(Continuing to elaborate on what makes WPH Architects for Ministry unique / part 4) One of the most common mistakes that occur in a building project pertains to costs. In fact, industry experts report that 90% of construction projects wind-up over budget. Generally, cost overruns occur in one of these ways:
- An inaccurate estimate of the cost of construction
- Failure to provide for the unknowns of construction
- Not accounting for all the costs that are incurred beyond the “bricks and sticks” of the building
To avoid these mistakes, it is essential to begin with an understanding of all the costs that must be accounted for in a complete project budget. To assist churches in understanding project costs, we distribute them into the following six budget categories:
1. Building Construction
The “bricks and sticks” costs are most commonly thrown around for early budget purposes and are quoted in terms of dollars per square foot. Once the drawings have been developed to a sufficient level, real pricing for the work can be obtained from a Construction Manager (CM) or a General Contractor (GC). When the price is agreed to, the work can be formally contracted. The contracting approach we prefer is an open-book / GMP (Guaranteed Maximum Price) with a shared savings. This provides continuous incentive for the builder to save the church money while giving the church the assurance of a bottom line.
2. Site Development
This includes all improvements to the site, such as utilities, drives and parking, stormwater management, landscaping, recreational fields, walkways and lighting. Site development has become highly regulated by local, state and federal government. Environmental restrictions, traffic regulations and storm water requirements have added significant cost to develop the average site. Even an existing site can be subject to current regulations when a change is made. Some of these regulations dictate construction sequences that delay the start of the building until the site is nearly finished. Such delays can then have a corresponding impact on building construction prices. By carefully managing the process, such impacts can be kept to a minimum.
3.Furniture, Fixtures and Equipment
Audio / video / lighting (AVL) systems, kitchen equipment, worship center seating, classroom furniture, portable sports equipment, window treatments, acoustic panels, artwork, computer, security and phone systems and all need to be accounted for in a project budget. These may be stock items or custom fabrications. Many items have to be selected and ordered well in advance of the time they are needed due to fabrication lead time. AVL systems have specific conduit, structural and power requirements that have to be integrated early in the building construction. If these systems are not fully designed in advance, there is likely to be significant limitations or substantial added costs to accommodate the desired performance later on.Incorporating the design decisions for these items as part of the management process in advance of construction can avoid later regrets.
4. Soft Costs
While the above three categories are classified as ‘hard costs’ (as hard goods are received for monies paid), soft costs cover a myriad of other expenses necessary to design, select and provide for the delivery of the hard goods through:
Strategic analysis
Master planning
Site surveys
Soil investigations
Environmental studies
Site engineering
Municipal approvals
Legal representation
Building surveys
Facility analysis
Promotional materials
Architectural services
Interior design
Acoustical modeling
Audio /video design
Theatrical /light design
Food service design
Bonds & insurances
Connections fees
Reimbursables
LEED certification
Many churches make the mistake of trying to cut costs in these areas, thinking it makes more money available to put into the actual building. It is easy to feel this way when you do not receive any ‘hard goods’ for the money spent. However, unless your church possesses exceptional knowledge in all of these areas, it is very risky to skimp on the design and soft costs. The book of Hebrews refers to “the city whose architect and builder is God” (11:10). The “architect” part is the creative thinking that determines all aspects of the building. The decisions made in these areas ultimately determine all of the other project costs. Skimping on these services will either result in unexpected extra costs later on or an unsatisfactory end-product. Carefully coordinating these diverse efforts at the appropriate time makes a project more cost-effective while substantially reducing the risk of overruns.
5. Interim Financing
Since most churches have not raised all the funds needed in advance of the start of construction, some type of financing is needed, typically in the form of a construction loan. Usually these are interest-only loans, plus an origination fee. Payments on the loan generally begin as soon as the credit line is drawn upon, resulting in a monthly expense during construction that must also be accounted for. Careful and accurate cash flow projections are essential to determine how much money is needed at any time.
6. Church’s Contingency Fund
There are many things that occur during a project which cannot be specifically identified in advance that add costs to the project. Some examples include changing building codes, encountering a leaking buried fuel tank, inadequate water pressure for a fire protection sprinkler system, and unavailability of materials due to foreign demand. For buildings being renovated, there are a myriad of other issues which may exist, but these cannot be known until the walls are removed or structure is exposed. To insure that a project does not get derailed, a contingency fund must always be part of a project budget. Until there are contracts signed for construction, we recommend using a 10% contingency for new construction (15% contingency for building renovations). After the construction has been contracted, this can be reduced to 5% (10% for renovation projects). Maintaining and managing the contingency fund will keep most surprises from adversely impacting the project.
Having described these six project budget categories, my next blog entry will elaborate on how we help churches establish and monitor all of these budget areas as part of Total Project Management.
