Budgeting Through Market Turmoil
Escalation continues to drive our business in a variety of ways. The uncertainty leaves construction managers, estimators, and quantity surveyors reading tea leaves, throwing grass into the wind, and polishing crystal balls. Many are adept at forecasting commodity prices, and thus can predict system and component prices for curtainwall, steel, rebar, carpet, and other components. Most perplexing to them seems to be the need to derive an overall number for use as a design contingency in the project’s formative stage, which requires macroeconomic skills which few construction professionals possess.
The industry has responded to this is two ways: by providing an alternative delivery processes and by accelerating the process.
We’re utilizing a variety of delivery methods. Some approaches, such as Design-Build, put the contractor clearly in the lead. A Lean process partners the owner, architect, and contractor with an Integrated Form of Agreement (IFOA) to wring out the contingencies and put the team in control of the project as a whole. Design-Assist is a middle ground, which can be pursued in many different ways. Many clients chose familiar approaches, such as CM at Risk, and Design-Bid-Build.
The question as to which is best always gets the same answer: it depends. Each delivery method apportions risk differently, and owners have different organizational tolerance for risk. Some methods are more conducive to high-design work, while some local markets demand a CM approach to entice subcontractors to commit.
Because of the recent turmoil—in what we think may be a trend—we have been asked by several clients to design and program simultaneously. While each time we have been successful, partly through the dedication and perseverance of our staff, it is nonetheless a process fraught with risk. The advantage is that the design contingency is wrung out of the process sooner, while the disadvantage is that progress is often a mirage, as architect’s design schemes must evolve and change based on the evolving and changing program of requirements. The risk is that the accuracy of the budget suffers and the project gets off to a series of false starts.
Bill Kline, AIA, CAA, LEED AP, is vice-president and health studio leader at SmithGroup, a leading healthcare architecture and engineering firm with 10 offices across the United States.