Building relocations and renovations
are a part of doing business, and one
that CEOs know can negatively impact the bottom line if they are not executed properly. Managing the process
looks like a part-time assignment for an
internal employee, but the management
team quickly gets caught up in construction meetings, reviewing bids and trying to
solve complicated issues.
“The design and construction process is
very complicated, costly and risky,” says Kirt
Gilliland, senior vice president of project
management and principal for Irving Hughes.
“Escalating construction costs, shortages
of manpower and longer lead times on
materials are making this process even
more challenging. Add that to the contention with the landlord when remodeling
an existing space or handling code
upgrades, and the process is overwhelming
to the inexperienced person.”
Smart Business spoke with Gilliland
about what CEOs should know about outsourcing construction project management.
Why should a CEO hire a professional construction project manager?
For most companies, construction projects don’t happen with frequency, and
when they do, managing the project is not
a core competency. The build-out process
accounts for as much as 20 percent of the
total lease consideration, and most tenant
improvement projects managed by nonfacility internal staff end up with cost overruns and delays that could have been
avoided through proper planning provided
by an experienced project manager.
What should a CEO consider in selecting the
right project manager?
First, select a project manager who has
experience with similar projects.
Second, the project manager should represent the tenant. Conflicts arise when a
tenant uses the landlord’s project manager.
Items that should have been a landlord
cost end up on the tenant’s side of the
ledger. A landlord might push code
upgrades or costs to replace obsolete building systems through as a tenant
improvement cost, which — when properly negotiated — should be the landlord’s
expense. My job is to play sheriff to make
sure that the lease we negotiated is
enforced to the benefit of our tenant client.
Third, hire a project manager that works
on a team-building approach. Some project
managers control with an iron fist, creating
a very adversarial and disruptive environment; others are just note-takers, lacking
the leadership skills and the required construction knowledge.
What types of duties will the project manager perform?
The design and construction process
involves as many as 10 team members. The
project manager will recommend appropriate consultants and secure their bids and
contracts. Next, they lead the consulting
team through the design and construction
process using the project schedule and the
budget as a baseline. The project manager
makes sure the contractor is using the correct management tools to track the schedule and budget, and physically inspects the
construction progress to ensure conformance to the specifications.
Why are construction costs escalating?
Construction costs have been climbing
steadily over the last three to four years at
a rate of 1 percent per month due to an
increased demand for materials both overseas and domestically. Increased residential building has also driven up labor costs.
When combined with materials increases,
that equates to a 50 percent increase in
construction costs. Standard tenant
improvements that used to cost $40 per
square foot now cost at least $60. Tenants
looking to move into new buildings should
engage a project manager to lead the due
diligence process, and they should price
out the tenant improvements prior to
beginning lease negotiations.
How are these increased construction costs
changing tenant behavior in the market?
The only tenants relocating are those that
have dramatic changes in their square
footage requirements. Even when a company does move, there is plentiful second-generation space and sublease space that needs
minor remodeling, saving the costs of new
construction. Most of our clients are passing
on the new buildings that cost $3.50 per
square foot to $3.75 per square foot in the
central county region, as there are better
alternatives that don’t require the out-of-pocket expense incurred from tenant
improvement cost overruns.
What can tenants do to better manage their
improvement costs?
It is critical to have enough time to
assemble a team of professional consultants and design a cost effective project. By
planning properly, they will maximize any
existing tenant improvements and allow
the general contractor to obtain multiple
subcontractor bids, while building the project at a reasonable pace.
KIRT GILLILAND is senior vice president of project management and principal for Irving Hughes. Reach him at (619) 238-1518 or [email protected].
