The simple answer is it depends. The capital cost for a construction project includes all expenses related to the initial establishment of the facility. When creating a budget, line items include hard costs, such as construction of the building itself, and indirect costs, such as design fees or planning, feasibility studies, and fundraising costs. While the construction cost may be the single largest component of the capital cost, the other costs are not insignificant.
For a sustainable capital project, achieving the lowest overall project cost that will meet mission objectives while remaining affordable to build, operate, and maintain is a priority.
The total project cost includes hard costs, indirect costs, project related costs, organizational costs, and contingency costs. See below for examples of each.
It is not possible to have a perfect set of documents or foresee all the potential problems inherent with a new site or remodeled building. Contingency and change order reserves provide a level of insurance for the organization. Change order reserves and contingencies not spent following completion of construction are returned to the organization to reinvest in the project, if desired.
Design and construction phase contingencies of 2-10% each are common, while 10-20% of the total construction cost is typical for a change order reserve. When determining how far to err on the side of caution with the contingency and change order reserve, consider the following:
The Sample Project Budget below illustrates line-item costs for a hypothetical library expansion and renovation. For this project, the building construction costs are $4.6 million while the total estimated project cost is $7.4 million. This includes a general project contingency of 10% and a change order reserve of another 10%. You can see that costs like furniture, fixtures, and equipment will vary. Similarly, your project may not include 1% for the arts.
Indirect costs are those costs necessary to keep a project progressing forward but are not directly related to the materials and construction of the physical building. With a capital project, these indirect costs can represent a much higher time and money investment than initially anticipated. For example, capital campaign costs will vary. A rule of thumb is to add 10-20% of the total fundraising goal to cover the costs of raising your goal. This cost varies based on how many additional staff are needed to manage the campaign and the depth and breadth of the campaign in terms of numbers of donors and recognition options. Unlike other costs, it is customary to build the total costs of the campaign into the total amount of money an organization is raising, which essentially pays the organization back on its investment of human capital. For more information, see page 29 in Preparing to Fund Your Capital Project in Alaska and Beyond.
In addition to the basic components required to construct or modify your program space, such as the structure, windows, doors, plumbing and electricity, anticipate additional costs associated with furnishings, fixtures, and equipment.
To be ready for delivery of your program mission on opening day, consider ahead of time how the building will be furnished. If employee desks and file cabinets will be re-used, ensure that they will fit. If there are new program spaces, such as additional sleeping rooms, plan ahead in order to provide necessary furnishings such as beds, sheets, lamps and window coverings, so that the transition is smooth and your program functions as intended.
Equipment and fixtures, such as towel racks, soap dispensers, window coverings, and staff room appliances, may be specified and included in the construction contract. If they are not specified, plan ahead for the additional cost and procurement of these items.
A cost estimate establishes the base line of the building construction cost at different phases of development, revised and updated as the project’s scope becomes more precise. Each iterative cost estimate represents a prediction based on the level of design specificity that incorporates all design decisions made up to that point. This information is used to decide whether to proceed or modify the project scope.
Cost estimating is a critical piece of each phase. At every stage of the design process, there should be a revised total project budget estimate reflecting all decisions made at that time. The precision of an estimate increases as the level of design specificity increases.
The most common cost estimate method employed during the initial conceptual development phase is cost per square foot relative to other similar projects (type and scale) within your region. It is calculated off the gross area identified within your developed program. This is an order of magnitude estimate based on expert judgement and the costs of similar past projects typically determined through conversations with contractors, local cost estimators, and architects familiar with your region and local projects.
However, no two projects are exactly the same. Building costs alone are influenced by many variables including location, climate, unique site features, regional availability of materials and labor, competition among builders, building type, building complexity, and even your level of experience with a building project. They are subject to inflation and likely based on design and construction with different designers and contractors. Though the cost per square foot estimate provides a starting place for budget, fundraising, and financing discussion, there still remains a high degree of uncertainty.
When exploring the initial cost per square foot building calculations, it is also critical to remain cognizant of the additional costs such as purchase of land, site development, design fees, permit fees, as well as furniture and fixtures, moving fees, and potential lost business revenues in the transition.
Schematic Design Estimate – Assemblies and Sub-Systems
Moving into the schematic design phase, the plans and systems become more developed. Based on this information, a cost estimator can provide a more refined estimate based on defined assemblies (such as the building envelope and roof) and sub-systems (such as types of finishes, or heating, ventilation and air conditioning system proposed). This early estimate is still somewhat limited, but can inform continued project feasibility.
Design Development Estimate – Systems
During design development, the plans and specifications contain more information, representing the halfway point. A cost estimator can look at the different systems to refine previous estimates. These numbers are more accurate and can be used with greater confidence as a basis for project financing.
Construction Document Estimate – Itemized
Once the construction document phase is complete, a more detailed cost estimate is obtained with each component itemized by type, quality, and quantity. Prices will be assigned to each material and will also include allowances for labor, time, and contractor overhead and profit. These estimates are the most accurate and reliable and are used for cost baselines moving forward in your project.
Reduce Scope and/or Building Quality
Cost, schedule, and building area are interdependent. The first step in controlling costs is to ensure that the project provides the least amount of space necessary to meet program needs. This may mean re-evaluating program needs versus program wants. A smaller building, particularly with less complexity, will require a shorter time to build which will generate savings. A building with less complexity and quality of materials will also be less expensive to build.
Improve Building Space Efficiency
A building will include both assignable and non-assignable spaces. Assignable spaces include functionally identified rooms like offices, kitchens, or reception areas. The sum of these areas equals the net assignable area of a facility.
Unassigned spaces consist of the circulation spaces between rooms, mechanical rooms and shafts, electrical rooms, stairways, structure and wall thicknesses, restrooms, storage, and other spaces not directly housing the primary activity of the building. The net space plus unassigned areas equal the gross building area.
The sum of the net area plus unassigned area equals the gross building area. Cost per square foot is based on gross area.
Net to gross ratio is often referred to as the efficiency of a building. The goal is to maximize your usable space – those areas in the building where your mission and program services are provided. To the extent possible, design efficiency should be addressed in each phase of the project.
Consult with a Builder or Construction Contractor for Value Engineering
Early input from a builder or construction contractor may result in construction cost savings. During the design phase, this professional can help identify risks, provide input for cost estimates, value engineering, and project schedule projections. They also provide insight on constructability, systems value, and areas for potential cost savings, including suggestions for innovative construction solutions.
Encourage Competitive Bids
The more contractors bidding on a project, the better the price is likely to be. Competition can be encouraged by getting the word out to contractors early so that they are prepared when the Request for Bids is issued. Give them at least a month to prepare their bids so they have time to drill down on the costs. Ideally, schedule the bidding for early in the year when contractors are looking for work to fill the construction season.
Knowing the cost of a capital project is a significant investment of time and resources. As you work through design and cost estimating milestones, remember that your architect is a valuable resource to assist you in navigating these phases. The more knowledge you have about the process, the better prepared you are to make wise decisions, including planning for a sustainable capital project – one that you can afford to build, operate, and maintain. Ultimately, it’s about more than just a creating a facility – it’s about supporting the long-term sustainability of your organization and its mission within the community it serves.