Previous Page  23 / 32 Next Page
Information
Show Menu
Previous Page 23 / 32 Next Page
Page Background

May 2015 — Property Management Quarterly —

Page 23

A

s most in commercial real

estate know, two things are

happening in the construc-

tion world – construction

costs are increasing and labor

availability is decreasing. The two are

definitely related.

As with any driver of the market

economy, the laws of supply and

demand apply to commercial con-

struction. And two forces are in play

that affect the industry. The first is

the overall construction cost index

for Denver, which increased 1 per-

cent in fourth-quarter 2014, finishing

approximately 4 percent higher year

over year, according to the Morten-

son Construction Q4 2014 Cost Index.

Second, local construction employ-

ment increased by double-digit per-

centage points for seven consecutive

quarters, finishing at 15 percent in

fourth-quarter 2014, according to

the Mortenson report. This trend is

expected to continue through 2015.

Just a few years ago, when there

was not as much work and contrac-

tors were not as busy, they would

price things low to keep their doors

open or to retain employees. Times

have changed. Because of pent-up

demand, there are labor shortages in

many trades, including management

and supervision. Construction labor

is the primary culprit for rising costs.

Today, many area contractors have to

turn work down because they are too

busy or, worse yet, many contractors

are pricing work high and hoping not

to get it.

Material costs also are creeping

up, but not nearly at the same rate

as labor. Many material costs tied to

petroleum, such as roofing or carpet,

have remained relatively stable or

experienced smaller

increases. Other

materials, such as

copper, have actual-

ly dropped slightly

in price. Overall,

however, material

costs continue to

rise.

As managers of

tenant finish proj-

ects, our job is to

make sure that

we are getting the

best value for our

clients. Sometimes

that may mean

negotiating a fair deal with one gen-

eral contractor and having him bid it

to three subcontractors. Other times

it may mean getting three bids from

general contractors. Using either

approach can lead to a successful

project. Following are some other

takeaways that can lead to better

pricing on tenant finish projects.

• Use design firms that have appro-

priate experience. Using an architec-

tural firm with experience in tenant

finish projects can make the project

go smoother, take less time and ulti-

mately cost less.

• Have the finishes selected prior to

bidding. Not having finishes selected

at the time of bid can add to the cost

and schedule of a project. When fin-

ishes are selected prior to bidding,

you can do a better job of locking in

the price.

• Minimize alternates in the bid-

ding phase. While alternates are use-

ful for evaluating cost options, try to

do most of the cost analysis during

the budgeting phases. Having too

many alternates can be confusing, so

reducing the alternates should be a

goal.

• Create a well organized and

thought out request for proposal.

Make sure the general contractor has

all of the information he needs to put

together a fair price. This includes

insurance requirements, building

rules and regulations, and a copy of

the proposed contract format that

will ensure that the contractor will

not incur any surprises when award-

ed the project.

• Hold a job walk. Make the space

available for all of the general con-

tractors and subcontractors to see the

space in its existing condition prior to

submitting a proposal. If the space is

occupied, make arrangements with

the occupant to visit the site.

• Keep contractors informed of the

status of a project. There is noth-

ing worse than dropping plans on

a general contractor’s desk unan-

nounced on a Friday afternoon. From

the general contractor’s point of view,

the job needs to be evaluated, set up

in the system and plans distributed

to the subcontractors, so the better

informed and the more lead time

provided to the general contractors,

the better the pricing.

• Give general contractors adequate

time to develop a proposal. A few

extra days to obtain competitive pric-

ing from the subcontractors may

make a big difference in the pricing

they acquire. General contractors

often need to forage the land to find

subcontractors with resources to bid

and manage the project. Everyone

wants pricing quickly; however, giv-

ing the general contractor six days

instead of four days to bid often will

result in better pricing.

• Be open to competitive bidding.

Don’t limit the base of subcontrac-

tors from which the general contrac-

tor can choose. While there may

be required subcontractors like fire

alarm, fire sprinkler or controls con-

tractors, other trades may qualify.

• Plan for success. Time is money

and the faster the job can be built,

the less it should cost. The old adage

of “measure twice, cut once” can

be applied to managing tenant fin-

ish projects. A strong project plan

requires fewer change orders. A few

days spent planning at the front end

will lead to a better, faster and less

expensive project.

Hopefully by employing some of

these ideas, the time of pursuing a

bid for a new project is more man-

ageable, disruptions are minimized

from current business obligations, the

project runs smoother and the results

are better.

s

Ron McInroy

Senior project

manager,

Newmark Grubb

Knight Frank,

Denver

Maintenance

Everyone wants

pricing quickly;

however, giving the

general contractor six

days instead of four

days to bid often will

result in better pricing.

Managing the rising cost of tenant improvements