Wednesday, October 28, 2009

The price is (almost) right

Earlier this week, we finally heard from the contractor on the DD pricing for TCMC, and we were pretty close to budget. Howie and I met with Akira from Avanta Health and several guys from the contracting company, whom I'll call Builditol Construction. Attending from Builditol was the project manager, who oversees budgets, schedules, and scope from start to finish; the main estimator, who sends out drawings and gathers bids on the work from various subcontractors; the MEP expert (for lack of a better phrase), who used to install mechanical and plumbing systems, so he knows a lot about MEP (mechanical, electrical, and plumbing) and can attest to what it takes to put those systems in a building as well as vet the prices that the subs send them; and a tech person who helped them navigate the various drawings and spreadsheets and so on that they pulled up on their laptops as we talked.

We were about 6% over construction budget, which could be accounted for partially through unforeseen issues with the project in general (like having to move a generator that we didn't think/know we'd have to move) and added scope from the owner (some extra sitework and retaining walls that they wanted in the side yard by the surgery department). It was also nice to see that Builditol included a fair amount of escalation and contingency in their original numbers from SD (which were just barely in budget) so that we had room for some additional problems that we didn't foresee and some other scope creep from the owner.

I should explain some terms here briefly, and I'll use the example of redoing a bathroom in your own home as a basis for these definitions. Let's say you decide that in 2010, you're going to remodel your master bathroom: new toilets and sinks and faucets and shower/tub and flooring and tile and even new lighting. Very cool, right? Well, let's say you decide you're going to do this yourself, so after you've drawn up plans and you know what you want where, you visit Home Depot and Lowe's and The Great Indoors, among other places, and you pick what fixtures you want and what tile you want and how much tile and so on. Then, you add up the costs of each of those items and that final number gives you your base budget. But let's think about this: if you're buying all these things in 2010 and not now, the costs may go up. Maybe when everyone starts shopping again, retailers will increase prices, or maybe the costs will go up because there won't be enough toilets to meet the demand of all the people buying them. The extra cost that contractors include to account for the price of things going up in the future is called escalation.

Now, you're looking at your bathroom, and you realize that the house is over fifty years old, and Lawd only knows what's in that wall when you tear off the tile, and Jesus, Mary, and Bob Vila help us if there's mold or evidence of a bad subfloor under there when you pull out that old tub insert. You'll need to fix those items--now you've got extra wall board or plywood subflooring to buy, maybe some sleepers to put under the existing floor joists, a little Kilz to mitigate any mild moldy funk. But uh-oh...did you account for all this extra spending? If you included contingency you did, at least to some extent. The other place that contingency gets eaten up in a project is scope creep: you decide that while you're doing the bathroom, you'll add a little wet bar in your bedroom on the other side of the bathroom wall where you're running a plumbing pipe anyway. Why not? you think. Well, at the very least, it's just adding more cost. At the worst, each bit of scope creep--adding something to the project that wasn't originally part of the project--begets new problems that require more contingency and/or scope creep. So adding that wet bar in the bedroom suddenly means that the pocket door no longer has a wall to tuck into, so now you need a new door, but because the house is so old it's settled and you have to redo the door frame and replumb it, but now you've cut a larger hole in the wall to get the new swinging door to fit so you have to redo the drywall in the bedroom, which means painting....

It's at the point when you realize that the budget is too small to do what you want that you may engage in value engineering, or VE, as we in Da Biz (un)affectionately call it. Value engineering is supposed to be a process in which the design and construction team brainstorms ways to get the project in budget but not sacrifice quality--is there a cheaper product that works just as well? Is there a supplier that can get us the product ( or a comparable one) faster or cheaper? Is there a subcontractor who can do just as good of a job for less? While this sounds fantastic, what it usually means is that we strip the building of nice finishes (say goodbye to the really cool carpet and interesting sheet vinyl patterns) and even some useful stuff ( looks like the heat and AC for the entire west portion of the admin wing gets controlled by one VAV box--good luck with that). In some VE efforts I've done, we really did get value: for example, a cabinetmaker suggested that we use regular rubber wall base as the base for some cabinets under contertops because the rubber would hold up better to being kicked than the plastic laminate would. That's a great idea! Not so great was when we superstripped the sheet vinyl brands and colors and patterns in Wheatlands--turns out we even eliminated the antistatic sheet vinyl that was required in the equipment room for the MRI. I haven't heard of anything arcing or blowing up out there, but it's only been a couple of years. So, let's say you decide you really want the wet bar, so you decide to keep the old tub and just replace the sink and toilet, and you decide to redo the walls with a less expensive tile--no glass accents like you planned previously. You'll replace the flooring, but not in this project, maybe later in 2010.

So, we got some really good news today. We're pretty close to being on budget, so next week we'll present these numbers to TCMC and ask them if they're good with us proceeding. We have our fingers crossed--Lawd knows we'd all like some work to do.


BaxtersMum said...

that's awesome, Pixie. Excellent description - should be used for capital engineering education.

We automatically add 25% for contingency. That's how f'up our front end research is - drawing that aren't up to date, things we discover no longer meet code, but didn't have to fix till we opened that Pandora's box, whaddaya mean steel just tripled in price? And OVERTIME? I didn't budget for overtime, but now we have to work OT because of all the discovery items that got us behind schedule.

excellent metaphor for explaining the "its not just a fixed price." Flip that House is hysterical when you find people who didn't understand what you just wrote.


Wilderness Gina said...

WTF? Just go with the Glacier Bay fixtures instead of Mowen... like us peons. You're probably talking about Kitty's house... aren't you.. come on... fess up... you were wern't you. Every time I start something over there it turns into a FREEKIN NIGHTMARE!!! (reference the replacement of tub and shower fixtures of early Oct.)