Economy's impact on public projects | Architecture 1

To say that the state of the economy can have an impact on competitively bid public projects is a gross understatement. In my experience, the condition of the economy can have a profound impact on competitively bid public projects. These impacts can spell trouble for the architect if they are caught off guard. For example, contract clauses in the owner/architect agreement often require that the architect expend non-compensated efforts to modify a project design if the lowest qualified bids exceed the project budget. If the economy is in a robust expansion that causes unanticipated rapidly rising construction costs, the result could be bids that greatly exceed the project budget, and the architect could have a lot of corrective work to do without additional pay. Alternately, if projected estimates of project costs rise aggressively because of an expanding economy, a project may become too expensive, and the entire effort may be abandoned by the owner. Neither of these outcomes are good for an architect's business.

I have found it essential to stay well-tuned to the status of the economy, especially as it relates to the design and construction industry. Following are two examples taken from my own experiences where having a sense of the current economic conditions have helped me to successfully guide projects.

The first example involves the design of a fire station project. In this case, there was a three-year period between early concept development/project funding and project bidding. This occurred during a very robust economic expansion for the region between 2015 and 2018. Being aware of this expansion, I conditioned the owner to carry a larger design contingency at the beginning of the project. I was confident that costs would rise rapidly over the design and pre-bid phases, and I wanted to design to the level of costs we might actually experience at bid opening. To do this, I used an aggressive bid and construction phase contingency of 12% (often this is 5%). This meant that we needed to design the project to 88% of the overall construction cost budget. As it turned out, this was a good move. While the economy was booming, labor was in shorter supply and costs were rising sharply. When the bids came in, many of them were at or close to the overall total budget target (including the contingency). Had we carried a smaller contingency into the bid phase, we might have had a lot of rework to do to meet the budget.

The second example was in 2009, when the economy was contracting rapidly and many projects were being terminated or put on hold. In this case, the impact of the economy of construction costs was first to halt price escalation and then eventually to result in a sharp fall in construction costs as a labor surplus developed. The project was a school expansion scheduled to be bid in the fall of 2009. I advised the owner to wait and bid the project in the winter of 2010, when I anticipated a more favorable bid climate. The result was positive. The bids were very competitive, and the owner was able to save roughly 20% of the construction budget over what was estimated during the early design phases (in 2008). The owner elected to use these remaining funds to make additional improvements to portions of the existing building. The result was a very happy client.

The bottom line: Keeping in tune with the economy can be very helpful to guiding projects successfully.