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Controlling Project Costs — 1

As everyone who has gone through a building experience knows, maintaining cost control is a difficult, but critical part of the process if a project’s financial goals are to be met with the same degree of success as are its architectural design and construction goals.

I am unaware of any simple, fail-safe method of controlling costs. A single-minded attempt to meet a predetermined cost figure for a project that has yet to be specifically defined, let alone designed, requires that the quantity and quality of what is to be built are extremely flexible, something most owners have difficulty accepting. No matter how desirable a fixed cost may be to make budgeting easier for a company or a family, the nature of design and construction precludes such a degree of certainty.

Management of costs is possible by constantly reviewing options and monitoring decisions with cumulative cost consequences throughout the design and building effort. The two most prominent portions of project cost are those for design services and those for the actual construction work. This commentary addresses design costs and the next will focus on construction costs.

Design Costs

These costs include professional fees and reimbursable project expenses. The latter cost is usually a minor portion of invoice amounts for small projects handled by local consultants.

Cost management of professional fees starts with an understanding of how they are developed. If a design professional has worked on past projects very similar to yours, he will initially estimate his fee based on how accurate his fee projections were for those projects. Lacking such experience, he may search for fee information in national publications or inquire about fees for your type of project from a more experienced colleague.

This fee projection, which we can think of as what it might actually cost to do your project work if conditions were near ideal and if the work progressed without any major problems or many minor ones, is then modified to reflect (1) the consultant’s assessment of the financial risk he faces should the fee prove to be inaccurate, (2) the desirability of undertaking your project for reasons other than financial ones, (3) where he wishes to be competitively positioned among his peers based on fee alone, and (4) the level of prudence and thoroughness with which he approaches his professional work relative to that he perceives most of his colleagues use.

You have some ability to influence the first two modifiers, and may want to consider doing so to get fee estimates that give you the most value for the services rendered. For example, you can lower your consultant’s financial risk by (1) being very specific about the professional services you need (while being realistic about your knowledge in this area, in particular how some services can impact others) and (2) the type of contractual arrangement you set up. With a fixed fee contract, a portion of the fee charged is for the financial risk the consultant is being asked to assume by offering you a set price for an amount of work that is not yet well-defined, while a time and materials contract may be based on hourly rates that include very little for financial risk because it is lower.

The second modifying factor, the degree to which a consultant is attracted to do your work for reasons other than fees, can also work to your advantage once you understand what attraction your project may have for him. Perhaps it presents a very interesting design opportunity. A design focused professional may be enticed by the challenge, and in exchange for granting him greater design latitude to do the work, he may ask for a lower fee with a smaller financial buffer than he normally requests.

You would be well advised to exercise caution when trying to exploit such project characteristics, however. Like everyone else, design professionals are human, and if they find themselves in a financial corner because of inadequate fees, they will need to get out of that corner! Almost inevitably, the project will suffer because the thoroughness and care with which the design work is done will be compromised, adding management and product research work during construction.

Aside from professional fees, reimbursable project expenses for large projects that involve many consultants (some of whom may not be in the project’s geographic area) need to be monitored closely. The largest expenses are usually for reproduction costs of drawings and specifications and for travel-related items. You can ask your consultants for estimates of expenses for your project based on their experience doing similar projects, and then use these estimates as a frame of reference for your own project expenses.

Once estimated fee and expense totals have been established, you can request that invoices be sent on a more frequent basis than monthly to quickly spot undesirable financial trends. Regularly scheduled design meetings can include a short review of the latest fee and expense projections. It should be made clear to your consultants that any changes they perceive in the scope of their work that involve revised fee or expense totals must be brought to your attention immediately, and must receive formal approval by you before any additional services are provided.

No consultant wants to have a tight financial yoke around his neck, particularly if the performance of his service begins to suffer when constantly reminded of it. An owner needs to keep abreast of mounting design costs, but it is wise to use as light a touch as possible when making sure that the cost of design services remains on the project’s financial track.

John McLean, Architect
San Francisco
(415) 777-9767