by the owner. However, in a 5,000 square foot home, that may not be enough. Anything over that allowance would be legitimately charged to the owner.

Locating Cheaper Material – While everyone is trying to save a buck, there is a line that shouldn’t be crossed. When buying cheaper materials means accepting lower quality, the customer ultimately ends up paying for repairs and replacement down the road. The problem is that materials specifications generally aren’t sufficiently specific to prevent this. To try and create them that specific can be a monumental task. So, the contractor can often legitimately lower their cost and still complete the project. One way that this might be done is to buy green lumber. While this isn’t in agreement with industry norms, it is not all that uncommon in tract home construction. Generally speaking, green lumber is cheaper. However, due to its high moisture content, it will warp much more. That puts extra stress on the completed building structure, possibly causing problems such as walls that eventually start to bulge.

Excluding Parts of the Project Scope – Many plans and specifications leave wiggle room for the contractor to “miss” seeing something that needs to be done, such as removal of a dilapidated structure that is on the property. If it isn’t noted as a requirement, then the contractor can say that they didn’t know they needed to remove it, even though it’s in the way of the new construction. This allows them the opportunity to create a change order, charging the customer for this “extra” work.

Using Unqualified Labor or Sub-Contractors – Just as the client is putting the project out for bid, so does the general contractor. General contractors generally award the contract to whoever provides them with the lowest bid. While sometimes this works out fine, there are other times when it doesn’t work out well, especially if the sub-contractor really isn’t qualified or has a reputation for low quality. By accepting their bid, the contractor is giving away the customer’s quality.

As you can see, all of these appear somewhat legitimate. That’s what the contractor is counting on. They expect the owner to see those extra costs or lower quality materials as something that is totally acceptable. As such, they receive payment for a job that’s not so well done.

This is one of the places where a project manager, acting as the owner’s representative, can protect the owner from problems. Having the experience of many projects behind them, owner representatives know what to look for and where to find these sorts of loopholes. When a contractor presents a bid that is too low, they know where to look and what questions to ask, to ensure that everything which should be included, is included in the cost. Owner Representatives also know what they’re looking at, when they look at the raw materials brought onto the construction site, so they can tell if a contractor is cutting corners on the materials they are using.

Your goal, as the owner is to get your project done at a reasonable cost. The contractor’s goal is to make money. Unfortunately, they’ve got an advantage over you; they know tricks that you don’t. Having an owner representative protect your interest will help ensure your project gets completed in a way that’s fair.

Categories : Bidding, Uncategorized

Tags : Construction Management, LinkedIn, Project Management