6 critical areas of focus to help the construction industry have more success !
Cone 4: “Permitting and Soft Costs”
After years of being asked “what is the construction of a permanent building going to cost?” I decided that I’d better learn as much as possible about the component costs of projects and what impacts them. About two years ago I was in the car flipping through satellite radio, when I came across Wharton School of Business radio (who knew?). It sounded smart .. (no Donald Trump jokes here) so I tuned in. The host was well-credentialed and he was introducing a woman who had a remarkable career in construction – “a senior executive with over thirty five years of experience” of a very large contractor in the midwestern USA. It piqued my curiosity so I turned up the volume. I soon realized that the topic they were discussing was related to a question that I have been grappling with for a very long time: “How is it that you carry a cost to permit a project when each project is so different?” Given the credibility of the guest, I jammed on my brakes and actually pulled my car over to the side of the road.
As they went to commercial break, I scrambled for a pencil and paper and with eager anticipation shut the engine down to be sure that I wouldn’t miss her answer. . . “So Susan before the break you were going to tell us how you estimate cost of permitting a construction project” .. pulling the audience back in. He sounded very curious himself, by the way. . I smiled knowing what great challenge she had before her and was so excited that the question was being asked with such directness – naturally there had to be a nugget of gold in this answer. ..
“Ha Ha Ha, Ha Ha Ha (awkwardly ) .. Jim that is a great question. ..(my heart sunk .. ) I have to tell you in all my years of doing this, there just isn’t any easy way to estimate the cost of permitting a project . . no magic formula. I am so sorry to disappoint you but I just don’t have a good answer for that one.. ”
And with that my hopes were dashed. I would have to go back to the drawing board. I slouched down into my seat as my eyes wandered to the Dunkin Donuts across the street. I was going to need a few glazed to sooth my soul. Since that moment, (pre-donut), I became more emboldened to face the issues that surround the question. Certainly it’s not a straightforward question. The hardest part of providing responsible cost estimates to owners is the costs to get through the permitting process, and it is true that scope of work is a challenge to predict. Each site is at different level of preparedness and each locality will have its own set of regulatory hurdles to jump over.
Often the contractor will need to take risk for the unknowns, because they should know what is involved for the most part. This is where there is just no substitute for experience. Contractors get paid to take the risk of getting the permits and need to know what is involved. Naturally, contractors and owners who have developed land and built buildings in the municipality will have a good handle on the time and efforts involved.
As a side note: Contractors should steer away from making what I refer to as “distancing statements.” Over the years, at the outset of each project I will here people tell me, “Glenn, you don’t want to deal with that building inspector in that town they are very tough …”. And in every case I think to myself – shouldn’t they be? And how much tougher could this town be from the last town? I wish people in construction would just stop saying that because I don’t think it adds any value to our client. The fact is that building officials should be “tough.” I have found every one of them to be very fair, no matter how “tough.” They ensure that life safety and all other codes are followed. I have also seen a large effort by people to distance themselves from permitting.
The conventional thinking has been that owners (and their planners) get through the “entitlements” process (whatever that means), and then involve the contractor at a later stage. Separating much of the land “enabling” process from the construction process. For example “pre application conferences” (whatever those are) with zoning and planning boards, owners legal costs, and civil engineering are often thought of as owner independent issues, and line is drawn. I am not a big fan of this approach.
I believe projects will be more successful if as contractors (and architects) we don’t distance ourselves from such an important part of getting a project in the ground. I believe we can add value as a construction manager to research with the owner all requirements and get through it together at the least amount of time and expense. We can start with an allowance for some of the unknowns.
Permitting requirements are a large reason why contractors will push for a pre-construction period of research so they can unbundle the unknowns. Owners are reluctant to pay, in essence, a contractor as a consultant to understand the time and costs associated with land development and entitlements. However, the contractor is best suited to assess and mitigate the costs of such activities by understanding the whole project. Uncovering with a client what the permitting authorities will need for our project is critical to a successful project.
Beyond just getting through the “red tape” of a job, I believe we can do a better job of defining industry terms such as Soft costs and General Conditions. I look forward to exploring these issues with you.