How to keep capital projects shovel-ready
Among the many challenges higher education institutions are facing in today’s pandemic-laden economy is how to handle their capital projects. Should officials delay construction or move forward? What does moving forward even look like?
While putting projects on hold may feel like the natural course of action, doing so will likely cost more in the long run. There are options for continuing capital project planning in a cost-effective manner so the school is competitively positioned when the pandemic recedes.
Timing is everything
Say a university has approved a new classroom building that it intends to build once the economy stabilizes. Putting a full stop on planning, design and preconstruction today would mean pushing the completion date back, which can have significant financial ramifications.
For example: If a classroom building is placed on hold and doesn’t come back online until COVID is in the rearview mirror (let’s say by fall 2021)—and assuming there is still at least a year of design and preconstruction left to do—the project won’t break ground until the following fall or winter at best. Tack on another year or so to complete construction, and the new classrooms wouldn’t be in use until fall 2024 at the earliest. Keep in mind, a mid-term completion could push occupancy back another academic year (fall 2025).
Not only will this expose the university to roughly 3% in escalation costs each year, but the school will have missed out on income or other resources that building may generate. This could be room and board fees, research grant funding, or a new program that attracts an additional cohort of student enrollment.
However, if the university maintains progress on planning and design, and even gets the project bought out by mid-2021, the building could be finished an entire academic year earlier. Escalation costs would be minimized, not to mention avoiding the costs associated with remobilizing the project team.
Continuing progress on a project can involve various activities:
- conducting exploratory work to figure out how to tie into existing campus systems
- utilizing Building Information Modeling (BIM) to find areas that need to be further addressed in design
- 3D scanning an existing facility so the design team has the most accurate information to work with
- schedule planning and permitting
Think of it as a chance to virtually plan the building—and uncover any potential issues—so actual construction is as efficient and cost-effective as possible.Think about the availability of subcontractors and competitive pricing now versus what conditions could be like post-COVID, when everyone’s capital projects will be hitting the market.Click To Tweet
Market conditions are evolving
The end of Q1 through Q2 was a buyer’s market, with industry data showing that bids came in nearly 4.5% under budget from March to July. However, competitive conditions have already begun to shift in the past few months, reinforcing that the buyer’s market is likely to wind down throughout 2021.
Think about the availability of subcontractors and competitive pricing now versus what conditions could be like post-COVID, when everyone’s capital projects will be hitting the market. Schools will be vying to partner with the available design and construction firms. Universities that stay the course now will already have their choice team in place.
Every school’s situation needs to be put into the context of its resources and objectives. Universities should try to quantify any lost income that would result from delaying capital planning and compare it to the amount they’d spend to continue advancing the project. Campus leaders should talk to their design and construction partners—or reach out to a firm with expertise in higher education—to discuss the challenges they face and to see what opportunities exist for keeping their capital projects shovel-ready.
Nick Proffitt is a business development executive for Messer Construction Co., and he leads the company’s higher education market segment. He has a civil engineering degree from the University of Kentucky and is on the University of Cincinnati’s Board of Executive Advisors in Real Estate. Messer’s portfolio includes more than $2 billion in higher ed construction over the past decade across the Midwest and Southeast. For more information or details about market conditions, visit messer.com or email Nick.