Keeping A Project Within Budget

Words: Domenic Livoli
Photo: Branislav

With interest rates at historically low levels, many developers are taking advantage of these times and proposing new projects.  It is a busy and exciting time in the construction industry.  Tracts of undeveloped land are being turned into new residential communities or commercial shopping areas.  Many urban sites beyond their useful life cycle are being torn down in favor of residential and retail space, some of which encompass city blocks.  

The developer will turn to an architect to guide them in the process.  Their wishes for overall project size, number of units, spaces, and amenities will eventually turn into a set of construction documents, often starting with schematic drawings.  They want to know how much this will cost since their funding and bank funding will only bring them so far.  That’s when the fun starts.

Often during the design, the architect will apply basic historical costs to the project to get a rough idea of what the developer may be looking at.  Once they feel it’s within the owner’s budget, then the developer will seek prices from General Contractors, who, in turn, will ask for subcontractor prices.

While I still receive “Invitations To Bid,” I have started to receive “Invitations To Budget,” a sign that the project will go through multiple rounds of bidding before it is awarded.  Considerable time is put into developing budgets, both on a General Contractor and Subcontractor Level.  As I have stated before, budgeting can be costly, especially on larger projects, and in the end, only one subcontractor will be awarded the job.  

Nine times out of ten, the owner will come back and say, “The project is way over budget.”  Here we go!  Onto Value Engineering.  These are ways to decrease costs to get the project within budget.  They can be deleting scope, such as items that can wait for future times, like site amenities.  They can be the use of different, less costly materials from the original ones specified.  They can also be deleting portions of the project like certain rooms, floors, or even total, partial structures.  Often, these can be like takeout menus where the possibilities are vast.  You need to keep good records and know where you are in the end when a contract is finally awarded.  After all the back and forth, what they finally decided to accept is what your contract will be based upon.

While one trade can decrease in cost, another trade or trades will increase.  That is something that owners sometimes do not understand.  They want to see savings on every line item. An excellent example of this is thin brick or thin stone veneers, whether man-made or natural.  With all the parts and pieces and costs, thin brick can be more expensive than regular brick veneer.  While that is an extra cost, the owner uses conventional wood framing, which would decrease the price from using structural steel.  

Another example would be when an owner wants to delete brick from a project.  They will get a price to deduct on the masonry, but the siding contractor will be adding money and the painting contractor.  What they saved would be comparing the mason’s deducts versus the extra siding and painting costs to come up with net savings.

Mason contractors often participate in the budgeting and value engineering exercises.  It all starts with a reasonable estimate which translates to a budget for the project.  A budget is a cost at a snapshot in time.  The budget may be only good for so long, as long as labor and materials and market conditions do not change.  Today’s budget would have to be tweaked as new drawings and details are developed, and more definitive materials and finishes are chosen.  Mason contractors can play a significant role in helping a project along with budgeting.  Once quantities are estimated and pricing for the material given, then analysis can be done to stay within budget.  Going from a premium block color to a standard color can create savings, especially on a large project.  Going from stainless steel to a hot-dipped galvanized finish on ties and reinforcing can save money.  Different brick or masonry unit sizes can offer savings, depending on the material.    Different natural stones can be substituted for more exotic stones to save money.    

Masonry is a function of labor, materials, equipment, overhead, and profit.  Since masonry is a production trade, labor is often the most considerable cost and has the most significant impact on the project.  Once a contract is awarded, then the final price is essentially locked in place.  After purchase orders are signed and material ordered, a final internal budget can be set for the mason contractor to follow.  Ample waste should have been applied in the estimate and ordered with the material.   

Just as there are budgets for the materials, there are also budgets for labor.  In the estimate, a production rate is applied to the material.  Using a specific crew size, with a working or non-working foreman, will create a daily cost for the crew performing the task.  The daily crew cost is divided by the number of production masons installing the units, and a man-day cost per production mason is established.  If you divide that total cost by the number of units you are figuring for one mason to install in a day, you then get a labor unit cost.  Keeping good track of daily production will significantly assist in preparing budgets and estimates for future jobs and monitoring costs for the individual project.  

A large nationally recognized mason contractor from many years ago had a system for keeping track of budgeted labor costs and monitoring potential problems.  While it is simple math and analysis, many mason contractors don’t record these costs closely and often can’t fix a problem until it is too late.  Using the unit costs as calculated above from the estimate, a cost is associated with each material item.  On the job, the foreman records what was installed on a particular day- so many bricks, so many blocks, so many square feet of insulation, so many yards of grout, etc.  The unit costs from the estimate are applied to each material to develop a specific extended cost.  Then the total crew cost that was on-site for that day is calculated.  The difference between the actual crew cost and the estimated unit cost is figured, and a daily profit or loss is calculated.  This requires good record keeping, and the productions must be reported to the office daily.  While there are down days, if it becomes a trend, then the owner or project manager must investigate why this is happening and turn the project around quickly before the losses become too great.  

A successful job starts with a reasonable estimate and initial budget.  Hopefully, with careful attention, the project can be completed within budget, leaving everyone profitable with a satisfied owner and a quality completed project.     

About the Author:

Domenic Livoli is President of Livoli Estimating Services, specializing in masonry estimating since 1989.  To view the services that he offers to mason contractors, visit his website at  www.livolimasonryestimatingservice.com .  To speak with Domenic regarding his estimating and consulting services, email: livoliestimating@gmail.com  or call (508) 529-0362.