How to manage your construction project while staying in business
Planning, managing, and staying within your budget during construction can feel overwhelming. Consider these useful tips to help keep you on track for a successful project completion.
You may think managing your construction project begins when you break the ground. However, this is a serious mistake, leaving you vulnerable to an out-of-control project. The decision to build or renovate must be based on a practice analysis of projected revenues generated based on services offered at a certain level. A percentage of these projected revenues will then be allotted to a mortgage payment, which will establish your initial project budget. This budget determines how much building, site, and equipment you can purchase for your project. Then comes the overall management of your project, which consists of numerous elements occurring in a logical sequence I call the “project schedule.” To help, I’ve organized each step into a series of phases.
In this phase, you will select your project team, establish your project goals and objectives, analyze your needs, finalize your site selection, itemize a budget, and develop a schedule with critical milestones. One of your first decisions is selecting an architect. Based on their level of experience with veterinary facilities, the architect will assist you in gaining your municipal site plan approval, your first “permit." They will develop your preliminary construction budget in more detail, analyze your space needs, and help select your engineering team. You must also investigate and select your financing option and develop your budget for practice-centered expenses like IT systems, signage, furnishings, equipment, and interest carry costs during construction.
A potential deal-breaking decision is site selection. Once you confirm demographics and size, the next hurdle is zoning. Sites not zoned for veterinary use will result in a time- and resource-consuming effort to gain a variance or change. Success is never guaranteed. You must retain a surveyor and civil engineer to develop preliminary site layout drawings, including grading and drainage, building location, setbacks, parking layout, utility connections, trash receptacle location, and any required landscaping, fences, or walls. Concurrent to these efforts, there must be a geotechnical analysis consisting of soil borings and tests to determine the soil's bearing capacity for foundation design. Poor soils result in expensive foundations that can exceed the cost of the site itself. Contingencies placed in your purchase offer can allow you to negate the purchase if any of these conditions are discovered, allowing you to locate an alternative site with minimal losses.
During this phase, your job is to review design solutions from your architect/engineer team and provide direction for them to complete the design to your satisfaction. As you go through the process, remember that your practice’s success has been largely a result of your unique practice culture. You must guard your culture as you make each design decision.
You will also begin a more detailed itemization of every piece of equipment to be integrated into the design. It is critical to make equipment selections early and not change them. Each specific manufacturer has differing dimensions, clearances, and infrastructure requirements. New modifications or waiting too long can increase the chance of installation issues leading to costly change orders.
It’s important to decide now which construction delivery system to use. Each system has different drawings, finance distribution, and contractor involvement requirements from this phase forward. They also have different advantages and disadvantages to consider:
- Negotiated contract: Often best used in renovations, the architect prepares preliminary design drawings from which selected contractors prepare construction budgets. The owner and architect review them with each contractor, and the contractor deemed best fit is retained. The contractor's job is to remain part of the team as the drawings evolve to completion, offering input to keep the job within their original budget projection.
- Design-bid: The architect and engineers prepare detailed construction/permit drawings and invite contractors to provide competitive bids based on the drawings. Typically, the lowest bidder is selected for construction. You will receive the final construction cost once the design is complete and bids are submitted. Bids over budget may result in project reductions or additional borrowing.
- Design-build: The architect and contractor are a single team, offering both design and construction for a fixed price set by your budget. For predictable quality results, prior veterinary experience is crucial. A considerable advantage is knowing the construction cost at the project outset.
Construction/permit document phase
The architect and engineers will now prepare and submit all required documents and drawings for the building permit to gain final contractor pricing for construction. Your job is to familiarize yourself with all the drawings: architectural, structural, heating/cooling, plumbing, electrical power and lighting, and interior design. Your team should walk you through them. Remember, if it’s not on the drawings, you aren’t getting it. Contractors are only obligated to provide what is in the drawings.
You should also finalize your construction loan. This is an interest-only loan used to pay the contractor as they work on the building. The principal will be rolled into your permanent mortgage at project completion, but interest will be due each month at the current balance of funds distributed. It is critical you budget for this interest expense.
The construction phase
Once you have a contractor retained, your primary responsibilities are to understand and comply with the specific payment terms, review and approve materials/color submittals or substitutions, oversee the timely delivery of owner-furnished equipment, and review monthly contractor pay requests. Here is some key terminology to familiarize yourself with:
- Schedule of values: This is an itemized listing of each item of work, its total contract value, and the amount that has been paid to date.
- Project schedule: This is a bar chart illustrating the entire project duration, including each subcontractor’s time to complete their trade, from start to completion.
- Application for payment: Usually submitted on AIA form G702, an application for payment shows total contract value, payments made to date, and the payment due that month. The contractor, owner, and architect must each sign this document for the bank to issue a payment
- Retainage: This is an amount of funds (typically 5%) withheld from each pay request until the final payment, for your financial protection.
- Lien releases: Each subcontractor should supply a lien release form with monthly pay requests indicating they have been paid and waive any lien rights for payment disputes.
- Change orders: Change orders authorize a modification in the contract amount for work to be added or deleted. Change order requests should be preceded by a proposal request from the owner, or the contractor, asking for this change. Once approved, the change order form can be processed and signed by the owner, contractor, and architect.
- Punch list: When the contractor is substantially complete, the architect prepares a deficiency list of items, or a punch list, to be corrected before final payment.
- Certificate of occupancy: Following the passing of all municipal inspections, the municipality will issue a certificate of occupancy allowing use of the building.
Managing your time
Can your practice afford to lose 40% to 60% of your personal productivity in the time it takes to construct your building? To help avoid this revenue loss, delegation is a necessity. If not you, then who should manage the time-consuming day-to-day tasks of managing the project? You could retain an outside construction manager who may bring construction knowledge but will not understand the nuances of you or your practice. This can, and has, resulted in onsite decisions that are not always best for the practice, or the project.
A more favorable option is to delegate project management to someone who understands the practice (eg, practice manager, practice administrator, or head technician). The architect can supplement this project manager’s practice knowledge with their construction knowledge to ensure everything is running smoothly while the practice still operates. This keeps you in production and informed on the project, and you will still be the final decider on all issues. Using your design team and a project manager allows you to maintain the practice and the project at the highest level.
Wayne Usiak founded BDA Architecture in 1986 to specialize exclusively in animal facility design. In 1998, he formed their sister company CMP Construction to offer construction services to their design clients. Over 900 facilities have been completed to date.