The best way to clearly see and manage costs throughout the building process is to focus on all aspects of your project budget. Although many of the costs associated with constructing a building are obvious, some require good peripheral vision.

“People who are unfamiliar with the building process often think that construction costs are the same as the project budget,” says Joseph Metro, director of facilities management for Elizabethtown College. “You need to have a good idea of all the miscellaneous costs associated with any construction project. For example, don’t forget about design costs, outfitting the building with equipment, window treatments, and the entire IT infrastructure. You may even need to include costs associated with renovating a space that is vacated after moving into the new building.”

The “miscellaneous” category includes a wide variety of additional and necessary activities and approvals, such as inspection and testing fees, geotechnical reports, financing costs, risk insurance and permitting fees. And don’t forget the move-in costs. Although these are not in the normal purview of architect’s drawings or builder’s plans, they need to be accounted for in your project budget. For example, each municipality has its own testing and permitting processes that occasionally change, so researching and supplying answers to questions or obtaining all mandated test results may account for additional time and costs.

Rod Messick, chief financial officer of Coldwell Banker Homesale Services Group, was the coordinator for building a new office headquarters in Lancaster County’s Manheim Township in Pennsylvania. The company wanted to add certain storage space to this facility, but ran into a municipal code issue. Messick says he discussed the problem with his High Construction contacts, who “proposed alternatives and helped us work through the cost/benefit analyses of various options. We were easily able to choose the one with the best return on investment.”

Maintaining the Focus
Ron Kain, senior vice president and chief technology officer for WITF, had never been involved in a construction project until he became the main liaison for construction of the public broadcasting station’s new media center in Swatara Township near Harrisburg.

“I learned how extremely detailed the best planning process should be,” he says. Michel Gibeault, vice president of business development for High Construction, points out, “Owners need to designate a ‘point person’—usually on their staff— to work with the architect and builder throughout the process. This can easily involve up to three days a week of that person’s time.”

The additional time, however, is well worth the effort.

Kain realized that “being readily available mitigated change orders and other costs. My involvement meant the contractor didn’t have to wait for decisions, so the project kept moving forward. ll the planning and close coordination helps a project stay on budget, which we did.”

Saving Money Wisely
An accounting tool called a cost segregation study is an excellent choice for managing associated costs now as well as for the future. Such a study, which should take place at the beginning of a project, separates out many items bought for the building and depreciates them faster than the building itself. For example, an emergency generator is almost always purchased as part of the building’s budget, but it can be depreciated faster for earlier tax savings, and maximum cash flow.

“Trying to segregate these costs after the building is completed can be very time-consuming and confusing,” Gibeault explains. “We recommend these studies as a worthwhile upfront activity. There are many eligible items that can be depreciated on an accelerated basis.” (See “Maximize Cash Flow with Cost Segregation Studies,” Constructive Advice, Fall 2004, at www.constructiveadvice.com)

If your builder has a long record of stable operation and successful projects, you probably can enjoy another cost saving regarding bonding. Establishing a bond basically ensures the project’s completion if the initial company cannot finish the job. Because bonds are typically 1 percent of the project’s cost, the bond expense on a $5 million project would be $50,000. Saving that amount could certainly allow you to focus your budget glasses on desirable additions for your building.