By Ricka Iwatsu, Chief Estimator at C.W. Driver Companies
Rising construction costs, an industry-wide labor shortage, tariffs and a variety of other outside forces are putting pressure on project budgets throughout the construction industry, especially in high-demand areas like Southern California. While as an industry we may have to contend with these challenges for some time, there are ways builders can mitigate costs and create accurate estimates for owners.
The uncertainly surrounding tariffs is a double whammy for the industry that is only complicating already escalating material costs. In addition to doing their own research, builders should talk to subcontractors and other project partners who may have insights on where commodity prices are going. Once the team’s input is accounted for, communicate this industry expertise to the owner and advise them how to plan accordingly for future changes.
The earlier materials are secured during a project, the fewer unknowns you have to account for in the budget. In cases where costs are anticipated to decrease, it may be prudent to purchase those materials later in the process. Some products have longer lead times than others, which will also impact timing. There can also be an availability issue when there isn’t currently a shortage, but subcontractors are anticipating one and rush to purchase materials. Talk to clients about the potential risks of purchasing goods at different points in the timeline, and ensure anticipated escalation is included in the estimate.
Having a thorough understanding of what type of markup subcontractors are adding to material costs in anticipation of escalation so this isn’t duplicated in your estimate is important as well. Drill down exactly what the hard costs of the materials are without labor or escalation fees, and then understand what is being added on from there. Different sizes of subcontractors have different amounts of buying power too. Larger companies will typically have greater negotiation power with material vendors, which is something to consider during the vendor selection process.
Knowing what level of finishes the owner and design team are expecting – and working through whether it is realistic for the given budget – is critical. When an estimate is reviewed line-by-line up front, we are typically able to find a lower cost version of a high-end design element or material that isn’t being impacted by tariffs or other factors. In cases when the requirements are extremely specific, say for a certain star level of hotel for a global brand, these specifications should be discussed as soon as the planning process starts to ensure everyone is working toward the same goal. These actions help to ensure that an accurate estimate is put in place.
When a desired design and owners’ budget are not aligned, it’s time to explore alternative options or value-engineering solutions. Builders and the design team should work together to provide owners with alternative selections that have a similar aesthetic without breaking the budget.
Communication is the most important part of creating an accurate project estimate. Ensure the team is receiving well-rounded input from project partners and don’t price in a silo. Everyone who touches a project should be comfortable with the final estimate. It should be a synergetic working relationship between the preconstruction and operations teams, with continuous communication throughout the project to keep on top of any potential challenges or changes in market conditions. After meetings occur, be sure to communicate and agree upon the takeaways to ensure your interpretation of next steps are in line with the group’s. Additionally, the team should be in close communication with the owner to ensure they are kept up to date every step of the way.
Through open communication, value engineering and close monitoring of material prices, builders can create accurate estimates and keep projects on budget despite the outside pressure caused by cost escalations.
Ricka Iwatsu, is a chief estimator in the San Diego region for C.W. Driver Companies, a premier builder providing general contracting, construction management and design-build services to California since 1919. C.W. Driver Companies proudly celebrates its 100-year anniversary this year. With 30 years of experience, Iwatsu works with project owners and architects to oversee the estimating functions of a project which include conceptual estimating, budgets, negotiated, hard bid, value engineering and design/build estimates. She can be reached at email@example.com or (619) 696-5100.