Larry Goshorn, President
The toughest part of budgeting is starting with a blank sheet of paper. As with any big problem you must tackle it by breaking it into pieces. Here is some background on budget pieces.
Per the Public School Construction Cost Reduction Guidelines published by the OPSC in April 2000, the typical project budget consists of three basic parts: Site Costs, Soft Costs, and Hard Costs. Each of these parts can be subdivided further.
Site Costs vary greatly and must be addressed on a case by case basis. There is a bit more correlation of hard cost versus soft cost.
Soft Costs include design costs, testing, inspection, plan review and permit fees, construction management and program management fees, and other costs like legal, financing, printing, and special consultants. The largest portion of soft costs will be for design, followed by program management costs, inspection and testing, and printing.
Hard Cost categories include building construction, site improvement, furniture and equipment, and demolition. Labor compliance is considered a hard cost by the OPSC. Interim housing has a lot in common with hard construction work. Assets built for interim housing will not remain in place, at least in theory. In practice, interim facilities can end up be being used as permanent assets.
Based on the review of over a hundred new school construction contracts, the Construction Cost Reduction Guidelines provided a breakdown of the cost distribution for new elementary, middle, and high schools. Building construction varied between 78% and 80% of total project costs minus site acquisition costs.
Testing and inspection ranged between 2% and 3%, furniture and equipment between 4% and 5%, and design costs between 6% and 7%. The publication also noted that the data did not include costs incurred beyond those eligible under the OPSC State School Building Program.
As depicted to the left, it’s our experience that costs associated with general construction are a bit less — closer to 70%. This amount includes site work associated with the building, which is an additional 5% to 8% in the OPSC publication. General construction depends largely on other construction costs including small specialty contracts indirectly related to the general construction work.
A confusing item the OPSC publication is the reported 1% expenditures for contingency. As discussed previously, contingency is a budgeting tool to ensure there is enough money to finish the work. The budgeted contingency amount is moved where it is needed in the project budget and then spent from there. It is never expended as contingency.
When reviewing this type of information, keep in mind that it is compiled at the completion of the project and provides little to no help on how much contingency must be added to the budget in order to insure there is enough money to complete the project. That must be based on knowledge of the project.
Breaking a project into pieces and using historical cost distribution is a valuable tool in developing realistic project budgets. Historical cost distribution info serves both as a checklist of costs that may be needed and a conceptual estimate of the magnitude.
Developing project budgets requires that you engage your brain and think the project all the way through keeping the most important thing in mind – having enough money to complete the project.
