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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.