Controlling Costs on Capital Construction Projects
In his Construction Law column, Kenneth Block discusses measures that owners can follow to control cost and ensure the project is not only within budget, but also on time and in compliance with all construction documents.
January 28, 2025 at 10:49 AM
6 minute read
Cost control on a capital construction project involves careful planning, including early due diligence studies by the owner, the selection of the proper contracting (or delivery) method, the “de-risking” of the project, the minimization of change orders, the strict adherence to the project schedule and the maintenance of an active quality assurance/quality control system. This article, which assumes the relationship of an owner with a construction manager (CM), will address these cost control measures.
Selecting the Project Delivery Method
Typical delivery methods consist of contracts based on (a) a lump or stipulated sum, where the parties agree on a fixed price for the entire project or phase; (b) a guaranteed maximum price (GMP), where the contract sets an upper limit for costs, with the CM absorbing additional costs above that limit; and (c) “cost-plus,” where the CM is paid for project costs plus a predetermined profit margin and other markups for insurance. There are also hybrid methods, which may be a basic cost-plus method, where there is no guarantee of trade costs by the CM, but where the CM guarantees general conditions and fees (subject to change orders). Another hybrid form may be a GMP with an option to convert to a lump sum. The selection of the appropriate method should be based on a detailed analysis of the actual anticipated cost to the owner as presented by the CM in its contract proposal.
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