What happens when decades of consistency and cost expectations in the building trades are suddenly changing in real time, based on market forces that are completely out of control?
The design process is never a straight line. It is a complex, winding path of discovery that relies on a system of checks and balances to keep the team focused and moving forward; of particular importance is cost management. Projects that gather order-of-magnitude numbers early and conduct more rigorous estimates in the later phases often result in a smoother design process. This is because the design team is made aware of potential cost overages early in the process and has the ability to correct them before the project progresses too far, which can lead to greater setbacks. This is where experience plays a huge role. A knowledgeable architect and design team are well versed in local construction trends and able to select building systems that they know are generally in line with the budget goals of the project. But what happens when decades of consistency and cost expectations are suddenly changing in real time, based on market forces that are completely out of control?
Unexpected cost anomalies. Construction managers and cost estimators base their pricing on what they’ve experienced in the past and what they are seeing in the present. At the beginning of the design process, their budget is based primarily on comparisons to recently completed projects. Then, in the early phases, they speak with tradespeople about the current cost of different building components and “sharpen their pencils.” Finally, in the later phases, they solicit numbers directly from subcontractors. The building industry is generally reliable; estimates often account for 4 percent inflation year over year, and mostly this works – until it doesn’t.
No matter how much experience the design team might have, there are always anomalies based on unique market conditions that are outside of anyone's control. The hope is that these anomalies or fluctuations can be captured based on those initial conversations with the tradespeople and what they are experiencing. That way, the design can be revised with enough time so that the final construction documents can be properly coordinated. However, in today’s unpredictable market, this is not always the case.
Time is money. We hear this often, but it gets particularly loud the later the project is in the design phases. Early on, “design is king,” and everyone wants a great project. However, as the project approaches final documentation and construction commences, “on time and on budget” becomes the rallying cry. The last thing anyone wants is a major change late in the game.
Unfortunately, the global market that we find ourselves in today is stressed with post-pandemic supply chain issues, the war in Ukraine, and skilled labor shortages, resulting in rising costs and uncertainty across the construction industry. According to Construction Analytics, 10 out of 15 major building components have slightly declined recently with some, like concrete, remaining high. Overall price increases for 2023 are predicted to be in the 4 percent range. While this is an improvement from the past few years, the difficulty for design teams is volatility and the unpredictable nature of cost changes. In the few months between the initial conversations with the tradespeople and the final bid, costs are fluctuating at an alarming rate and differently for each component. This means that major changes are being required either late in construction documents or even during the construction administration phase.
Take for instance building facades in the New York City area. It has generally been the case that, from a first cost standpoint, rainscreen walls (brick, metal panel, etc.) were less expensive than window walls, which were less expensive than curtain walls. Architects know this when they begin a project, and based on the owner’s goals and budget, they select a facade system to use as their basis of design. However, the price of exterior scaffolding recently increased significantly and projects that were designed as a rainscreen changed to a window wall or curtain wall as these could be installed from the slab edge and scaffolding could be eliminated. Then, just as quickly as the cost of scaffolding skyrocketed, so did the cost of aluminum, meaning the costs of window walls and curtain walls shot up. All those projects that had just changed facade systems based on the cost of scaffolding now had to change again to find a hybrid approach closer to the original design that sought to balance the costs of scaffolding and rainscreen with some window wall.
Every part of a building affects another part. Remember the mantra that “time is money?” Well, in the case of a building facade, this is no simple change. Facades affect structural slabs, columns, and foundations. They affect mechanical systems and interior design fit-outs. They affect zoning areas and energy performance calculations. These are major changes that take months to properly re-coordinate based on how far along the project is. Of course, different facade systems look completely different, so the design that everyone is expecting has to be re-evaluated. If the project is at the end of documentation or, even worse, under construction, there is little to no time to make these changes.
While facades are just an example, one can see how the owner’s decision-making becomes extremely complex very quickly. While the first cost of the more affordable building system is enticing, they must balance this against the amount of time required to redesign and re-coordinate the drawings, the availability of material and lead times, installation and construction schedules, and monthly interest on financing, to name just a few variables.
Aberration or new normal? Fluctuations in the cost of materials and building systems will continue to be a challenge for the entire building team. Decisions made early and often will have the most dramatic impact on costs and provide real time information to make the best choices. An experienced design team and owner, working closely with the construction manager, cost estimators, engineers and specialty consultants, must be flexible and willing to explore alternatives. Out of this collaborative effort, the best solutions will emerge.
Jim Bushong, AIA, LEED AP, is a principal at FXCollaborative.