HOW TO APPROACH A CONSTRUCTION PROJECT

Just thought this would still be relevant to the public today!

Jeffrey Stern's Blog

The Commercial Real Estate market in Long island’s Nassau and Suffolk counties has matured considerably in the last few years.  It wasn’t that long ago that Long Island building owners and developers tried to fill their space with Manhattan-based companies looking for less expensive back office space.  However, Long Island’s population has grown and the building market has matured with it. Long Island based companies are now the major users of space in Nassau and Suffolk counties and considerably more commercial land has been utilized for schools, hospitals and governmental facilities to service the population.  Market forces have caused the value of remaining commercial land and existing buildings to skyrocket, forcing owners to look for more creative ways to complete their projects within strict realistic budgets, tightly controlled construction costs and demanding schedules.

In over twenty-five years as a construction manager I have learned several concepts that are essential to…

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HOW TO APPROACH A CONSTRUCTION PROJECT

The Commercial Real Estate market in Long island’s Nassau and Suffolk counties has matured considerably in the last few years.  It wasn’t that long ago that Long Island building owners and developers tried to fill their space with Manhattan-based companies looking for less expensive back office space.  However, Long Island’s population has grown and the building market has matured with it. Long Island based companies are now the major users of space in Nassau and Suffolk counties and considerably more commercial land has been utilized for schools, hospitals and governmental facilities to service the population.  Market forces have caused the value of remaining commercial land and existing buildings to skyrocket, forcing owners to look for more creative ways to complete their projects within strict realistic budgets, tightly controlled construction costs and demanding schedules.

In over twenty-five years as a construction manager I have learned several concepts that are essential to completing a construction project, not only within a carefully scrutinized budget but also on schedule.  A construction project takes a well-orchestrated team effort with each team member presenting his or her own specialized set of expertise. My teams always include both an architect and an engineer.  Each is required to have solid experience designing the type of facility that the owner plans to build. After all, building a school requires one set of expertise, building a hospital another, a telephone facility yet another and an office building yet another. Imagine an engineer with expertise in building religious schools (whose library requires rituals for storage, display and destruction of holy books) and with no medical experience having to build an MRI facility or a Surgical Intensive Care Unit. He has no frame of reference.

Setting realistic schedules and goals for a construction project and establishing a firm budget are tasks best accomplished when the owner engages the project architect and engineer.  By teaming up with these professionals, an experienced and knowledgeable owner can produce the schematics and construction documents needed to open the bidding processes with contractors, line up financing, obtain town approvals and attract the best tenants for the building.

The owner needs to be extremely attentive, making sure that the architect, engineer and construction managers are aware of his program desires. The owner needs to go out on the street for “check prices” to make certain they are in line with industry norms. If done correctly, once the project documents are complete, there will be very little chance of cost overruns or schedule delays.

Sadly, too many owners don’t pay attention to detail. They hire an architect or engineer with whom they are friends instead of considering the types of projects they have experience working on.  Often they think they can cut a corner or hire one less professional only to discover they were penny wise and dollar foolish. Owners are often short of time and unable to spend enough of their intellectual energy on their construction project.  Thus, the team they form is often short a critical member. Owners are best served when they consider the consequences of not having all their bases covered because in the long-run a fully staffed team can contribute a great deal to the success of the project.

If there is one piece of advice I can give to owners contemplating a construction project, it is this:  don’t compromise on the program!  Pay attention to detail. Manage the trades. Monitor material costs. Diligently observe performance and make regular comparisons to existing schedules.  Consistently performing these tasks will help assure successful completion of the project.


WHAT ABOUT THE PUNCH LIST

The start and finish of a construction project are the most difficult milestones to identify.  Every construction project starts with an idea or purpose but pinpointing where it began is another story. However, once an idea is conceived, if it passes muster, it then moves to pre-planning and from pre-planning to planning – both of these stages can be identified and the milestones can be gauged. With planning completed, the project moves to construction and then to job closeout.  In other words, construction projects move from an abstract idea to a more developed plan, to a series of coordinated action by contractors and trades and finally to a completed building.  Hopefully, an owner builds a strong team for his project. The team’s job is to establish budgets, complete drawings, recruit and hire the best contractors, deploy the most effective tradesmen, meet building codes and then complete the job on-time and within budget.

Although it’s difficult to identify when an idea is conceived, it’s not as difficult to identify when a plan is completed, when a team is formulated or when a contractor has finished his assignment in regard to the project. The most difficult milestone to identify is when the project is finished and the owner can take possession.

Actually, the best way to identify when a construction project is completed is to consult the contract. It should detail the closeout procedures and when the punch list will be completed. Responsibilities are usually clearly spelled out in the agreement between the design consultant, the construction manager and the owner.  Some project requirements may be outlined in customized agreements or general conditions, or they may be modified by supplemental conditions. In any case, referring to the contract can solve the mystery of when a project is completed.

A good construction manager will identify problems early on and enter them into his tracking system for resolution. He will work with the trades to correct the problem early on, not leaving it for confrontation in the closing days. The punch list is primarily used to identify and list problems in the project. It most certainly does not replace on-going observation and communication. Think of the punch list as a process, like buying a car.   You inspect the car before taking delivery – looking at the seats, finish, wheels, window, doors, etc. to make certain everything is okay. If you say everything is okay and accept delivery, any scratches, dents, cracks in windshields are your problem. If you make up a list of problems and agree with the dealer that he must take care of them, there will be no dispute if the problems are corrected.

Everyone involved must understand how the construction manager plans to finish the job and how and when the owner will occupy the building.  That way everyone knows how many punch lists will have to be done and when. If all the punch lists are done at the end of the project there are going to be problems. Remember, the contractors and trades move off the site when the project is completed and the owner is going to want to move in.  That’s why, in reality, most construction projects require many punch lists dovetailing project milestones.

Among other things, the punch list is a tool for the construction manager. Inspecting and properly completing the construction project is the project manager’s responsibility. The CM has worked on the project from its earliest stages. He has been a part of the contractor selection process and has overseen their work on the project. The CM has coordinated a complex effort. At any time during the project, the CM knows what needs to be fixed and completed, what materials have not yet been delivered and has monitored their progress. The result of precise monitoring is a list of items that need to be corrected or completed before the owner can take possession.

Don’t lose sight of the overall purpose of the punch list – it is related to substantial completion, the date when the project, or portions of the project, are complete enough so that the owner can occupy the property or a portion of it for the intended use. Ideally, everyone knows where he or she is headed before they begin the overall close out process. The Certificate of Substantial Completion establishes responsibilities between the owner and construction manager for related security, maintenance, heat, utilities, and insurance.

If a deficiency is identified, the construction manager will have the appropriate contractor fix it. If there is damage, he will have it corrected, identifying who caused it and who is responsible to fix it. The various contractors’ project managers or superintendent will participate in the entire punch list walk through. This way, everyone will have seen the same thing and can better deal with any confusing or complex issues. Naturally, it is advisable for the Owner to participate in the walk through.

Ultimately, the punch list is a working document identifying and outlining what deficiencies must be corrected before the project can be completed. It is not a point of dispute or a look at the physical building. It should list everything that still needs to be done to complete an entire contract for construction, including administrative items, approvals, operation and maintenance manuals, warrantees, city signoffs, record documents, etc.

Ultimately, the punch list creates the final harmony a project needs in order to be completed. Its completion signals that the owner’s vision has been achieved and that the project has reached a successful conclusion.

MAKING MONEY AND CONTROLLING CONSTRUCTION PROJECT COSTS

In real estate it’s all about making money. Generally, facility owners and developers decide to proceed with a construction project only after they have concluded that they can achieve a profit in a reasonable period of time. Developers realize a profit when they lease or sell the property at a price that exceeds the cost of the facility, including land acquisition and construction costs. Industrial plant owners seek to achieve a profit by producing final product at the lowest possible cost and selling it at an advantageous markup while remaining competitive. It follows then that the decision to proceed with a particular construction project is usually made after preparing feasibility studies that involve several considerations, among them construction costs and schedules.

So, why do some construction projects miss their target goals? Frequently, developers and owners make the mistake of relying on financial experts to compute the cost of construction when deciding whether to proceed with a project. More often than not, financial experts will simply use the common Construction Cost Reference Book as their guide. Although the Reference Book is a valuable source of information it does not provide a complete picture of construction costs or the preliminary schedule and, as a result, it can have the undesirable effect of establishing a budget that is improper for the project. In other words, by starting with the wrong conceptual foundation, the entire project is put at risk.

Mistakes are also frequently compounded by errors in judgment. Facility owners and developers are often looking to fast track their projects and do not dedicate additional time to the construction budget or the schedule to fine tune it until bids are received from contractors. Unfortunately, too little time spent on a budget can mean that the project may come in at a substantially higher price than planned. Missing the target on the budget may also mean that the project may incur additional costs to keep on schedule, or the schedule may have to be delayed to rework the design or postponed indefinitely.

There are numerous resources available to aid owners and developers in achieving a reliable budget prior to receiving bids but when it comes to scheduling there is no substitute for a construction professional with the right knowledge and background. These professionals will not only make use of historical cost data, they can also draw from their experience in the area, their knowledge of the existing labor pool and their own history with similar projects. They will also leverage their relationships and carry on discussions with the types of contractors that will be required to complete the project in order to develop a more accurate budget and a more precise schedule.

Once a budget has been approved, a team has to be formulated to manage the project. Generally the team leader should be able to start working on the project from its conception. He or she should be involved in selecting the team members, as well as budgeting, creating an initial schedule and making the necessary modifications, selecting the architect, the engineering firm and the myriad contractors who will be involved in the project.

Keeping on schedule and within budget should be the main interests of the developer or facility owner. His or her designated team leader must manage the continuity of the project from pre-design budgeting, bid evaluations and vendor selection through the construction and post construction phase. The team leader must also monitor costs and milestones, consider alternative materials in conference with the owner, architect and the appropriate contactor when necessary, evaluate delivery schedules and audit bills quickly.

Although labor unrest, permit delays, weather problems and other unanticipated events can affect the outcome of the project there are many expensive pitfalls that can be avoided. Lack of oversight and insufficient management controls can result in costly delays and missed budgetary targets. The team must be prepared to consider alternative materials when unreasonable delivery schedules threaten the schedule or undermine the budget. Frequently the project can be kept on schedule and within budget by making certain there is sufficient deployment of project managers, aggressive reporting procedures and ongoing audits to catch little problems and correct them before they become costly issues.

Being flexible enough to make carefully considered changes in schedules or materials based on emerging circumstances is absolutely essential. Construction is like a chess game – if you don’t consider a multiplicity of consequences before you make a change, you can easily lose control and ultimately lose the game. Strong project management, frequent vendor meetings and well-managed communications across all fields of expertise are like an insurance policy assuring that the numerous contractors and other specialists working on the project are utilized in the most efficient manner.

Ultimately, completing any construction project is dependent on all members of the project team working together. Like a well-made building, first you have to build a solid foundation on which the structure will rest. Then you have to build the right team and use the best materials for the job. The cement that binds everything together is the team leader. His knowledge, management and communication skills will assure that the project is completed and that it will achieve the results that developers and facility owner are looking to achieve – profit.