Prospective construction clients often choose the firm that they hire based on both the proposed timeline for a project and the likely costs. Construction firms review the requests a client makes and then determine how much it may cost to complete the project.
Occasionally, companies have to go back to clients and admit that the project could exceed the proposed budget. The parties involved then need to make difficult decisions about changing the initial plan or covering the additional expenses. Sometimes, those proposed changes can lead to litigation and claims of contract violations.
A variety of factors could potentially lead to a sudden increase in the proposed budget for a construction project. For example, the following issues tend to affect how much it costs to construct or remodel a property.
Materials and supply chain issues
Building materials can fluctuate in price. They can also sometimes become suddenly difficult to access. A few years ago, there was a shortage of structural steel affecting commercial construction projects, as well as issues with lumber supply. Prices for materials have stabilized as supply chain issues resolved, but they continue to increase slowly over time. A sudden increase in demand for specific materials or issues in a supplier industry might lead to substantially higher costs than companies initially estimated.
Staffing challenges
Every new project likely requires the help of numerous skilled professionals. Construction firms keep certain workers on staff as regular employees. They also contract with specialists on a project-by-project basis. Staffing costs have increased in recent months, and demand for expert services could significantly increase what it costs to hire certain types of professionals. The more specialized construction workers a project requires and the more competition there is on the market, the greater the possibility that a company may need to revise its estimate because of those expenses.
Delays in project completion
When a project does not proceed as initially expected, the total cost to complete the work may increase as well. From extending equipment rentals and insurance coverage to maintaining worker support facilities and alternate premises for the clients, there are many expenses that may crop up quickly when the project extends beyond the initial timeline.
Construction firms often need to integrate thoughtful terms in their agreements with clients to give themselves the flexibility needed to address those costs without absorbing them and taking a loss. Drafting thorough, customized contracts can make a major difference for companies operating in an unpredictable economy.
