Colorado Real Estate Journal - December 3, 2014
Question of the month
Q:We are hearing that in the current construction
environment for seniors housing, there are two big
challenges: rising costs and on-time delivery. What is your
firm doing to respond effectively to these challenges?
Brad T. Schmahl, LEED AP
Both issues present significant challenges across all of our markets and I believe are primarily tied to the same issue: manpower and capacity of the subcontractor market. Costs continue to be on the rise and make it increasingly difficult for projects to be feasible, despite the growth of the senior market.
The principal cause of this escalation is the availability of qualified subcontractor labor.
With the market growth and limited resources of the subcontractors comes the increased cost. Limited manpower and excessive subcontractor volume growth makes staffing jobs appropriately nearly impossible, resulting in extended schedules for completion.
The key to conquering these issues is mitigating risk through a variety of factors. We capitalize on our subcontractor relationships. Having been very active in the senior market over the past decade, we have a long list of valuable subcontractor partners that allow us to match the right subcontractor to the size of job being considered. Early procurement of those key subcontractors is also vital. The old theory of hard bidding a project to keep your costs down actually can drive project costs up in this market, because by the time you have a permit ready project out to bid, the right subcontractor’s backlog is already filled. We take a proactive role and market the project to the subcontractors, in essence, reserving our client’s project within their backlog.
For a project to be delivered on time and within budget, these issues cannot be ignored. Having an experienced team with recent, reliable cost data and schedule awareness will lead to total project success.
Erik Petersen
Rising costs and on-time delivery challenges are not unique challenges to the senior market. The construction industry across the board is experiencing unpredictable cost increases and inconsistent schedule delivery, which are caused by multiple underlying issues – labor shortage along a generational gap and longer delivery times of materials and equipment. To counter these challenges, JE Dunn is approaching projects with an intensified Collabor-ative Project Delivery (CPD) model. We’ve sought innovative tools and redefined our processes to instill a mindset of continuous improvement throughout the project.
When addressing the labor shortage, it is imperative we manage our talent and to maintain our high quality standards. To do so, CPD, supported by technology-enabled job functions, increase the flow of communication and reduce redundancies to save time and money. We work closely with subcontractors to understand their resources and needs. On job sites, we conduct “pull planning,” where the foreman, superintendent and crews meet to talk openly about work progress and challenges. This fosters collaborative problem solving, schedule buy-in and efficiency in the work.
The CPD method also allows us to make purchasing decisions earlier in the process thereby locking in pricing, which is crucial when ordering materials and equipment. Manufacturers have moved to a much tighter supply chain and only produce so much material at any given time. Our ability to self-perform work and take greater ownership of project tasks allows us to manage costs and work efficiently. Overall, there are many steps we take to overcome the market challenges we face, and we continue to look for creative and collaborative models to incorporate into JED’s work.
Tom Seaman
One of the most overlooked aspects of success to a project, specifically as it relates to rising costs and on-time delivery, is a well-executed preconstruction and/or planning phase. As the competitive labor marketplace continues to be an overwhelming concern, and given the considerable number of variables that can affect the cost and schedule of a project, Catamount focuses efforts on providing a complete and well thought out plan. Engaging all participants essential to project success early allows for better understanding of probable implications of upfront decisions and results in safer, faster, lower-cost and higher-quality projects.
During the preconstruction and/ or planning phase, the project team and owner have the ability to review, validate and revise all project assumptions, plans and budgets in a strategically thoughtful way that can greatly impact success and, more specifically, create schedule opportunity.
For example, with the entire team on the project early, targeted design milestones can be identified that enhance the schedule, which could “buy” schedule insurance for future labor concerns.
In today’s market, the workforce will gravitate to well-organized projects that provide a platform for quality production and subsequently re-occurring and consistent timely payment. Catamount concentrates on creating a preconstruction plan that focuses on coordinated documents and the ability to minimize impacts from RFI’s and change orders. By creating a coordinated and clear construction plan with minimal interruptions, the workforce can maintain the crucial productive cycle and construction flow, with a focus on keeping labor on our clients’ projects.
Jerry Blocher
As the construction market continues to gain momentum, as specialty contractors and vendors become busier, and as manpower availability becomes tighter, rising costs and on-time completion are significant challenges facing all types of construction.
Specifically as it relates to senior housing, Haselden has implemented several strategies for dealing with these issues.
In addition to having a number of experienced team members, Haselden has maintained its institutional knowledge through a written, living log of senior housing lessons learned. Especially for projects where we are able to be involved early in the design process, including those for which we are the developer as well as the GC, we are able to bring this knowledge to bear and to work with the operator and design team to make the design as cost-effective and escalation-proof as possible.
In addition, we leverage our relationships with specialty contractors in order to reinforce our understanding of market projections and, more importantly, to lock in pricing as early in the design process as possible, insulating the project from rising costs and ensuring the commitment of the vendors to the project schedule.
Construction delivery is only one milestone in the owner’s ultimate goal of being fully leased. Therefore, in addition to ensuring timely certificate of occupancy, we closely coordinate:
• strong preleasing efforts (signage, model tours, open houses, community outreach);
• frequent involvement of building officials, fire department and the state;
• early FF&E and owner vendor installation; and • and expedited operator occupancy and training.
All of this is coordinated so that licensure, first resident move in, and subsequent ramp up occur as quickly as possible.