How do you deal with escalating costs in construction projects?

by Andrew Curtin /  March 27, 2023

In this article, I monitored LinkedIn to see what companies in the UK and abroad have been talking about in relation to tackling their rising construction costs.

Here are some of the issues we are getting into today:

• Labor shortages and wage inflation
• Material prices and availability
• Design changes and scope creep

Labor shortages and wage inflation

The most significant factors that can affect project costs is the availability and cost of labour. Workforce, low retention, high turnover, and increased demand – these create a competitive market for labour, where contractors have to pay higher wages and offer better benefits to attract and retain workers.

“The only thing constant in construction projects is “change.” However, a modern project manager is equipped with the necessary skills [technical and social] to engage stakeholders, assemble the right team, plan proactively, and create an iterative feedback mechanism that aims to satisfy customer expectations. Also, initiating a scope freeze is a significant lever for controlling ambiguity, adequately understanding customer requirements, and steering the project toward creating values.

Hence, the best way to deal with labor challenges is by empowering your team, encouraging regular feedback solicitation, embracing change, and delivering values as early and as frequently as possible. These methods work 99% of my projects.” – Olu’ Ajisafe, Programme Analyst, DDOT

Material prices and availability

The issue that we all want a magic bullet for. But, unfortunately, it’s difficult to provide a clear-cut answer. Gaining a deep understanding of how the supply chain works can help.

“Construction managers need to have an understanding of the supply chain that affects their materials. While this sounds straightforward forward it often is not. For example, the cost and availability of reinforcement steel are entirely dependent on the cost and availability of scrap metal. We have had periods in the U.S. where all scrap was being exported and bought up by China, having a tremendous negative impact on the prices and availability of reinforcement steel in the U.S. Other materials, such as prestressing steel strand, use almost no scrap metal, so at they should have been unaffected.

However, at the same time there was a shortage of Coke used to make that steel in the U.S. Supply chains can be much more complicated than some people realize.” – Jim Rogers, former director at Arizona State University.

Design changes and scope creep

Design changes and scope creep can result in increased materials, time, and resources. Which increases the project costs. They can also cause delays, conflicts, and quality issues, which affect the project’s performance and outcomes.

Let’s see what Turner and Townsend have to say.

“Maturity of the client in so far as defining requirements is crucial in managing scope creep. There is a direct relationship between the cost of making changes to scope and the point in the project cycle when the change is introduced. Having a tight scope reduces the risk of variations thereby managing the project costs close to the baseline as possible. Requirements management is therefore an essential part of project management.” – George Onaya ChPP, Programme Manager, Turner & Townsend.