8 Easy Ways to Reduce Construction Costs

With the cost of construction going through the roof, there are still ways for owners to generate significant cost savings for new builds and renovations. While the following list is not exhaustive, here are eight easy ways to cut the costs of your next project:

  1. Buy now-install later — Purchase as many lead-time components as possible, once you have completed your development planning, including your permitting. You can save eight percent to 10 percent on such items as hardware, plumbing fixtures, specialty lighting, trim and millwork, carpeting and other items. By buying these components directly from the manufacturer, you avoid the cost of mark-ups from the subcontractor and vendors. Have the items shipped and stored on site or in a nearby warehouse so they are easily accessible when needed.

  2. Build it and you will save — Design and fully build out the model room, especially in a refurbishment. Gut the room and install all items, from wallcoverings to casegoods. You'll have the comfort of knowing everything looks and fits like the drawing, but more important, you'll know exactly what product specifications to work from so your subcontractor and your vendors bid from the same specs.

  3. Go east, young developer — In the past few years, China has ramped up its manufacturing to produce to American or international tastes and specifications at significant savings. It's not a cakewalk. For example, there can be problems with shipping, so you should consider working with an experienced purchasing agent who knows the ropes.

  4. Get permission to build — The permitting process is different in every city. An experienced national general contractor (GC) will know how long the permitting process will take in each market. The difference in permitting time between various cities can vary from one to six or more months. If you close on your construction loan and then have to wait five additional months for governmental approval, just think of the extra carrying cost.

  5. It takes a team — Bring in your GC before architectural and engineered documents are prepared. Once the plans have been completed, the GC's direction is to bid as per plans and specs, not what might be more cost-effective. If you don't want to commit to a GC that early, ask an experienced GC for a bid for pre-construction services. For around $5,000, the GC will go through all the specs and point out potential and real problems that can be eliminated before the final drawings are processed. A good pre-construction review can dramatically cut down on costly change orders, which typically average 50 to 75 changes on a $2 million-plus job. Many of those can be eliminated with proper review before getting under way. In fact, bring the architect, designer, engineer and GC together at the very beginning and challenge them to find ways to save money. You'll be pleased with the results.

  6. Be realistic about timing — Ask your GC to create construction schedules based on present market availability of labor and materials. Between reconstruction following the various hurricanes in the southeastern U.S. and the current housing and commercial real estate building boom, the time it takes to complete a project has increased significantly due to shortage of materials and lack of qualified tradesmen. And, longer construction times means more time (carrying costs) before the hotel opens and starts generating returns.

  7. Don't hit the start button until… — The last two years have been unprecedented in terms of rising costs. Materials were up 25 to 30 percent in 2005 and are expected to be up by about another 15 percent through the first half of 2006. Given the long lead times between planning and beginning construction, virtually all of your cost assumptions will have to be adjusted. When you are ready to turn the first shovel, go through costs with your GC one last time to make sure your assumptions are realistic. In locations from Florida to Las Vegas, there are a number of projects several stories out of the ground that stalled out because costs have escalated so quickly. Someone else will pick these projects up and complete them.

  8. No chef is a recipe for disaster — Many hotels seek to create a world-class dining experience to help position their hotels. Don't even think about designing the kitchen and seating configuration until you have consulted with your chef and front- and back-of-the-house operations managers. They will have strong opinions that require specific placement of water pipes, drains, gas lines and electrical, often set in concrete. Get their full approval before you begin the kitchen and you'll have a lot less financial indigestion.

The imbalance in labor and materials shortages will end at some point. But, many developers and owners realize that now is a great time to be in the hotel business. If you follow these eight simple rules, you can significantly reduce your final costs…and your headaches.

Rocky Goldman is principal of Shakman Hospitality LLC. The Boca Raton, FL-based, company is a national general contractor specializing in hotel and restaurant construction and renovation. He can be reached at rock@sccfl.com.

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