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By Justine Diaz
December 12, 2016
After three years of litigation, a complex lawsuit over who should bear unexpectedly high construction costs for a Louisiana Pipeline was settled.
Kinder Morgan, the project's owner, contended that their subcontractors and materials suppliers owed $45 million due to cost escalations. Welspun Corp. Ltd. countersued, but in the end a settlement was reached and no one walked away 100% happy. If you’re not careful, this could happen to you too.
The second you sign a contract, your company is bound to its’ terms. If your estimates are incorrect or unrealistic, you could increase your risk of facing litigation.
One of the biggest culprits behind poor estimates is lack of pertinent information and background. Since project estimates can often act as a self fulfilling prophecy, best practices have changed to reflect a symbiotic relationship between reliable information and project management feedback.
Here are some things to keep in mind when preparing your estimate:
Creating transparency and a proper standard of communication for your project is critical. There are multiple individuals involved with approving budgets and each one has a different point of view when it comes to quality versus profit. Establishing an aligned vision among all parties prior to the build can help to mitigate the risk of teams not being in accordance with the client’s requirements.
The largest risk that consistently impacts construction projects globally is an overly zealous project schedule. When creating a competitive estimate it can be tempting to assign unrealistic deadlines and price savings to a build. Tying yourself to a contract with unrealistic expectations could increase your risk of litigation later. The slightest design change or bureaucracy hiccup can delay a project at any moment. Plan ahead for unforeseen change orders requested beyond the original scope of work and be flexible when adjustments to the budget need to be made quickly.
Educate your stakeholders by including explanations for why each task is a part of the project plan and why it has been allotted funds for the intended effort. For example, include justifications based on the economy of material pricing and fluctuations. Is demand high for a specific material and is it likely to change? What is the current hourly wage for labor in my region? Prices change daily, but Procore’s Construction Health Indicator is a good resource for daily updates that you need.
Qualitative risk analysis prioritizes your obstacles in order of how they can affect your budget and timeline. Go a step further by quantifying the probability of the risk occurring so that you can prioritize your efforts to mitigate these risks ahead of time. An example of a risk that is both qualitatively and quantitatively problematic is weather. If a project happens during winter, this is an unavoidable risk that must be accounted for in the budget and project timeline.
Using project management software is the quicker and more accurate way to create estimates. The right software for you is one that will seamlessly integrate with the devices and programs that you use everyday. This can help you create an accurate estimate and monitor the health of your budgets during the build in one glance.
Ultimately, no estimate is perfect. Otherwise it would be called an exactimate. All we can do is be as realistic and informed as possible to mitigate the risks and fears of creating wildly inaccurate expectations. If you follow the tips above, you’ll have a good starting point for successful builds in the future.
Project Management Software
The Anatomy of a Request for Information (RFI)
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