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March 4-March 17, 2015 — COLORADO REAL ESTATE JOURNAL — Page 11B
W hen first envisioning
major capital
improvement
projects, health care
professionals are charged with
analyzing space needs and
alignment to missions, visions
and strategic plans. Almost
immediately, someone is
asking the important question,
“What will it cost?” Many times,
the answer is based on some
extrapolation of what a similar
project may have cost previously.
Often health care professionals
reach out to consultants
to identify individual cost
components for a project, such
as design fees and construction
costs. Although these costs
represent significant portions
of a capital budget, using
these numbers only will not
reflect the complete story of
what a project will cost. Too
often, capital budgets start with
substantial holes, which result
in projects that have significant
cost overruns or settle for
reduced scopes, all of which
impact schedules.
As part of the planning
process, it is important for
the owner to recognize his
team’s capabilities, and then
supplement with consultants
as needed. If the resources
or experience required for
difficult health care projects is
not available or not on hand,
incorporate a third-party
project manager as the first
member of the team to assist
with proper project set up,
including scope development,
master project budget and
schedule development, right
from the start.
Developing a thorough
budget includes clearly
defining the mission and vision
of the project and ensuring
all decisions thereafter are
in alignment. This serves as
an imperative part of the
process. Leadership should
have a full understanding of
appropriate scope and user
group expectations. Moving
forward requires strong,
informed leadership to ensure
core expectations are provided
while not letting unjustified or
unneeded requests increase the
project’s scope. Leadership’s
decision-making ability is a key
factor in keeping the project on
schedule and within budget.
A complete master project
budget for a capital project
must include not only hard
costs, but also all soft costs,
including land acquisition,
entitlements, permitting, design
services, medical equipment,
fixtures and furnishings, low
voltage, move coordination,
activation and an appropriate
level of contingency.
An accurate budget sets
expectations and defines
responsibilities of all team
members – including designers,
contractors, internal boards and
user groups, and staff members
– so it is important to ensure
that it is inclusive of the capital
development process.
Land acquisition costs must be
included in the master project
budget. This includes the
costs of site acquisition (land)
and the appropriate cost of
procurement and due diligence,
including all consultant costs
that must be defined and vetted
early.
Once land acquisition is fully
accounted for, appropriate
entitlement costs (and
schedule) cannot be missed.
An owner must plan for
various development fees, and
potentially an expediter if the
process needs to go quickly.
The master budget also must
include required wet and dry
utility costs for coordinating
new or existing services,
connection fees and any off-site
improvements. One item often
forgotten or underbudgeted
is tap fees, which can cost
an owner significant dollars.
Appropriate levels of
contingency (owner, design and
contractor contingency) must
be established upfront based
on specifics and the uniqueness
of the project. Contingency
should not be established simply
as a percentage of the project,
but must instead be based on
the potential of unknown or
undeterminable scope.
Some soft costs can
be established through
a competitive process of
engagement of a design team,
and appropriate subconsultants.
The owner must clearly define
the scope of the architect when
securing services, and what
scope will be handled directly
through a third-party contract
to the owner. Asking for the
appropriate scope is imperative
to ensuring that a fully
coordinated design is provided.
For larger or more complex
projects, the ownership should
consider the engagement of
a general contractor early in
the process. This involvement,
if done properly, should
provide the owner with added
confidence in the budgeted
construction costs.
Using the general contractor’s
expertise, a savvy owner doesn’t
request a budget on today’s
costs but a budget based
on forecasted construction
costs when the project will
be competitively bid to
subcontractors, and is based on
reasonable assumptions of cost
escalation.
In order to align team
members, it is important
to work collaboratively to
tie the design team and
general contractor together
contractually (though separately
under contract to the owner)
so they are both responsible for
making sure the design evolves
within the owner-approved
scope and budget. Project One
has defined a proven process,
ensuring accurate and proper
budgets are established from
the onset.
An accurate master project
budget often serves as the
foundation to make informed
decisions when pursuing a
project or not. If done correctly,
it will serve as a tool that will
guide the project to a successful
completion, within budget and
on time.
Scott Bustos
Health care director, Project One
Integrated Services LLC,
Highlands Ranch
Kristen Campbell
Contracts, Project One Integrated
Services LLC, Centennial
including exterior plumbing,
water and waste systems – could
be depreciated on a 15-year
schedule. The study also
found $2.6 million in assets
that could be depreciated on
a five-year schedule. The tax
adjustments made possible with
these findings decreased the
taxable income on the hospital,
increasing its available cash
balance.
Hospital A. Hospital A,
located in Wisconsin, recently
finished an expansion. Fewer
assets could be counted as
15-year property than in the
Medical Office Building A
example, because utilities to the
area already existed. However,
approximately $500,000 of
the total $9 million cost of
the addition were attributed
to a 15-year schedule, and $2
million were attributed to a five-
year schedule.
In conclusion, cost
segregation can help health
care entities reduce the tax
burden related to building
ownership and the resulting
savings can enable entities
to allocate cash to current
activities, such as purchasing
equipment, developing
new patient initiatives and
expanding their reach. Because
of the complexity of this
method, owners and managers
should work with engineering-
based cost-segregation and
tax professionals who have
experience in getting the best
results for health care entities.
for systems that increase staff
productivity, provide easier
access to medical information
and improve patient care.
The Colorado Hospital
Association revealed in its
2014 nationwide study that
emergency room visits had
increased by 5.6 percent within
a 12-month period for states
that expanded Medicaid.
The change in demand was
greater than expected from
the variation over the previous
two years and is creating
competition in health care.
“Our clients are experiencing
a new kind of competition,
which include private-sector
clinics and emergency centers
that focus on convenience by
offering walk-in appointments
and urgent care,” Latas said.
This competition means
major health care providers are
pushing to be first to market.
The health care teams need
to be focused on preplanning
and running through the entire
build process using virtual
models produced by in-house
building information modeling
experts and subcontractor/
vendor partners that can
facilitate modular designs and
prefabrication.
“We’ve made our own
investment in technology to
create a collaborative, cloud-
based system that provides
a common platform for the
entire team – a one-stop shop
for information,” Latas said. “As
our customers’ needs change,
we have to adapt as well, and
if it’s technology that is a
driving force, our tools and best
practices need to mirror those