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Vendor Management

5 Powerful Insights Construction Cost Categories Can Reveal

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Experienced real estate owners and managers know that a large part of the success of their building projects is determined in the planning phase, long before a permit is pulled or a nail is hammered. It’s surprising then that many of the industry’s most established organizations don’t reliably capture, track or standardize data from critical planning activities. Cost categories (also called line items) lead this list of powerful but underutilized sources of information.

From the most basic capital project to the largest developments, infrastructure projects, school redevelopments and municipal work, every project should be diligently assembled and tracked line item by line item. It’s understood that the goal is to complete projects on time and on budget. But what’s missing—if you’re not being methodical about tracking historical costs by code, standardizing line items across projects and “templatizing” the process for managers throughout your organization—is the opportunity to turn this information into an engine that drives better decision making from the start.

Here are five powerful insights your team can uncover in the planning phase of your project rather than in the middle of construction or in hindsight after a project is off budget or off time.  

1. How much experience do your bidders have working on similar projects?

The more detailed your cost categories are the more specific the vendors will be in their responses. For vendors who have previous experience working on a project like yours, it should be easy to combine historical knowledge with current pricing intelligence and return a comprehensive bid form back to you.

If a vendor can’t go into detail on certain categories or sub-items or if their bids are far outside your preliminary estimates, you can quickly identify which items in particular need to be addressed and make more informed decisions. For example, an experienced contractor should be able to readily provide estimates for temporary noise barriers in an occupied building. If they can’t, it might be an indication that they aren’t used to accommodating existing tenants.

2. How much bandwidth do they have?

Standardizing your process is a necessary step toward developing internal pricing intelligence. Many real estate organizations rely on construction codes developed by the Construction Specifications Institute to organize their bid forms and make meaningful cost comparisons. This puts an additional expectation on your bidders to understand the components and parameters of each CSI category.

Despite the added research, any vendor that is sufficiently staffed should be able to submit a fully completed bid form within a reasonable amount of time. If the form is significantly incomplete, that bidder may not have the bandwidth to give the project as much consideration as you need. Even if you independently determine that they are fully staffed, an incomplete bid form may demonstrate a lack of diligence on their part—also not something you want to discover in the middle of a project.

3. Are you at risk for unbalanced bidding?

You probably have a stable of trusted vendors with whom you’ve developed great relationships, but at some point you will likely have a project that requires inviting new companies to bid. On the off chance that a rogue vendor gets into the bid process, using a leveling form that breaks cost categories out into some degree of granularity can help ferret them out.

According to the International Anti Corruption Resource Center, front loading is a particular worry: “deliberately submitting artificially high item bids for the early stages of a construction project, offset by artificially low line item bids for later stages of the project, in order to improve the contractor’s cash flow.” By requiring bidders to adhere to detailed line items, you are more likely to spot this kind of activity.

4. What will your construction schedule look like?

If your line items are well thought out in advance, you can turn them into the schedule of values when you award the job and move to the contract phase. This is an important way to keep your project on time by eliminating any confusion between the vendor and your project team. Having each line item clarified and agreed to in advance allows the whole project team to stay on the same page from the start and prevents delays.

5. Which line items are in danger of being delivered late?

Once the project starts, shouldn't your team be tracking the progress of each line item? The answer is yes, of course, but the reality is that many cost tracking systems only track against the total job cost, not each line item. Since total job cost is a rollup of all line items and those line items often have dependencies, it’s crucial to continue monitoring your cost categories individually.

When your vendors submit their monthly or quarterly invoices, they should be instructed to indicate the percentage of completion. Firstly, this will help you hold the vendor accountable for the scope agreed to during the bidding or procurement process. Secondly, if you can spot a problem with one line item early on then you might be able to prevent a potential bottleneck later on.

Building a decision engine

By using cost categories from start to finish on every project, you also start to build something incredibly powerful— a decision engine. You will be able to:

  • Compare the bid amount for each line item and, more importantly, where each line item priced out at project completion.
  • Identify which line items resulted in change orders that increased your total cost.
  • Compare specific line items across similar projects.
  • Compare the performance and costs between similar vendors from different projects.

You can have this data and more at your fingertips simply by harnessing the power of line items.

 Download the Guide to Building a World-Class Construction Vendor Bench 

Riggs Kubiak

Written by Riggs Kubiak

Riggs Kubiak is the Co-Founder and CEO of Honest Buildings. Prior to Honest Buildings, Riggs worked in asset management, acquisitions, and global sustainability for Tishman Speyer.