Here Are 4 Common Causes of an Over-Budget Construction Project
It takes an incredible amount of planning, precision, and experience to ensure that a construction project reaches completion without going over budget. When a project does go over budget, tempers can flare, livelihoods can be threatened, and litigation may be unavoidable. Below, a Fort Lauderdale construction lawyer from Cotney Construction Law discusses four common causes of an over-budget construction project so that you’ll know what to do the next time a project grows out of hand.
1. The Cost of Doing Business
Many contractors believe that there is a reasonable cost of doing business in the construction industry. Indirect costs, such as insurance, cost of theft, rising material costs, and equipment costs, are just the price of admission for these industry professionals. While these additional costs are a burden, they can nonetheless be estimated and included in a bid and accounted for in a contract. Always ensure that your current bid is enough to cover these estimated costs; otherwise, you may end up losing money on a project.
2. Budget Deviations
Change may be inevitable, but it isn’t always good. Change orders are agreements made between the parties on a construction project to alter the original scope of work. They are usually initiated by an owner in an attempt to overcome unforeseen problems, such as an error or omission in the project documents.
A change order is already an indication that there will be an additional cost to the project. You must not make matters worse by failing to document and price out change orders. Be sure that all relevant subcontractors receive a copy of the change order. Most importantly, ensure that your construction contract addresses how change orders are to be handled on projects.
3. Labor Demands
Labor will always account for a significant portion of a project’s budget. In addition to being costly, labor roles are becoming increasingly difficult to fill. Due to labor shortages, construction companies are having to pay overtime costs to exhausted workers that may be overqualified for the tasks they are given. Additionally, construction companies have started to keep employees on the payroll in times when there is no work out of fear of losing them to other companies or industries.
4. Inclement Weather
There’s only so much a contractor can control on a project. Inclement weather, such as heavy rain, strong winds, and flooding, can not only cause delays but also damage expensive equipment. Prepping for these issues with remedies like a building wrap results in even further costs. There’s only one way to prepare in advance for acts of God such as these.
A well-drafted construction contract is the only way to truly mitigate the above issues. You will never be able to account for each and every variable that can lead to a project going over budget. Your best bet is to invest in a contract that can mitigate issues and detail what should be done when costs spiral out of control. To ensure your company is protected in the event a project goes over budget, contact the team of Fort Lauderdale construction lawyers from Cotney Construction Law for contract review and drafting services.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.