A Feasibility Study that is not so feasible…

by Andy Burns on June 21, 2010

Here’s an interesting view into our world of design and construction – and the painfully devastating effect this “perfect (economic) storm” is having on all who dare to try to stay afloat.

Financial reports.

On about June 2, 2010, The City of Fitchburg Mass sent out a request to designers for proposals to conduct a “Library Feasibility Study/Schematic Design” (download PDF). The scope of work as advertised: “Evaluate existing public library, propose renovations/additions/options for expansion.”

No fee estimate was given – it was marked: “to be negotiated”.

For perspective: A Google search reveals that Fitchburg has a population of about 41,000 (about 1/14th the size of Boston).

So, to do a feasibility study for a relatively small suburban library, we were curious to see just how many firms would respond to the RFP and request further information in the current climate.

Here is the list. Seventy Eight (that’s right, 78) responses. If you look carefully you will see some of the biggest names in design, engineering, and architecture around (both local and as far away as California). Impressive indeed.

Included are: Weidlinger, Sasaki, HKT, ABACUS, Ann Beha (2010 Pritzker Architecture Prize winner!), BSC, Maguire, Holtzman Moss (from NYC!), Winter Street, William Rawn, Wiss Janney Elstner (forensic engineers doing a library feasibility study?) – just to name a few heavy hitters looking for morsels.

Makes you think, no?

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We had the opportunity to orchestrate a LEED certification project at an existing building in NYC, specifically at 135 West 50th St. 135_calander-pic_1-5-07_3xWe were exceptionally proud of the results of this project. So, today we issued a press release about it because it was a great example of how an existing building can be transformed into an energy efficient building which achieved a LEED-EB Silver certification status and an Energy Star score of 72. The project involved a large team of property managers, engineers, contractors, and green technology specialists to get the job done.

Here’s a few project highlights:

  • Achieved ENERGY STAR score of 72
  • Extensive access to public transportation
  • Green building exterior management practices
  • Reduced potable water by 10% over EPA 1992 standards
  • Conducted a retro‐commissioning energy study to help increase energy efficiency and reduce energy costs
  • Thorough preventive maintenance program
  • Extensive ozone protection through active management of refrigerants
  • Powered by Green‐e energy for electricity
  • Diverted over 70% of building waste from landfill
  • Sustainable purchasing of office materials, green cleaning paper products, and light bulbs
  • 85% efficiency (MERV 14) air filters to provide proper indoor air quality
  • 50% of office spaces have lighting controllability
  • High performance green cleaning featuring Green Seal certified cleaning products, equipment and pest management
  • Exemplary performance in public transportation, development density, and occupant recycling

Project Partners on 135 West 50th Street, New York, NY:

If anyone has any questions about how we achieved this LEED Silver Certification, don’t hesitate to make a comment here or give us a call.

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Repositioning a Regional Shopping Center

by Andy Burns on March 19, 2010

I’m happy to say that we just got a new project to manage all the design, permitting, and construction processes to reposition a 20+ year old, 460,000 SF, 50 acre, regional shopping center in the US Midwest. It’s good to see projects picking up again, as 2009 had to be one of the toughest years we have seen ever in commercial real estate.

herding_cats

Part of this project will involve the demolition and replacement of some 170,000 SF of outmoded and poorly accessible space with a new big-box anchor store along with new shops and restaurants, newly arranged access and parking, and new site amenities. This is no small feat. One of the biggest challenges we see with projects like this is being lucky enough to have a client with BOTH a vision for the future and enough money to bet on it - in this seriously hobbled economic climate.

In addition to handling all the cost estimating and establishing and managing all project budgets, we are sourcing and managing all the main contracts for civil engineering, survey, environmental, traffic, geo-tech, building architecture and landscape architecture. We’re also handling the competitive bidding processes; construction contract negotiations; and all on-site management and coordination of the general contractors – including the submittal, RFI, Change Order, and close-out processes.

That’s why this blog references herding cats. It’s kind of like that at times. There are so many moving parts; it only takes one screw up, or even worse, an overlooked item, to get things off track. The construction process pitfalls Owner’s face are plentiful and scary: from bad designs – to poor submittal and RFI procedures, unauthorized/undeserved change orders, schedule and quality problems – scary indeed!

Anyone who has worked with us knows that we are not the ordinary OPM or Owner’s Project Manager – we are not a glorified “bank monitoring” firm – we don’t just monitor – we roll up our sleeves and MANAGE our projects for success.

Having good relationships helps, but that doesn’t preclude a contractor somewhere somehow who will try to make things go his way. Good thing that we’re known for our hands-on approach, no one gets a free pass when working with us.

Will keep you posted on our progress. And maybe you’ll be hearing from me.

Image source: http://www.mackaycartoons.net

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On my last post, Kevin made a comment about how to apply escalation and escalation clauses in commercial real estate development contracts.  I thought I would go into more detail about it here.  While they sound like tricky business, they are really good business practices that protect both parties.

Although the clauses can be bookkeeping nightmares - they are thought by some to be a very fair way of handling the contracting process - especially for projects of long duration. Obviously, the perception is that the escalation clause will benefit the contractor - the de-escalation clause the owner.

The US Department of Labor, Bureau of Labor Statistics provides some very complete guidance on the change in prices for commodities in all stages of processing. The BLS Producer Price Indexes measures prices objectively and its use can be referred to in construction agreements as a basis for making adjustments - up and down.

Obviously, these contract clauses should be written carefully to avoid disputes.

Some things to consider:

  • Establishment of the base price or part thereof that will be subject to adjustments; selection of the appropriate BLS Index(es);
  • Decide on whether seasonal adjustments will be considered; decide how often a price adjustment will be calculated and implemented (e.g. during the contract period, at intervals, or at contract completion?);
  • Decide whether the adjustments are based on preliminary or final indexes, and; last, but certainly not least, the parties must agree on the formula(s) to be used to calculate the contract price adjustments.

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8 Ways the Economy is Affecting Construction Costs

by Andy Burns on December 2, 2008

Greetings and welcome to our blog at The Burns Companies. I’m Andy Burns, the founder. Our goal with this blog is to help our clients through this challenging economy by talking sense about what’s happening in their construction projects across the United States. We’re a consulting company that acts as owner’s representatives for our clients in large commercial and multi-family construction projects. We’ve seen it all. And we play in the middle, helping our clients coordinate large projects in the most cost effective, timely manner. We’ll be dishing all about that here, along with other interesting topics as we come across them.

Lately we’re seeing how the economy is affecting all construction projects in one way or another. Recently, I was asked by one of my clients to comment on construction costs. His question was: “given the dramatic drop in oil prices and sudden lack of demand for new construction projects…”

And we thought that starting a conversation here would be a good way to explore how we see construction costs being affected by our economy. Let me know if you agree or disagree with what we are seeing:

1. Toss the Old Construction Cost Data Books.
Unless you subscribe to streaming RS Means Building Construction Cost Data or have a crystal ball, construction budgeting is more of an Art than a Science than it has EVER been. Pricing and cost control is a “boots on the ground” process these days – requiring us to attend frequent meetings with contractors, subs, and material suppliers to go over all costs on an on-going basis.

  • For example: The price per pound of prime scrap steel recently dropped from 35 cents to 6 cents in 8 weeks. On one of our projects the original demolition contract negotiated went from being a net payment to Ownership (due to scrap steel value) of about $600,000.00 to a payment from the Owner of some $1,000,000.00. On another project from bid time to commencement copper went from $3 per pound to $1 per pound, resulting in an opportunity for significant electrical scope savings. The markets are so uncertain that if projects that have been bid do not proceed immediately we are having to re-bid the work just to be certain we have the latest pricing. If you don’t take the time to do that, you could be paying more than what you should be paying.

2. Contracts Need to Include De-Escalation Clauses.
We are advising the inclusion of de-escalation clauses in contracts, along with escalation clauses. Much of this makes for an increased, but necessary, bookkeeping effort. On a recent site work project, in a matter of weeks from contract signing, liquid asphalt rose dramatically from about $350/ton to $600/ton (a 67% increase). However, by phasing the project we are able to take advantage of a very recent decrease in the liquid asphalt price – although it still lies above the contracted allowance.

In fact, a recent article (requires an account or view PDF here) in the Banker & Tradesman noted that it is getting cheaper to build, and it could be as much as 10% decrease on total project costs.  The article noted a Boston project that was $450M could be decreased by $50M, now costing $400M in this economy.  Now that’s something worth revisiting.

3. Competition is Fierce, Material Markets Uncertain
Fees and profit margins are being cut by the contractors we are dealing with. Competition is getting fierce for any “real” project. The form of Contract (ie: stipulated sum, cost plus a fee, etc.) must be evaluated carefully by each Owner/Representative Project Team given the uncertainty of the labor and material markets.

4. Tight Credit Markets are Straining Relationships
The financials of all parties are receiving much greater scrutiny than ever, as are the contracts for construction. There are reports throughout the industry of projects that have been suddenly stopped, mid-construction, holding up payments due, and putting contractors, subs and material suppliers in financial jeopardy. This situation has created a tension and certain dynamic of mistrust amongst Owners, Lenders, and Contractors we have rarely seen. Someone is needed to be in the middle to help facilitate the next steps between the parties, and find creative ways to get these jobs done.

5. Change Orders Need to Be More Scrutinized
Change Orders are receiving much more scrutiny on our projects. This goes directly to first making certain that all A/E plans and specifications are reviewed and vetted completely for constructability and coordination issues. We like to remind all of our clients and anyone reading this that (other than in some cases of design/build contracts) the Owner is first in line in responsibility for misinformation in the plans that may lead to extra costs. Remember that Change Orders have always been a profit center for the smart “low bidder” on any project. And in this current climate, vigilance is required on the part of the Owner/Representative Project Team when it comes to claims for extra pay.

6. Anticipate Payment Defaults
We are advising Owners to be aware and take steps to guard against payment defaults by contractors, material suppliers, and subs – and to have a plan in place to handle this eventuality. This is an unfortunate reality for project Sponsors and Owners. It is important to stay ahead on payments; obtain lien waivers, and get signed releases from all tiers of project providers. Make sure contractors are not “front loading”, along with making sure that payments are only made for “work in place” is required.

7. Performance & Payment Bonds Are the Rule Now
Requirements for Performance & Payment Bonds are the rule rather than the exception now. This adds cost to projects and should be evaluated by each Owner/Representative Project Team.

8. Mitigate Project Risks with an Experienced Owner’s Rep
Working with an experienced Owner’s Representative in this climate will ensure that your project is well managed, stays in budget and on schedule. We often see that clients cut back on projects, take on the ownership and responsibility with all these moving parts, and end up paying much more in the long run. There are too many back doors that can increase project costs when the market is unstable. In our work, we find that a methodical approach to project management helps mitigate risk, reduce costs, and save time over the course of a project. It is strategically important that each construction project is proactively managed to evaluate and manage costs on a continuous basis, assure that key milestones are achieved, and push to complete projects within established time lines.

So, those are just a few of the things we wanted to share. How does this stack up to what you are seeing?

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Welcome to The Burns Companies Blog

by Andy Burns on December 1, 2008

Hi there.  We’ll be making posts soon.

We invite you to subscribe to get regular updates to our blog.  You can subscribe in 2 ways: either by email (on the right) where you’ll receive an email in your Inbox whenever a new post is made. Or you can subscribe by RSS feeder up in the top right corner.  You’ll need to have a Reader (like GoogleReader) set up to make that work.  Any updates will appear there.

In the meantime, to learn more about The Burns Companies, visit www.theburnscompanies.com.

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