Beyond Bricks and Mortar
Understanding all components of a project budget
By Thomas Betti
Envisioning the possibilities of a new community center or sports facility is exciting, but when the costs of a project add up, the last thing anyone wants to see is a surprise. To bypass aggressive finger-pointing, the best advice is to avoid any comparison with similar facilities and to invest in information-gathering that will help determine the true cost of a project. In other words, let the architect be the educator, the hyper-focused guide who keeps everyone’s eyes on the community’s prize.
Lonnie Laffen
Same Project, Same Budget?
Here are two good takeaways:
1. Similar project types do not mean similar budgets
2. Building-construction costs and total-project costs are not the same thing.
These are valuable and costly lessons far too many city officials have learned the hard way.
Here’s a common scenario: City officials in “Town A” decide to build a new community center. Moving forward with what is perceived as a careful strategy, the committee’s first call is to the facilities managers in nearby “Town B.” Town B shares vital information about its five-year-old center, revealing a cost of $20 million. Town A then makes the simple assumption that to have a similar outcome it too will set its budget at $20 million. This is precisely when the ball of misinformation really gets rolling.
Before the board room or city hall is declared a disaster zone, let’s reroute the conversation. The better scenario happens when Town A recruits an experienced architect and starts asking the right questions:
· “Did the budget include the cost of the building site?”
· “Did the budget include all the furniture and professional-services fees?”
· “What has been the rate of inflation since Town B’s community center was built?”
If Town A seeks even a few of these answers, it isn’t long before it discovers the actual project cost was closer to $25 million.
Looking further, Town B’s community center included a gymnasium, pool, and banquet rooms, while Town A is planning for the same, in addition to a senior center, an indoor play area and fitness rooms. This project, if started with misinformation, often ends in dispute and most likely a PR disaster that’s difficult to erase. Alternatively, a genuine understanding of a budget will enable project team members to move smoothly through all the phases, properly inform and engage the community, and easily ride out the inevitable bumps along the way.
If your team asks around, the numbers it will hear are likely far from accurate—in fact, there are generally only a handful of people involved in every project who know the actual numbers. Sometimes, even those people, especially as time passes, can exceed an original estimate by a few million dollars, forgetting some of the key components in the project budget.
Be One With The Budget
Many cities want to build new facilities quickly but don’t take the time to understand that a complete budget picture goes a long way towards ensuring success. Here, architects can be game changers, combining all elements of complex planning to coordinate a feasibility study that defines a project’s scope and budget. It’s ideal to begin with a rough budget in order to help community leaders understand the financial impact. In the early stages, it’s also valuable to inquire about partners and determine which entity will be driving the bus—will the city, school district, or a strong private developer take ownership?
A simple programming exercise helps define the type of spaces, sizes, and activities, and then determine what support spaces are needed, including meeting rooms, party rooms, dining, training, etc. These exercises determine the square footage, which is then calculated with a net to gross factor. One aspect people often forget to calculate is the square footage of walls—adding up to roughly 15 to 20 percent of the building (including circulation, structure, and mechanical shafts).
A better understanding of a project budget and its components will assist owners in more accurately determining a project's needs, goals, and related costs, as well as anticipating how one project component will affect another—inevitably leading to a successful outcome that minimizes surprises.
Six Categories Of Good Budgets
Get to know these six critical components of budgeting to make informed decisions, control the process, and ultimately create happy communities:
1. Development
Development costs are incurred prior to construction, typically ranging from the obvious to the unexpected. These equate to several small items that can become big costs.
Obvious development costs include financing, insurance, legal fees, and permits. If the city doesn’t own the land, what is the cost to purchase the property? Cities can expect additional development expenditures, such as permit costs, land surveys, platting fees, legal costs, etc.
Another less obvious but considerable cost to note is environmental studies, which can be part of the permit and regulatory cost. If a project is located near a waterway or wetland area, this study may be necessary to gain approval.
Steve Silverman
2. Soft Costs
Soft costs greatly impact a project budget, including architectural/engineering compensation, environmental consultants, planning and operational consultants, reimbursables, special testing, and contingency.
Operations and planning consultants are ideal for gaining demographic data, market data, and up-to-date costs of operating a building, ultimately determining the financial plans and goals of a facility. In deciding how much building is necessary to meet project goals, consultants’ efforts can be particularly valuable when paired with an architectural feasibility study.
A building will require special testing and inspections, such as steel welds, bolt connections, soil compaction, fire protection, or concrete. These are commonly required under applicable building codes and conducted by an agency independent of the architects, engineers, and contractor. It may not always seem necessary, but these testing procedures ensure the structural integrity of a building and aid a project’s system of checks and balances.
A project will also need budget protection in the form of contingencies, a critical soft-cost component that covers expenses yet to be discovered. At the beginning of a project, you may have a simple site plan, floor plan, and a rendering—but these tools don’t necessarily show the whole picture. To protect an overall budget, here are the most common contingencies for new community-center projects:
Construction contingency ranges from 3 to 8 percent depending on project type. For most construction projects, even if all precautions have been taken for site planning, including surveys, soil borings, and geotechnical reports, these precautions will be valuable to the design but not fool-proof. There are typically only 10 to 20 borings performed on the site—so much of the site is never analysed. Even with soil borings, it is not uncommon for contractors to uncover buried debris and poor soil when digging the foundation. This debris and poor soil often need to be removed because they cannot carry the weight of the new building.
Design contingency is set as a higher percentage (5 to 10 percent) at the beginning of a project, because as mentioned, the only information to base an original budget estimate on is three simple drawings. As a project moves through the design and engineering process, this contingency is slowly reduced once a project bids.
Inflation contingency is an ever-sliding percentage based on the market. When the economy is stable, this contingency will be in the 2- to 4-percent range per year until the project is bid. In the past 18 months, inflation in construction has ranged from 20 to 35 percent—a seismic shift that is known as “Hot Market” contingency. The time for a large community project from inception to grand opening is easily 3 to 5 years, and in some cases more—so this contingency requires careful consideration.
Owner contingency protects you as the owner—covering unforeseen consultant/legal fees or unexpected needs like additional or enhanced AV systems, as the project comes together.
3. Site Construction
Site factors are unique to each building project, with wide-ranging and sometimes unexpected costs that arise prior to developing a site. Site construction costs equate to soil corrections/debris removal, utilities, parking, landscaping, site amenities, and contingency.
Parking can be a major site-construction cost, including paved walkways, parking areas, landscaping/planting, and irrigation. These costs fuse with those of lighting, park benches, playground equipment, and other outdoor furnishings. Site construction also considers the cost of extending utilities from the street to the building—infrastructure, such as gas, water, sewer, and electricity.
Having a site-construction contingency is valuable when dealing with unexpected conditions or events, such as an economic recession, natural disaster, fraudulent activity, or pandemic. Once again, these costs will vary based on location, soil conditions, and proximity to public infrastructure.
4. Building Construction
A cost everyone is familiar with is building construction, often incorrectly referred to as “total project cost.” Building construction only includes the physical structure and materials—tangible aspects, like bricks, mortar, glass, and steel. Building-construction funds also include permit costs, amounting to fees paid to governing or regulatory agencies that will give approval for the build and make the connection to public infrastructure.
Cost estimators predict costs to the precise dollar but know that change or alternates may be required to control the final project cost. If an aquatic center wants ceramic tile on the pool deck but the budget is tight, a line-item alternate bid can be created to add the tile. This allows the city or owner to make finish-upgrade decisions with true costs. In combatting unexpected changes, project alternates are a great way to adapt to market conditions or bidding environments, which gives more control of a budget and project to owners.
Lonnie Laffen
5. Furniture, Fixtures, And Equipment
Another obvious but often overlooked cost is furniture, fixtures, and equipment (FF&E), plus its 5- to 10-percent contingency of the FF&E budget. Typically, these costs range from 5 to 15 percent of a construction budget and include anything not physically attached to the structure. For example, picture tipping a building over—whatever falls out is generally considered FF&E. Here, costs are based on square footage, amenities, and function, which helps determine tables, chairs, desks, cabinets, audio/video systems, phones, appliances, computers/software, and even artwork. Adding to this cost is exercise equipment, cleaning items, safety/maintenance equipment, and tools.
6. Operations And Start-Up
Before the doors can open to any new facility, wise owners already know what to expect for operations and start-up costs. These include staffing, insurance, advertising, grand opening events, utilities, program development/classes, business licensure, and, of course, contingency. Ideally, this contingency fund has at least three months of operating expenses to cover the bases of any surprises that may arise.
Preparation
Even in the unpredictable world of construction, clients do expect a seamless project process—if they are readily prepared and willingly informed. Doing the math early and often seems overwhelming, but it is your safety net, and the only way complex projects stay alive to tell the on-time and on-budget story of success.
When it’s time to start planning the next facility, stay the course of a well-budgeted, well-informed lane. Fight the urge to assume, find a great architect, be open to feasibility studies, utilize consultants, and avoid gathering budget guidance from similar projects, even if they are in your friendly neighbouring town.
Thomas Betti, AIA NCARB, is the Principal Director of the Sports Studio at JLG Architects in Minneapolis, Minn. He contributes over 35 years of regional and national expertise to sports and community-based projects, ranging from complex collegiate and NHL hockey facilities to parks and recreation, civic, healthcare, and education design. Reach him at tbetti@jlgarchitects.com.