Need For the Owner's Represenative

What  Will  Our  Next  Construction  Boom   Look  Like?
␣␣␣␣␣␣␣␣␣␣␣␣ ␣␣␣ ␣␣␣␣␣␣␣␣␣␣␣␣␣ ␣␣␣␣␣␣ ␣␣␣␣ ␣ ␣␣␣␣␣ ␣␣␣ ␣␣␣␣ ␣␣␣ ␣␣␣␣ midst   of   the   worst   recession   in   our   history,   and   someone   wants  to  talk  about  the  next  construction  boom?    What  bet-­ ter  time,  though,    to  think  about  and  prepare  for  the  inevita-­ ble  uptick  in  construction  starts?    How  will  we  provide  better   value  to  our  clients,  control  costs  more  effectively,  establish   and   meet   schedules,   and   prevent   costly   and   time-­ consuming   claims?      What   will   be   different   ␣   and   what   should  be  different  -­  about  the  next  boom?
␣␣␣␣␣␣ ␣␣␣␣ ␣␣␣␣␣␣␣␣ ␣␣␣␣␣␣␣␣␣␣␣ ␣␣␣ ␣␣␣␣␣␣ ␣␣␣␣␣␣ ␣␣␣ ␣␣␣␣␣ starts  based  solely  on  costs    -­  The  reduced  construction   cost   that   is   fueling   a   portion   of   the   recovery   looks   to   be   short-­lived.   The   country   has   been   experiencing   a   pretty   ro-­ bust  increase  in  public  sector  work  as  a  result  of  the  stimu-­ lus   programs.      In   addition,   many   states   and   municipalities   have  also  taken  advantage  of  reduced  construction  costs  to   start   many   planned   building   and   infrastructure   projects.     This   has   effectively   reduced   construction   material   invento-­ ries,   and   we   are   seeing   marked   increases   in   commodity   prices  as  new  orders  are  placed.    Lumber,  copper,  and  con-­ crete  appear  to  be  the  most  affected  so  far,  but  others  are   sure   to   follow.      Manufacturing   capacity   is   not   expected   to   expand   until   demand   picks   up,   so   these   commodity   price   increases   will   probably   be   sustained   for   the   foreseeable   future.      ␣␣␣␣␣␣␣␣␣␣ ␣␣␣␣␣␣␣␣␣ ␣␣␣␣␣ ␣␣␣␣␣␣␣ ␣␣␣␣␣␣␣␣ ␣␣␣␣␣␣ ␣␣␣ ␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣
Increased   Due   Diligence   and   Accountability   -­   As   the   economy  recovers  and  borrowers  and  lenders  begin  to  fund   new   projects,   we   can   expect   significantly   more   due   dili-­ gence   relative   to   construction   budgets   and   schedules.     Many   lenders   have   been   left   holding   the   bag   on   poorly   planned   and   mismanaged   projects.   The   level   of   scrutiny   during   pre-­construction   will   be   significantly   higher,   and   lenders   will   require   contractors   to   assume   more   risk.     Change  orders  and  schedule  delays  will  receive  more  than   ␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣ will   be   required   to   fund   unanticipated   scope   increases   and   delay   costs,   and   lenders   will   require   borrowers   to   continue   ␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣ and  performing.    Takeaway:  even  if  a  project  has  a  finance   commitment,   the   scrutiny,   documentation   and   review   time   will  be  greater.
Greater   Involvement   by   Construction   Monitors   ␣   Lend-­ ers  will  monitor  construction  more  closely,  and  lender  moni-­ tors  will  take  more  proactive  roles,  not  just  reporting  on  con-­ ditions   and   reviewing   payment   requests.      Lenders   already   require  higher  qualifications  and  broader  scopes  of  service   from   their   construction   monitors   on   new   projects,   and   pre-­ funding  reviews  are  becoming  more  thorough  and  detailed.   Takeaway:  The  bank  construction  monitor  needs  to  be  your   ␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣␣
Integrated   Project   Delivery   ␣   New   project   delivery   sys-­ tems   are   becoming   more   commonplace   where   the   parties   collaborate  and  share  risks  jointly.    Improved  control  of  pro-­ ject  cost,  quality,  and  schedule  have  been  commonly  dem-­ onstrated   with   IPD,   and   more   teams   are   utilizing   Building   Information  Modeling  (BIM)  to  identify  building  coordination   issues   and   provide   the   owner   with   improved   information   during   commissioning   and   operations.      Takeaway:   If   you   ␣␣␣␣␣␣␣ ␣␣␣ ␣␣␣ ␣␣␣␣␣␣ ␣␣␣ ␣␣␣␣ ␣␣␣␣ ␣␣␣␣␣ ␣␣␣␣ ␣␣␣␣␣␣␣ ␣␣␣␣ ␣␣␣␣␣␣ -­   fast.  
Use  of  Dedicated  Project  Neutrals  ␣  Project  stakeholders   are  recognizing  the  huge  costs  of  claims  and  disputes  and   using   various   mechanisms   including   dispute   review   boards   (DRB),   initial   decision   makers   (IDM),   and   embedded   neu-­ trals   to   address   emerging   claims   and   disputes   as   they   arise,  rather  than  after  substantial  completion.    Early  resolu-­ tion  of  claims  and  immediate  presentation  to  a  neutral  third   party  for  resolution  provides  significant  savings,  particularly   when   alternative   solutions   are   available   and   can   be   imple-­ mented  at  a  significant  cost  advantage.    Takeaway:  claims   are  almost  inevitable,  deal  with  it  -­  resolve  early  and  fast.
The   next   construction   boom   will   probably   start   as   a   gentle   rumble.      Contractors,   architects   and   developers   who   have   survived  the  recession  will  find  that  new  projects  will  be  de-­ signed,   financed   and   constructed   under   very   different   con-­ ditions;;  risks  will  be  distributed  differently  and  recognition  of   profits   will   come   much   later   in   the   project   development   life   cycle.    Takeaway:  the  next  boom  will  be  slow  to  grow,  have   a  lower  peak,  and  hopefully,  will  be  more  sustainable.
Roger  Harper,   Principal  of   RHarper  Consult-­
ing  Group,  pro-­ vides  develop-­ ment  consulting
services  to  the   senior  housing   industry.
For  more  informa-­ tion  on  RHarper   Consulting  Group
please    call     615-­218-­4102     Or
rharper@rharperc onsulting.com