Budget Proposals: Harder Than Ever to Make, but More Critical Than Ever

One of the most overused phrases of the past year is that we are living in “unprecedented times”. While this is true, it has been repeated far too much. Leading into 2020 the construction industry was no different and was already experiencing issues with tougher project timelines, undeveloped project designs and a dwindling labor force.

Despite all the recent challenges for business and development, spending on construction has been on the rise. In fact, according to a recent Construction Dive study, “construction spending increased 0.9% monthly in January 2021”. While the private market is not yet back to its January 2020 levels, it is quickly approaching it. This increase has been led by booms in e-commerce, distribution centers and data center construction.

Across 300 B2B distributor businesses, e-commerce grows 11% each year. Grandview Research reports that data center construction is expected to grow annually 6.4% through 2027.

Many developers and owners were already feeling pressure to get projects completed faster than their competitors, and that’s especially true with these new industries. E-commerce distribution centers are rushing into cities, suburbs and rural areas as fast as permits can be pushed through, and now contractors can move the earth.

Over the last three years, the average timeline my construction teams were given to pull a proposal together for distribution center projects upwards of 2 million square feet was eight days from RFP to submission. The timelines for data centers have been similar, although more opportunities may be present to shore up the final numbers. Many of the institutional sectors mirror this with an initial GMP number, due to uncertainty in the marketplace resulting in pressure to spend now.

This means that contractors often have less than two weeks to put together a budget that will determine the next year or two – or even more – of their business. As an example, when Amazon officials put out a design-build request for proposal for their HQ2, they had a rough-conceptual design. They received 238 proposals from September to October in 2017, then they whittled it down to 20 finalists in January of 2018, and later that year selected Arlington, Va., USA as the project location.

The project was worth an estimated $20 billion, without a formal design present! Given this speed to market, design teams do not have the opportunity to complete designs, meaning contractors are left to fill in the gaps and rely on trade partners to carry them through.

The process of qualifying trade partners – and their proposals – is a science, and even those with a Ph.D. barely have enough time to follow all the necessary steps to get them sorted out:
– Bids leveled (compared apples-to-apples)
– Trade partners qualified – financially
– Trade partners qualified – safety
– Trade partners qualified – manpower/capacity
– Proper insurances in place
– Bonds acquired (if needed)

Any misstepping along the way results in a GC incorrectly allocating risk to their trade partners. Trade partners are, by definition, signing up to take on a certain scope of a project. If they are not qualified in any way, unable to obtain proper coverages and protections or contain scope gaps in a bad bid proposal, everyone on the project loses. This results in a bad budget upfront; worst case, it leads to delays, busted budgets and many other issues about insurance and legal.

When we consider the accelerated timelines required by owners on construction projects, the risk and issues associated with pulling together trade partners and a master budget, quickly snowball out of control.

Using manual data entry techniques, it is not feasible to pull a budget together to bid on a project. Some less desirable solutions to this are:
– Using historical, $/Square Foot numbers, and hoping for the best
– Not qualifying trade partners
– Giving non-guaranteed proposals with a lot of qualifications

While these solutions are very fast, most experienced owners will see through them and pass on the proposal to prevent future headaches. Worse yet, they may accept a bad budget proposal, sometimes knowingly, and the general contractor is legally tied into something he cannot deliver on.

The only feasible option is to turn to technology. Luckily, there are construction-specific solutions available. Estimating software is available to hold historical data to quickly check/level bids while keeping the divisions of construction organized to ensure nothing is missed. BIM and 3D coordination have become more and more standard in the industry.

While these options have helped turn the tide, as the construction environment gets more volatile, the technology must take another leap.

In addition to the numbers behind budgets, contractors need to be able to quickly visualize, plan the sequence of construction and utilize all the estimating, scheduling and BIM data available to them. This is known as 4D and 5D BIM. The HxGN Smart Build™ Insight product can be inserted into a typical workflow, pull all of this data from the existing sources and provide the much needed seamless 4D and 5D workflows required in today’s world.