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Labor Shortages, High Material Prices Made 2005 a Real Budget-Buster

Despite firm bids and signed contracts, a project still can turn into a budget-busting nightmare during construction. There are many reasons for cost overruns: extra work related to unforeseen site and subsoil conditions; incomplete design documents; delays or damage caused by weather; material shortages or labor strikes; contract performance failures by contractors and subcontractors.

During the first three stages, diligent owners and designers continually compare probable costs with probable financial resources, since a project won't get built or finished unless resources match costs. And costs are determined not only by market conditions, but also by project size, complexity and quality.

Therefore, the budgeting and design process requires that owners and the design team continually reconsider and refine the scope of the project as well as monitor costs and financing.

In the face of 2005's extraordinary construction cost escalation, project owners have limited options. A few may be able to absorb increased costs by committing additional funds. But when money is limited or nonexistent, project sponsors and architects have no choice but to scrutinize and modify designs that seemed affordable a year earlier.

Such modifications, often referred to as "value engineering," tend to be less about creating long-term value and more about cutting short-term capital costs. These cuts can include reducing project size, eliminating or deferring construction of targeted project elements, simplifying construction details or using cheaper materials and systems. Many cuts make sense, but some can compromise a building functionally, technically and aesthetically.

Regrettably, by focusing only on initial capital costs, value engineering in particular and the budgeting process in general ignore life-cycle benefits and costs. This philosophy -- pay less now but pay much more for decades to come -- pervades the building industry and is unlikely to change.

In 2006, developers, public agencies, private institutions and even homeowners who want to remodel will be tested. All will be challenged to achieve the difficult balance among aspirations and budgets, rising construction costs, available funding and long-term value.

Roger K. Lewis is a practicing architect and a professor of architecture at the University of Maryland.

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