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2023 Construction Costs

2023 CONSTRUCTION COSTS: ARE WE SEEING ANY RELIEF?

It’s hard to believe that we are three years outside of the onset of COVID-19. Even now, its effects continue to shake up the world.

In March 2020, the construction industry saw a historical spike in pricing, an overall increase of about 20-30% in a matter of 12-16 months. Owners were forced to increase budgets or consider value engineering alternatives. Contractors were potentially out dollars for projects already bid and on-site job shutdowns and quarantines created high demand and extensive backlogs. 2021 saw little relief with unprecedented rates of inflation.

It’s the beginning of 2023 and you may be asking yourself, is now the time to build? The short answer – yes. With three years under our belts, Bush Construction has established and refined processes to assist in accounting for pricing changes and supply chain delays. And even better news, we’re starting to see surging material costs plateau.

Better planning with the three Cs: Contingencies, Communication and Collaboration

By now, it’s no secret you may be paying more for a new build or renovation than three years ago. With Bush on your side, we can help you navigate these changes and complexities. Ensuring your budget and timeline are met starts with proactive planning using the three Cs: contingencies, communication, and collaboration.

 

Contingencies

In commercial construction, a contingency refers to money (often a percentage of the total project cost) reserved to cover unexpected project costs that arise after the construction starts. Contingency budgets have been a part of the Bush process, but have become even more important in recent years as we navigated unpredictable material costs and labor shortages.

So how is a contingency budget typically used?

  • Materials: Design professionals and builders must think about materials. What happens if the manufacturer changes, creates variations, or discontinues a product chosen specifically for a project? The price fluctuates! Room should be left in the budget to swap out design materials for sometimes more costly, yet available, options.
  • Changing or unpredictable conditions: During estimating, it’s often difficult to account for unforeseen or differing conditions. Not every project site is ready to build on from day one. Old foundations may be buried on site unknowingly, the weather could damage or postpone progress, and much more. Factoring in a contingency would help cover this.
  • Wish Lists: Excess funds…it happens! Owners should consider a wish list. The team may end up with an excess of money allotted to the project. This would allow for project betterments previously thought to be out of reach. For example, higher-grade flooring.

To learn more about contingency budgets, check out our blog.

Communication

Changes happen quickly in this high-cost and supply chain environment, which means efficient and clear communication with project teams and with owners is even more important.

Typically, an owner may need to engage multiple firms to take a project from concept to completion. That’s not necessary with Bush. As a full-service team, we offer integrated services in architectural design, construction, and real estate development. With open lines of communication between our departments, clear, quick, and transparent communication with owners is just part of the package. We work hard to avoid delays and miscommunication that are common issues in the construction industry.

We’ve recently enhanced our ability to more accurately and effectively communicate costs to owners with our addition of Destini, an estimating software that makes Bush more efficient. Since it is cloud-hosted, anyone on our estimating team can input and access real-time cost data at the office or at home. We are also  working to expand historical cost information in the database to more quickly and efficiently estimate future projects. With sky-high interest rates and long lead times creating higher prices and longer projects, Destini aids building owners in managing their expectations for cost.

 

Collaboration

During the construction phase, we partner with subcontractors and suppliers, which takes a high level of ongoing collaboration. Bush has worked to put an emphasis on subcontractor relationships, but we’ve honed in even deeper on those relationships to help manage the volatility of the economy.

Subs and suppliers are often the first to know about price changes and supply chain issues. Leveraging our relationships and remaining in constant contact throughout each project allows us to alert owners quickly and pivot plans to try to avoid delays and budget increases.

 

What to expect from construction pricing in 2023

The future looks bright. In the last six months, we have seen construction prices  start to plateau and even trend down in a couple scopes.

Lumber was a huge problem, and those prices have come down. HVAC rooftop units are still in high demand, and electrical switchgear maintains long lead times. However, we’re able to anticipate these patterns and plan accordingly.

Though many things have changed since 2020, one thing remains the same: the importance of selecting a construction partner that can guide you through the process.

Contact our team today to get started.

 

Construction Tip: 12 Terms to Familiarize Yourself With

As with any industry, the commercial construction industry has its own set of acronyms and key terms. What’s the difference between a contingency and an allowance? When do OAC meetings start? Having a general understanding of these key terms helps alleviate confusion between an owner and the general contractor and/or designer. We believe specificity and clear communication are keys to providing our clients with a great construction experience.

12 Common Commercial Construction Terms

  1. Contingency: Money, often a percentage of the total project cost, reserved to cover unexpected project costs that arise during a project. For example, a contractor starts excavating a site and hits bedrock. To remove it, different equipment needs to be brought in and the excavation takes longer than originally estimated. Contingency funds would be used to pay for this unexpected cost.
  2. Allowance: Funds set aside to cover a known cost of an unknown amount. For example, an owner wants to use tile flooring in their front entryway so the contractor budgets for a standard tile material that costs $5 per sq/ft.  The owner ultimately selects an $8 per sq/ft option and agrees to pay the $3 per sq/ft amount by which the actual tile exceeded the allowance.
  3. Consequential Damages: Damages to an owner’s business indirectly resulting from a breach of contract and which are generally foreseeable but not defined at the start of a project. For example, delays in the completion of a project for a manufacturing company result in the company’s inability to complete contracts for its customers.
  4. Liquidated Damages: A sum of money the contractor agrees to pay the owner, typically for each day the contractor completes the project late. For example, a contractor pays the owner of an office building $1,000 per day for every day the office building is completed after the contractual completion date.  The amount cannot be so great that it would be considered a penalty.  Liquidated Damages are typically accompanied by an equal and opposite Early Completion Bonus.
  5. Punchlist: A list of scope items that must be completed before a construction project is declared complete. Examples might include: replacing a damaged ceiling tile, touching up paint or ensuring dirt in light fixtures is cleaned.
  6. Substantial Completion Date: The date an owner can occupy the building for its intended use. For example, if there’s a long lead time on carpet that isn’t available to install in a conference room, the lack of carpet in that room doesn’t prevent the office building from being used.
  7. Final Completion: The date the project is fully and satisfactorily complete, Including the completion of all punchlist items.   The contractor can receive final payment upon final completion.
  8. OAC (Owner, Architect, Contractor) Meetings: Periodic meetings between the owner, architect and contractor to discuss the progress of a project.
  9. Change Request: A contractor’s request of the owner to compensate for something that needs to be modified on the project.  For instance, the owner may be considering adding a door to a room. This change is made to the design documents and sent to the contractor for pricing. The contractor issues a Change Request for the additional door.
  10. Change Order: A formal change in a project’s scope, often also impacting construction costs and completion dates. In the Change Request example above, when the owner approves the Change Request for the additional door, a Change Order is issued which formally adds the door to the project for the agreed price and (if applicable) a completion date extension.
  11. RFP (Request for Proposal): A document created by a property owner that announces, describes and solicits cost proposals from qualified contractors for a specified project.  It’s common for public entities like schools or other government agencies to issue RFPs.
  12. RFI (Request for Information): A means to clarify ambiguities or fill in gaps in information that appear in the plans or specifications. For example, a concrete subcontractor needs more detail on rebar placement than was shown on the plans, so they submit an RFI to the contractor who either responds to the RFI or forwards it to the architect/engineer for a response.

Jon Davidshofer Begins New Chapter at Bush Construction

Bush Construction is pleased to welcome Jon Davidshofer to its leadership team as Director of Development. In this role, Davidshofer will lead the strategy for all development and redevelopment projects.

 

“Jon has hit the ground running, and he’s an exciting addition to our team,” said AJ Loss, Bush Construction President/CEO. “Jon’s experience in the financial and economic growth industries will help deliver a personalized customer experience to our investors, commercial real-estate agents and city officials. He’s keenly aware of every step that needs to be taken throughout each phase planning, development, design and construction. We’re fortunate to have Jon lead our development efforts.”

 

“I’m excited to join the Bush Construction team and be a part of their growing organization,” said Davidshofer. “Being able to work with the internal design team, while also having the luxury of working with the whole construction department will greatly benefit my role as Director of Development. The team shares a common desire to grow the development department and I feel the quality of work that people don’t see behind the scenes will be appreciated and respected by the communities in which we serve.”

Self-Perform vs Sub-Contracting for Small Construction Projects

When a commercial general contractor is hired to “self-perform” work it means the project is completed directly by the contractor’s own skilled labor force. Typically, a contractor will self-perform activities such as demolition, carpentry, casework, doors, and hardware, framing drywall, masonry, and other specialty tasks.

When to Consider Self-Perform over Sub-Contracting

Self-perform works well for projects that are smaller in scope or those that require a fast turnaround. For example, a facility upgrade, a backlog of maintenance projects, or when the contractor is already on-site and asked to assist with an additional project.

While self-performing doesn’t work for every construction project, selecting a contractor with these capabilities brings many benefits to business owners, including:

  • Cost efficiencies – results in a more efficient and streamlined construction process, saves time, money and eliminates additional service fees.
  • Increased control – relies on the contractor’s thorough experience to create and maintain schedules and ensures the project is completed on time and on budget.
  • Faster project starts – takes advantage of the contractor’s speed and flexibility to directly assign its team to a job site.
  • Quality assurance – benefits from the contractor’s talented team of high-skilled laborers that have a history of working together on multiple project types across many industries.

Bush Construction’s Self-Perform Capabilities

With years of hands-on experience and training, our skilled workforce will deliver an exceptional outcome no matter how big or small your project is. Whether you need help installing new doors or cabinetry, replacing baseboard trim, changing the flow of your entryway or common area, our trained carpenters are dedicated to working with you, and with little disruption to your business.

If you’d like to learn more about Bush Construction’s self-perform capabilities or with assistance budgeting future projects, fill out the Contact Us form below.

 

Meet the Team: Ryan Welborn

Ryan pictured with his wife and three little girls

Continuing our “Meet the Team” series, we’re kicking off this week profiling Ryan Welborn, Director of Construction. Ryan is a highly respected problem-solving machine with a sense of humor and a genuine love for his family.

Where do you live?

Orion, IL

What do you do at Bush Construction? 

I manage projects under construction and provide guidance/support to fellow associates who are managing projects of their own.

Who has influenced you most when it comes to how you approach your work? 

My father.  If you work hard, more often than not, good things will happen.

How do you prefer to start your day? 

I like to start really early in the morning before the family gets up with a cup of coffee organizing for the day to come.  By the time they are awake, I have typically caught up on the random things from the previous day and can spend time focusing on getting them ready for school and daycare.

How do you prefer to end your day? 

Hanging out with my wife and three little girls.

The Cause and Effect of Construction Material Shortages and Price Increases

The Associated General Contractors (AGC) published its latest Construction Inflation Alert that offers insight on the most recent construction material shortages and price increases. There’s a lot to unpack in the edition, so we’ve highlighted some of the most important key points for you.

Seismic Pricing Fluctuations

This isn’t the first time that the construction industry has faced rapid material shortages and increased costs. In 2004, materials rose from 3.6% to 10.0% and “remained above a 5% annual rate for a total of 31 months, before subsiding to a 3.2% rate in October 2006.” Other dramatic increases came in 2008 and 2017, however, COVID-19, natural disasters, and transportation issues have caused the most significant disruptions.

From May 2020 to May 2021, the price of:

  • materials and services used in construction skyrocketed 24.3%.
  • lumber and plywood rose 111%.
  • steel mill products climbed 76%.

While some material prices have come down since mid-May, they are still higher than what prices were a year ago.

If Only Construction Projects Were Like Buying a Car

When you buy a car, the cost to build it is already factored into the total price. In construction, the cost of work isn’t realized until after material purchases are made or the work is completed. This presents a huge risk to commercial general contractors and business owners, especially when large material price increases happen after committing to a project.

If you are an owner considering a new build, addition, or renovation, here are some things to keep in mind:

  • reserve funds for additions or modifications to your project’s scope of work to mitigate risk. This can be accomplished through an owner contingency fund.
  • ask your GC about an early procurement strategy for materials such as structural steel, reinforcing, and roofing.
  • be mindful of oil prices as oil and its by-products are used in manufacturing steel, PVC pipe, roofing material, and more. When oil prices go up, so do materials and the cost to transport them.

While we cannot control the global supply chain, we can ensure your experience remains positive through open, honest, and transparent communication. Our team strives to keep clients informed of fluctuations in pricing due to forces beyond our control.

If you have any questions on how today’s pricing fluctuations might impact your project, feel free to contact us using the form below.

To read AGC’s report, click here.

Meet the Team | Leslie Wells, Senior Project Coordinator

Leslie pictured with her husband, Mike, and son, Graham.

If you’ve worked with Leslie you know that one of her many strengths is providing clear and concise communication. Her high-energy, organized, and go-getter personality makes her a valuable asset to all of her project teams.

Leslie has been one of Bush Construction’s biggest cheerleaders, from leading our daily stretch and flex to assisting in any number of our philanthropic efforts. She joined the team in 2016 as a project coordinator and was recently promoted to a senior project coordinator.

What do you do at Bush Construction? 

I am the Senior Project Coordinator and am responsible for:

  • issuing and tracking contracts.
  • spinning up projects in our project management software.
  • leading the closeout process for projects that I am the PC on.
  • managing team members’ schedules.
  • assisting with cost tracking (create/issue/track sub and owner change orders).
  • managing our project coordinator/preconstruction coordinator department.
  • collaborating across multiple project teams to ensure successful project outcomes.

What’s one professional skill you’re currently working on?

I am currently working on studying for the Construction Industry Technician course through NAWIC.

What’s your go-to productivity trick?

I first prioritize my day then knock out tasks that will take the least amount of time first, and go from there.  Headphones – they are also necessary some days!

What’s a work-related accomplishment that you’re proud of?

I am proud to say that before coming to work for Bush Construction I had minimal knowledge of the construction industry. I have been able to be successful and gain so much knowledge working here thanks to a team that welcomes diverse opinions and provides opportunities for growth.

What do you enjoy doing in your spare time?

I don’t have a lot of spare time, but when I do I enjoy being outside and anything that involves being with our friends, family, and their kids.

Where do you live?

My husband, Mike, and our son, Graham, currently live in Davenport where we are both from. We recently purchased a property in Blue Grass, Iowa, and are in the beginning stages of building our forever home!

 

Meet the Team | Wayne Gordon, Director of Preconstruction

Wayne Gordon Family
Wayne pictured with his wife, Jenny, and their beautiful children Audrina, Kinzie, Callen, Laikynn, Colson

Wayne is the perfect mix of calm and collected. He joined Bush Construction in 2009 as a Project Engineer and quickly moved up to Project Manager. He’s been an integral member of our estimating and now preconstruction department. As the new director of preconstruction, Wayne oversees our preconstruction services including estimating, budgeting, procurement, constructability reviews, business development, and coordination of the preconstruction phase. Outside of work, Wayne is an involved husband, father, and community member.

What do you do at Bush Construction?

Director of Preconstruction

Who has influenced you most when it comes to how you approach your work?

My Dad

What was your first job?

Working on the family farm, where we raised hogs, corn, and soybeans

Where do you live?

In the country, near DeWitt, Iowa

What’s your favorite holiday?

Christmas

What do you enjoy doing in your spare time?

Movie night with my family

 

Meet the Team | Chuck Geyer, Superintendent II

Chuck Geyer, Bush Construction Superintendent II
Chuck Geyer, Bush Construction Superintendent II

How many times have you said, “it’s nice to put a name with a face?” This week we’re launching a Meet the Team series so you can get to know our growing team of construction experts. From the field to the office, our team wears many hats and is dedicated to providing customers with a great construction experience.

This year Chuck Geyer was promoted to Superintendent II. Chuck has been a valued team member since 2014 and has done an excellent job of cultivating relationships with project owners. Additionally, Chuck is a leader who gets things done the right way, the first time.

What do you do at Bush Construction? 

Project Superintendent responsible for the daily coordination of trades in the execution of building construction, while working to ensure the project is completed in accordance with the project design, budget, and schedule.

What’s your go-to productivity trick?

Communication. People seem more productive when they are informed. Ensuring that every trade knows what is to be done in order for them to complete their task, and what they need to complete for the following trade to complete their task is an important key.

Who has influenced you most when it comes to how you approach your work?

I’ve tried to pick up something from everyone I meet. Sometimes it’s a positive influence, and sometimes it’s something you want to sure you don’t do. Both are important.

How do you prefer to start your day?

With coffee and silence. I like to get up early and get to the job before anyone else. Coffee is the easy part, silence is not.

What do you enjoy doing in your spare time? 

My wife, Kelly, and I like to golf as much as possible when the weather permits. We have been married for 10 years this December.

A Deep Dive into the Design-Bid-Build or Hard Bid Delivery Method

From the seasoned business owner to the start-up entrepreneur, selecting the delivery method to build a new space can be challenging. Delivery methods are not only hard to understand, but their many nuances can impact the cost, risk and timeline of a construction project. Given their significance, we launched a podcast series to help owners determine which delivery method is best suited for their next project. Today, we’ll explain the Design-Bid-Build or Hard Bid delivery method.

The Pros of Hard Bid

This delivery method is simple to understand and has been used for decades. First, building plans are designed by an architect. Then the plans are sent to contractors to bid. Finally, the contractor selected builds the building.

There is a perception among many that hard bid delivers the best price. While it may deliver the best initial price for the design that’s been planned, there’s great debate about whether the best design was priced. We’ll explain more later in this post.

The Cons of Hard Bid

During the design and pre-construction phase of a project, the owner and architect work closely together. A contractor’s voice likely won’t enter the conversation until after being awarded the project. As a result, the project won’t be looked at through the lens of a contractor, who could provide valuable insight into the construction schedule, budget, and raise any red flags early on.

Another pitfall of this delivery method is that the contractor is often selected solely on being the lowest price, not on their qualifications or expertise.

When to Use the Hard Bid Delivery Method

The hard bid delivery method is best used for non-complex, greenfield projects. For example, Bush Construction built a brand-new school in an open field that went extremely well. The client was an advanced owner, knew the ins and outs of this delivery method, and had successfully built many buildings before.

We’ve also been a part of hard bid projects that encountered significant challenges. For instance, we ran up against a site issue on a multi-family project. Had we, as the contractor, been involved in the pre-construction process, we would have been able to have an in-depth discussion with the owner and architect about a critical but missing project element. Even though we raised the site issue during the bidding phase, there wasn’t enough time to openly discuss the implications nor was the owner receptive to our feedback. As a result, the site issue caused a long schedule extension and the owner incurred additional construction costs due to multiple change orders.

Communication and Change Orders

The timeframe for collaboration between an owner, architect, and contractor is very limited in the hard bid delivery method. While an owner and architect may work together for months designing the building, a contractor might only have a few weeks to review the project’s scope of work, interpret the drawings and prepare for bid day. Not to mention there is little incentive for a contractor to spend time identifying and communicating project issues before submitting a bid. Remember, in this delivery method, a contractor is selected based on being the lowest price. It’s only after the contractor is awarded the project will they dig in deep enough to discover certain design gaps. This is when change orders come into play.

Change orders occur naturally, however, they are time-consuming and hard to administer. While the contractor is responsible for presenting change orders to the owner, it’s common the trade partner (plumber, electrician, carpenter) will bring the need for changes to the contractor’s attention. The contractor must vet the reason for the change order and determine if the design isn’t complete, accurate, or fully developed, or if the trade contractor should have interrupted the architect’s drawings differently during the bidding phase.

Lowest Price vs Long-Term Value

For owners considering the hard bid delivery method, here are three factors to think about as it relates to the lowest initial price and the best long-term value:

  1. The reason hard bid delivers a low price is that the cost of the contractor’s input has been cut out initially. However, that price will be passed down the line and could end up resulting in change orders.
  2. Having a contractor’s input during the design phase often proves beneficial. For example, impact-resistant drywall and concrete masonry units (CMU) are both viable options for school walls. While drywall is cheaper in the short-term, kids can kick holes in the drywall so CMU might be a more cost-effective, long-term solution. A contractor is able to evaluate the cost, schedule, and constructability implications of each.
  3. If an architect’s budget is off – high or low – the owner will either be responsible for raising more funds or requiring a redesign to incorporate elements they originally wanted in their building but had to cut out to fit the plan.

We’re Here to Help

We’d love to keep the delivery methods conversation going and are happy to answer any questions you may have. Simply fill out this contact form! Or continue reading our series of blog posts on the delivery methods:

 

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Contact us.