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CM services save money during renovation.

In today's market, building owners are being squeezed in all directions: budgets are tight; leasing is sluggish; and tenants are demanding, and getting, property improvements and workletter concessions.

At the same time, pricing is more competitive than ever. Therefore, now is a good time to renovate and upgrade properties -- when you can get more for your dollar.

How can owners take advantage of the current market while minimizing the risk of cost overruns and schedule delays? By hiring a construction manager. Acting as an extension of the owner's staff, the Construction Manager (CM) protects the owner's investment. Here are some of the specific strategies we employ at Lehrer McGovern Bovis in order to best represent the owner's interest:

1. Put the entire project team on your side of the table. By using a CM, the owner eliminates the risk of an ethical general contractor taking a project on, at or below cost and then making his profit through shortcuts and extras. A CM relationship ensures that all cost savings accrue to the owner.

2. Set up the project team early. In the construction management process, it is the preconstruction phase that is most crucial to cost savings. By obtaining all necessary input from the architects, engineers, CM, and specialty consultants --the owner gets a complete picture of the impact of his design decisions. Effective teamwork permits planning for overlapping phases of the project -- such as buying critical trades early, before construction documents are finished, and thereby expediting the construction schedule.

3. Make use of value engineering opportunities. The value engineering process identifies areas where significant contributions can be made to reduce costs, speed construction and enhance the project's value.

Renovation work on a building's lobby is a good example. Recognizing that a lobby makes the first impression of quality of existing/potential tenants, there is a temptation to allow aesthetics to outweigh financial considerations in developing the design. Through value engineering, alternative materials and installation methods can be explored with the design team, craftspeople, and suppliers. Construction sequencing can be planned to allow for work to proceed without impeding access to the lobby.

Performing value engineering during the conceptual stages thus prevents costly reworking of documents and minimizes future operating expenses.

4. Identify potential "hidden" costs before budgets are finalized. Many times, costs integral to the renovation process cannot be communicated on the design documents. Based on experience, the CM can point out areas where such costs may lie. For example, will logistics allow manpower/material to flow in and out of the building without interruption to ongoing operations? Or will a significant portion of work have to be done during overtime hours?

Costs may also arise because substantially more work is required to bridge the gap between existing and new construction -- e.g., problems that may have been hidden behind partitions and mechanical spaces.

"Out of sequence" activities should be identified for purchase during initial competitive bidding. For example, early access areas may be required for mechanical or telecommunications systems startups, prior to occupancy.

A good part of the CM's expertise and value lies in identifying potential exposure and minimizing the owner's risk of unexpected expenditures.

5. Screen subcontractors thoroughly. Approximately 90 percent of a project's costs are subcontractors' charges, which are put out for competitive bid. But the cheapest price may not be the best buy. If, for example, a contractor cuts corners by providing inadequate manpower, hiring less qualified (and less costly) supervision, or submitting materials of lower quality, the owner will wind up paying more for corrective measures in the end.

In today's market particularly, it is not uncommon for a subcontractor to default on a contract, for a variety of reasons -- some beyond his or her control. Perhaps the subcontractor's low profit margin depends on a vey low margin of error; one costly mistake might be enough to put them out of business. Or perhaps the subcontractor is owed money by others who must delay payments because of their own cash flow problems -- and the subcontractor cannot carry his costs.

In order to minimize the risk of default, the CM should run a comprehensive check on every contractor's financial stability and management ability. After the subcontractor becomes part of the project team, the CM continues to monitor their management processes throughout the duration of the project.

6. Make full use of cost control documents. Cost control documents, when used correctly, inform the owner of potential expenditures before they occur, rather than after the fact. Provided on a timely basis, these reports give a thorough analysis of each cost component, what has been spent to date and what new charges may be incurred.

Cost control documents allow the owner to understand the impact of making, and not making, financial decisions, and to retain firm control of the project.
COPYRIGHT 1992 Hagedorn Publication
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:Construction & Renovation Supplement; construction manager
Author:Littman, Kathi
Publication:Real Estate Weekly
Date:Apr 22, 1992
Previous Article:Albanese to head Queens West.
Next Article:Reviewing contractors more important now.

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