Chapter Excerpts from
Broken Buildings, Busted Budgets

Introduction

Chapter 1: Overbudget & Overdue

Chapter 2: The Economic Context of Construction

Chapter 3: False Starts and Frustrated Beginnings: A History of the Industry

Chapter 4: Asymmetric Information: The Big Barrier to Change

Chapter 5: Minor Blemishes: Unions, Workers, and Government

Chapter 6: Fixing the Construction Industry: Consolidation, Intermediaries, and Innovation

Chapter 7: Practical Advice to Owners: Getting Started Now Charts and Figures

Chapter 7: Practical Advice to Owners: Getting Started Now Charts and Figures
Your primary goal is to enter into agreements with all team members that will ensure a construction agreement that is not mutable. Securing a true fixed price contract for your project will require your architect and engineers to deliver to you a set of construction documents for bidding that are fully detailed, complete in all respects, and coordinated with each other.

The Owner´s Best Friend: The On-Site Owner´s Representative

On projects of any complexity, a hospital for instance, or for projects costing several million dollars or more, retaining an owner's representative to oversee construction becomes imperative. In many parts of the United States the use of a qualified independent representative of the owner during the construction phase is uncommon; owners rely on the local contractor and the part-time visits of the architect. For costly or complex projects, the value of the owner's representative is incalculable.

Insurance Cost for the Construction Team

Insurance costs are typically shown as a separate line item of reimbursable cost in contractor and construction manager contracts, and are calculated as a percentage of the cost of the work, usually from 1.75 to 2.5 percent, depending on the insurability of the contractor or construction manager. In most instances, the contractor advises the owner of the purported allocable cost for insurance to be borne by the owner as determined by the contractor's insurer. The contractor's insurance costs, however, are rarely audited to confirm the actual premium paid, or to confirm whether it was purchased at all. Moreover, the contractor will frequently maintain high deductibles and self-insured retentions to reduce premiums, but not pass the savings along to the owner. Accordingly, owners should request information on the construction manager's deductibles and self-insured retentions that could add costs to the budget.

Winning the Change Order and Scheduling Games

Owners too often allow contractors to play the change order game unimpeded. According to one study, "less than half of the internal auditors whose companies regularly enter into construction contracts actually examine compliance issues and the propriety of construction costs." These are not kitchen renovations we're talking about here either, but make or break "multimillion and sometimes billion dollar-plus construction projects." According to this view, some owners deserve to pay too much. But they do not.

Contingencies, allowances, and Saving Clauses

Contractors are adept at defining budgetary issues that are difficult, if not impossible, for owners to interpret or contest. Many are self-serving; some have evolved over time to avoid risks that the contractor wishes to sidestep. In some cases, these provisions exist solely to cover up mistakes made by the construction manager or the subcontractors with costs passed on to the owner. When construction managers or contractors use the term "contingency," they almost always use it to define matters that cannot be anticipated. Fair, but necessary costs that are bound to arise during every project should not be considered a contingency. Last-minute owner-initiated changes are valid contingencies; prudent owners may wish to keep a small percentage in their own budgets for such last-minute changes.