Willie Brown, the former mayor of San Francisco, once wrote, “In the world of civic projects, the first budget is really just a down payment…If people knew the real cost from the start, nothing would ever be approved. The idea is to get going. Start digging a hole and make it so big there’s no alternative to coming up with the money to fill it in.”
That might sound cynical or dishonest, but it reflects the current reality that our country faces when large infrastructure projects are conceived and constructed.
Each time a new mass transportation option is proposed to help alleviate traffic in a major metro area, or when a revolutionary new train system is proposed to carry passengers from one city to another, there are invariably cost overruns, delays, and roadblocks. Projects wind up being completed years after they were supposed to and cost billions of dollars more than expected.
Numerous examples of this were cited in a 2021 New York Times article, which took a deep dive into infrastructure project cost overruns following the Biden Administration’s signing of the Infrastructure Investment and Jobs Act – which pumped almost $1 Trillion into America’s aging and declining critical infrastructure. In that article, they analyzed important civic projects in New York City, Hawaii, and California – each of which has more than doubled in price since first proposed.
This isn’t just a problem with critical infrastructure, however. According to KPMG Research, just 31 percent of construction projects come within 10 percent of the original budget. However, critical infrastructure cost overruns will always make the news because of the sheer size of the projects, and the fact that taxpayer dollars are on the line.
So, what is causing these massive cost overruns?
In a recent article on the Autodesk Construction Cloud Blog, they shared five common problems that cause construction projects to exceed their original proposed budgets. And many of these problems are shared by local, state, and federal government organizations when they propose and plan the construction of large infrastructure projects. According to Autodesk, these five common causes of cost overruns are:
1) Inaccurate project estimates
In most cases, a project’s overrun results from inaccurate analysis or planning before the building even starts. In parallel with better planning, technology can help to reduce the common problems or elements that contribute to cost overruns, ensuring you can maximize efficiency and profits.
While many of a project’s stakeholders are eager to get the project’s building started, if you begin with faulty schedules and budgets, your project is headed for an overrun from day one.
Due to the competitive nature of the tendering process, estimates may suffer from wrongful expectations of the scope of work included in the project. In many cases, some projects will also be estimated on a one size fits all basis, with chances of exceeding that initial estimate high. Therefore, it’s vital to your project’s success to do your diligence in the preconstruction phase and be accurate and realistic about project deadlines and costs from architects and contractors.
Estimating the project accurately can get started in the RFP process. This is the opportunity where project stakeholders can express their concerns over budget and timelines. If any parties appear unrealistic about timing or budget, this should be an immediate red flag.
2) Serious project design errors
Unfortunately, design deficiencies are too common. Sometimes these could be incomplete or incorrect plans resulting in substandard work. These issues can be mitigated with software that ensures everyone is on the same page, reducing the risk of errors or incomplete designs.
For example, during construction, if the project experiences an unexpected change in its scope, it is much easier to plug those design changes into a dynamic digital model than to redraw them on paper.
Alternatively, owners and contractors should agree on the specific Scope of Work and performance duties in the contract phase to enable contractors and subcontractors to build according to the design specifications.
3) Not planning for change orders
Change order requests added after the budget has been set often result in cost overruns. The additional time, labor, and materials required to complete the change may also be classified as a cost overrun if it affects other aspects of the project.
Consequently, changes can usually be best addressed in the contract phase, when a Change Order Provision can be added to specify procedures and budget needed should a change occur. If it isn’t addressed ahead of time, contractors might increase their total cost of a contract up front in anticipation of changes.
4) Poor site management
Stakeholders on construction sites have different interests, which can add to instability when site changes occur. Site changes must be communicated effectively and quickly, especially across large sites.
With software, calculations, and designs can be referred to digitally for an accurate reading, and different scenarios can be tested to see which will result in a better outcome. Because digital calculations are assured to be precise (accurate inputs are needed), and software designs can be trusted to accurately depict on-site descriptions, decisions can be made quickly based on solid information, not differing interests.
Online access to designs and scenarios allows for greater communication from remote locations. Decisions can be made while project leaders are on-site, looking at an issue directly. Faster communication also leads to better decisions, as real-time insight can address a situation before it snowballs into a bigger issue that impacts the budget.
5) Not working with the right teams
Overruns can be the result of subpar work. Less experienced subcontractors can cause costly mistakes, delays, and errors, even with the most impeccable designs and plans. Subcontractors are often chosen on cost rather than proper qualification.
Using the wrong teams exposes contractors to risk. Contractors who go through the extra steps to ensure subcontractor qualification will reduce the probability of experiencing significant cost overruns on construction projects.