Coping with Increased Costs

Competition, meeting student preferences, outdated structures, and increased enrollment are all factors behind the strong construction market on America’s college and university campuses. As reported in the February issue of this magazine, $15.1 billion in higher education construction will take place this year, and similar figures are expected each year through 2009. That’s the good news. The bad or challenging news is that construction costs can often“creep” based on rising material prices or energy costs. No institution wants surprises when bids come in or when construction is underway. The answer to addressing how to handle increased prices down the line may actually be to head them off by establishing a strong foundation up front.


What’s the Policy?

Pete van der Have spent years working on higher-education projects and overseeing facility operations. In his current role as a consultant, van der Have says that colleges and universities must address some important policy decisions up front — and that requires a team approach.


“How increased costs are handled varies between private and public institutions,” he said.“You can’t obtain additional money when a project is state-funded, so the project’s square footage, amenities, or equipment must be downgraded or decreased. A private institution may be able to go to a donor for additional money, but sometimes that doesn’t work out either.”


Value engineering then comes into play. A building’s program or square footage is probably the last thing to be touched, so it’s likely that a less-than-optimum equipment choice or second- or third-choice components will be used on the project. “When a donor is putting their name on the building they usually want a project with a high level of finishes,” said van der Have. “When push comes to shove that may mean that solving an increase in costs results in cuts to the equipment budget.”


Teamwork

Van der Have says that the entire team must understand the long-term vision for both a facility’s use and its daily operations. For example, installing a chiller that is less energy-efficient than what was originally specified because of budget creep may answer the current cost situation, but it has future life-cycle cost implications.


Forging partnerships between all project team members — architects, engineers, the contractor, and the institution’s operations and maintenance personnel — is vital to help avoid increased costs, in van der Have’s opinion. Donors, if they are involved, should also be educated regarding not only a building’s function but also its long-term use.


“Teams that work well together by and large can avoid surprises when the bids come in or when construction starts,” he said. “Experienced personnel have a good handle on costs and more often than not hit the mark regarding budget.”


According to van der Have, the institution must have a clear policy regarding who pays for energy costs during construction. Administrators and the contractor must agree on the energy budget, and the contractor must be held accountable. “Utility costs can total $100,000 on a major construction project,” he stated. “Meters should be installed to determine, for example, if electricity is used all night when it shouldn’t be. The contractor should expect to pay for utility cost overruns if their personnel aren’t using energy wisely.”


Partnerships at Faulkner

Billy Hilyer is president of Faulkner University, a private institution in Montgomery, AL, where a number of facilities have been constructed in the last six to eight years. A new $6.5-million women’s dormitory and a new $4.5-million student multiplex are the most recent additions to the campus. Hilyer stated that cost increases are avoided to a large extent because of the partnerships forged between the university and its consultants. “I came to Faulkner when things were very bad financially,” Hilyer said. “I made a commitment that we would do everything that we could to control costs, especially when it came to construction. Our teams make that pledge reality.”


Hilyer, who is very hands-on, says that success is in the details. He is involved with every construction project up front and only backs away when he is sure the project is on track.

"We raise our money before we build and that is what we spend,” stated Hilyer, “The budget is the budget almost, and the architect, engineering, and our construction team members know that we don’t like change orders. We have very tight control.”


Ongoing Management

Several key approaches help Faulkner to ward off increased construction costs, according to Hilyer. The university employs an experienced contractor who oversees all construction projects. This individual works with the design team to address design and cost issues from the day planning starts. This ongoing dialogue enables design vs. cost decisions, if required, to be made before construction commences. The university’s policy is to make tough decisions during design if they realize that something is too expensive or impractical.


The second major component is to work with architects, engineers, and contractors who understand and respect the university’s approach and its expectations. “Our design and construction partners work well together and appreciate our philosophy regarding increased costs,” Hilyer said. “We have minimal or no budget creep because we are very carefully up front and because our personnel and our team work to fulfill our budget goals.”



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