Well, yes and no.
Let’s look back at 9 tips that can help you better track and manage costs on your TI projects.
Often when we run any process over and over we start paying less attention to the details and we are less likely to look for opportunities to optimize our methods. While most tenant improvement projects don’t cost an enormous amount of money individually, 95% of projects are considered small (with budgets > $1M) they have a big impact in the aggregate, making it very important that you reflect on how your process can be improved.
1. BASE YOUR LINE ITEMS ON CSI CATEGORIES
According to the Construction Specifications Institute (CSI), there are 16 cost divisions of construction, listing everything from concrete and masonry to mechanical and electrical (see the entire list here). Since the original list was created, MasterFormat was expanded and updated from 16 to 50. Most commercial (and residential) real estate owners and their teams use these cost categories when bidding because they drill down to specifics and allow everybody involved in the project to be on the same page. By using a consistent ‘language,’ you can track costs across comparable projects, quickly compare them and develop an internal pricing index to make faster and more accurate estimates on future projects.
2. STAY ON TOP OF ASSUMPTIONS, QUALIFICATIONS AND EXCLUSIONS
Owners must minimize as many of the assumptions and qualifications as possible. Legal documents should clarify that the architectural drawings and specs take precedence over any assumptions and qualifications. List all of the material found within the plans in the contract.
Additionally, notify vendors in writing of every exclusion—these could include building permit fees, overtime work, scaffolding, and prep work such as floor leveling. Get this list to the vendors before they submit bids so everyone’s line items will be ready to level reducing the number of change orders later.
3. CONSIDER SKIPPING SUBCONTRACTOR BONDING FOR SMALLER PROJECTS
Performance bonds protect owners in cases where a subcontractor does not complete their work. They average about 1.3% of trade cost, or $13,000 on a $1 million tenant improvement project. Instead, consider Subcontractor Default Insurance (SDI) which can be more flexible than bonding and may also cost less.
4. MAKE SURE YOUR PROCEDURES ARE INTEGRATED ACROSS ALL PROJECTS
Cost tracking should be well-defined, user-friendly and replicable across tenant improvement projects. The procurement platform acts as a system of official record and keeps all the information relevant, current and accessible in real-time. At the very least, make sure standardized cost tracking templates are accessible to all members of the team.
Costs accrue quickly, but they can take a long time to be processed. A consistent, reliable system that closely tracks committed, anticipated and pending costs and lets all stakeholders and interested parties know exactly how much is left in the budget.
5. SECURE A UNIT PRICING COMMITMENT
Don’t review bids from the top down. Real estate experts recommend starting from the bottom up. That means pricing the material at the unit level. Doing so helps more accurately evaluate the total cost of each trade. When it comes to change orders—and they will definitely come!—ask bidders to offer unit pricing with detailed options. Make vendors commit to solid unit prices ahead of time, making decision-making that much easier when the time comes.
6. CONTINUALLY TRACK AND BE AWARE OF EXPERIENCE MODIFICATION RATES (EMR)
The EMR is a number based on safety history, specifically on job site incidents. This number is given to contractors, owners, and corporations, and it’s what turns the heads of construction insurance underwriters. If it’s is a large project, save money by knowing as much as you can about your EMR number, and those of your bidders. Also vital: make sure the right party is responsible for holding the insurance. Find out more here.
7. GET A BREAKDOWN OF EACH BIDDER’S CONTINGENCY
Because your contractor’s contingency can fall between 5-10% of trade costs, plus general conditions (and in some cases, bonding), know the details. Ask to see the numbers, which should be broken down and itemized on bids. Then see what costs you can reduce by further shaping the scope of the project.
8. DON’T GLOSS OVER THE GENERAL CONDITIONS
When it comes to general conditions, don’t generalize—get granular and drill down. Find ways to save. General conditions can account for as much as 10% or more of trade costs, including the contractor’s job-specific administrative costs, which can add up. It’s possible to negotiate some or all of these down or to eliminate them completely.
Additionally, general conditions vary widely, depending on the size, complexity, and level of supervision of the project. Request a breakdown of general conditions costs to get a window into how different bidders plan to administer the job.
9. DIG DEEPER INTO BUILDING CONDITIONS, RULES AND REGULATIONS
- Conduct a site survey. Along with the environmental engineer, determine whether any conditions require remediation in the space -- asbestos for instance.
- Know the property’s conditions, rules and regulations ahead of time. If the building requires union labor for some or all trades, costs will be higher, and the ability to track it may be different. Get familiar with what property compliance and contracted to requirements.
- Share the property’s rules and regulations in the RFP/bid package. Let bidders know about special conditions ahead of time to ensure that they make the proper allowances and adjustments, saving everybody time and money. For example, share whether work needs to be completed during or after business hours.
Tenant improvements, much like construction and capital projects are made up of numerous evolving factors, making it difficult to monitor where costs stand in relation to the budget. Empower your team to diligently audit and control costs for more reliable, predictable outcomes.
IMAGINE NEVER MISSING ANOTHER PIECE OF HONEST BUILDINGS CONTENT.