Change Orders and Overrun from Ineffective Design Drive Up Construction Expenses

In taking a closer look at dealing with ways of controlling cost overruns in construction projects, we'll look at a couple of issues identified in attorney Barry LePatner's recent book, Broken Buildings, Busted Budgets: How to Fix America's Trillion-Dollar Construction Industry.
Besides incomplete drawings, which we identified as a prime culprit affecting construction cost and time, change orders—and the overruns that result from ineffective design and construction agreements—also play a major role in driving up expenses.
LePatner says change orders are the major reason so many projects go over budget and run behind schedule. They occur because the design documents on every "fast track" project are incomplete.

Contractors can use change orders to profit from their low bids.

"Low bids and the change orders that come with them will only be exacerbated by the slow and recovering economy, subsequently driving up project budgets by 20-50 percent or more," says LePatner. The LePatner C3 Model—outlined in his book—puts an end to the need for unnecessary change orders because it ensures a built-in, fair profit for contractors when a project is completed on time and on budget.

When it comes to ineffective design and construction agreements, LePatner understands the central problem is standard design and construction agreements fail to recognize the low-bid process and the known inefficiencies of the construction industry. These form-based agreements are silent on the critical issue of contractor bids based upon incomplete designs and fail to offer any mechanism to anticipate and price "unexpected" conditions.

The backbone of The LePatner C3 Model is a set of seamless agreements for the design and construction teams that ensure a true fixed-price based on fully completed project designs. It also includes a risk allocation process that helps factor in "unexpected" conditions that are priced during the contracting process and eliminate costly and time-consuming delays.

LePatner believes that both public and private owners should demand certainty for their project costs. He projects in the years ahead, if developers and individual project owners do not have a plan in place for cost containment, they will not be able to get the loans required to build.

And those lucky enough to get initial loans will run the risk of having to pay millions more to cover costs that have soared over budget. To learn more, download LePatner's new white paper, The LePatner C3 Model: Construction Cost Certainty, at www.BarryLePatner.com.