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How to Minimize Preliminary Construction Costs in Construction

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Construction projects require careful planning and budgeting to control costs. Preliminary and general costs make up a significant portion of the total budget for any construction project. Careful management of these preliminary expenses can yield substantial savings. This article explores techniques for minimizing preliminary construction costs.

What are preliminary and general costs?

Preliminary construction costs, also called preconstruction costs, are expenses incurred before the actual construction begins. These include any costs for planning, design, permitting, mobilization, and other pre-build activities. General conditions costs cover project management, temporary utilities, equipment, site safety, security, and overhead during the construction phase. Together, preliminary and general costs account for 5-20% of total construction expenses.

Why control preliminary expenses?

While direct construction costs are locked in with contracts, preliminary expenses are more variable. Careful management of preconstruction spending allows contractors to maximize savings. Excessive preliminary and general costs in construction can erode profit margins and make bids less competitive. Strategies to limit these expenses include:

Perform value engineering.

Value engineering is the process of analyzing designs to achieve essential functions at the lowest cost. This involves identifying unnecessary or overdesigned elements and finding alternatives that reduce costs while preserving key functions. Value engineering during preliminary design can yield significant savings by focusing on optimizing cost, schedule, and quality through iterative analysis of design options. A systematic value engineering process examines the function, cost, and worth of each design element to identify cost-reduction opportunities through elimination, substitution, or optimization.

Right-Size Budget Contingencies

Construction budgets typically include contingency funds to cover unanticipated expenses. While prudent, excessive contingencies inflate preconstruction costs. Analyze risks thoroughly using probabilistic estimating techniques and right-size contingency amounts to avoid tying up unnecessary capital that could be deployed elsewhere. Set contingencies based on quantitative risk analysis and identify drivers of high-cost risks for mitigation. Continuously update risk assessments and refine contingencies as the project progresses.

Leverage Technology

The new technologies, such as drone surveys, 3D modeling, and virtual reality, can facilitate planning and design. This saves on labor costs and avoids revisions that take up time and money. The appropriate technologies increase efficiency and allow for control of pre-build expenditures through more precise estimation and clash detection at an early stage of design. With cloud-based platforms, real-time collaboration and on-demand access to models for all stakeholders are possible.

Secure permits early.

Permit delays can halt the schedule and increase costs. Early in the design process, consult with local authorities to determine permitting requirements. Prepare detailed permit applications and monitor progress closely with the aid of expediting services if necessary to avoid bottlenecks downstream in the schedule. Ensure that an online permitting dashboard is maintained and that the number of review cycles allowed in the schedule is sufficient. Employ permit consultants with local knowledge if it is required.

Control Procurement

Put forth well-defined RFPs and implement competitive bid procedures that promote aggressive pricing on early services such as design, technical consultancy, or site surveys. To prevent overspending, the scope of work should be defined as rigorously as possible, and proposals from various sources need to be compared using the technique of cost benchmarking. Demand price disaggregation and variances to verify pricing.

Minimize Mobilization

Major site mobilization can precede construction by months, accruing significant costs. Streamline mobilization by carefully sequencing bid packages and site access logistics. Right-size temporary facilities to meet essential needs and phase in permanent utility connections when feasible. Seek tax and energy incentives for the early installation of permanent systems.

Employ lean construction methods.

Lean construction uses methods like just-in-time delivery of materials to minimize on-site inventory costs. Applying lean principles like daily huddles and pull planning during the pre-build phase optimizes preliminary spending through waste reduction. Use choosing-by-advantages analysis to systematically identify the best options.

Use standardized designs.

Standardized plans represent proven designs that maximize efficiency. Using standardized elements for common spaces like bathrooms, kitchens, and storage reduces design costs and accelerates permitting by leveraging pre-approved plans where possible. Maintain a library of standard details, room layouts, and equipment specs to reuse.

Key Areas to Control Preliminary Spending

The following preconstruction costs offer prime opportunities for savings with disciplined management:

Design Fees

Architectural and engineering design fees range from 5 to 15% of construction costs. Specify the required design elements clearly to avoid unnecessary services. Manage the scope and review process tightly to control costs. Require design partners to demonstrate the value of each deliverable and get signoff before initiating new services.

Project Management

Dedicated project management adds 5-25% to the budget. Scale supervision to suit the project’s complexity and risk profile. Leverage technologies like collaboration platforms and modeling tools to maximize productivity. Adjust staffing levels dynamically based on the phase and nature of work. Cross-train workers for flexibility.

Site Survey and Geotechnical Analysis

Surveying and soil testing provide essential data but can overrun budgets if not scoped carefully. Focus site surveys on required information and phase extra testing based on initial findings. Define testing and survey requirements upfront in the RFP and select qualified firms. Re-use existing survey data when possible.

Permits and approvals

Permitting costs vary widely by location. Understand the full range of required approvals and fees early on. Build review timelines into the schedule and account for consulting needed to secure permits. Maintain a streamlined permitting process and checklists to avoid delays.

Insurance and bonding

Review insurance needs for the preliminary phase only and resist pressure to carry costly policies too early. Phase bonding to cover specific preconstruction activities rather than fully bonding upfront. Benchmark bond rates and explore alternative security like letters of credit.

Mobilization

Limit early mobilization to access, site security, and temporary power. Phase full site setup to match the construction plan. Recoup costs by billing tenants for permanent connections done early. Minimize excess facilities that create waste.

General Conditions

Don’t rent major equipment and phase-in supervision and safety personnel. Carry only essential personnel through pre-build to avoid runaway overhead costs. Develop policies and procedures to optimize staff utilization across multiple projects.

Conclusion

Controlling preliminary construction costs requires diligent planning, precise scoping, and disciplined execution. Following the strategies outlined here allows contractors to minimize pre-build expenses and improve profitability across all phases of construction. Advanced technologies from companies like Remote Estimation provide additional tools to optimize preliminary spending and gain a competitive advantage when bidding on projects. With careful preconstruction management, contractors can deliver projects on time and on budget.

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