Inspiration & Goals
“Money Doesn’t Grow on Trees”
I was once on-hand for a meeting between a Cost-Plus Fee Contracted Client and the Team of Industry Professionals he had hired to build his beach-front, Custom Home on Gulf Shore Blvd. here in Naples. The Project was soon to begin, and he had agreed to a $12 million Budget to build it. Knowing that there would be changes along the way and that he would not be able to be closely involved in the Project moving forward, he specifically directed – or rather, asked – the Team to “keep it (the cost) reasonable”. Mostly left to their own devices, his Team proceeded as if they had a “blank check” and delivered his home to him at a total cost of $18 million.
Now THAT’s Budget Creep.
Though this is an extreme example, Budget Creep (in tandem with “Scope Creep”) is more the rule than it is the exception, especially with Cost-Plus Fee Contracts. The cost increases seem to sneak – or “creep” – up as the Project moves along, often as small increases over several Budget line items. By the time the Client (the party Contractually bound to pay them) realizes the problem, it’s too late to do anything about them. But “Creep” doesn’t happen in a vacuum. Though he approved major changes and was certainly “informed” along the way, I think that the Client above was betrayed by the process and, whether there was a direct intent or not, taken advantage of. How and why did it come to that?
I don’t take your money for granted.
A Cost-Plus Fee Contract is appropriate for custom construction, since the Project is always evolving. However, it shifts all of the risk of cost overruns from the Builder to the Client. In an inverted market, that’s a coup for the Builder. With a Cost-Plus Fee Contract – what is the Builder’s motivation to provide you with a thorough, comprehensive Budget up-front – especially when they are vying to be awarded it?
The Pre-Contract Estimates/Budgets that local Builders provide to their prospective Clients are unprofessional and lack detail at best, incomplete and too low at worst. With such inconsistency, how can you know:
The answer = you can’t..
Numbers are “spun”. Builders will insist that the Budget’s inaccuracy is due to the lack of complete information being available at the time. Yet, have they not built many, similar Projects before? Are they so unable to anticipate the need to Budget for Scope of Work that you will need or want done, but that might not yet be on a set of plans? What is the Budget that they have proposed even based on?
Nor do most Builders provide the level of clear, professional Cost Controls & Reporting during construction that Clients should expect. They are glad to be transparent and provide your cost information in detail, but what good is it if it’s incomplete, inaccurate and after-the-fact? Often lacking quality personnel themselves, they struggle to implement cost controls – even when THEY stand to be the beneficiary of the savings. That doesn’t bode well for the Client who is dependent on the Builder to try to save them money.
If you’re the Client, at no point can you know from, or control:
Clients are all but forced to accept this subpar service in order to keep the construction work going, only to find themselves faced with the real costs of work AFTER it has already been completed.
All of these circumstances coalesce to make “Budget Creep” all but inevitable.
If you’re the Client, these things should be unacceptable.