Construction Costs and Other Building Matters

Meet SBC member, Craig Nicholson. For the past year, Craig has brought his professional experience as an Owner’s Project Manager to the work of the School Building Committee. Given his role as Director of Operations with Ajax Consulting Services, and his experience overseeing the implementation of green building practices, the Outreach team asked Craig to draw on his expertise to help answer some of the questions that arise regarding the cost of the Lincoln School project concepts:  

Question: I keep hearing the phrases “construction costs” versus “total project costs,” what differentiates the two? What are the Total Project Costs and how are they broken down?
Answer: The Total Project Cost is the sum of what those in the construction industry refer to as the hard costs and the soft costs and are broken down as follows:

• Construction/Hard Costs –The construction costs consist of all the expenses associated with repairing,

  

  renovating and adding onto the building structure. This includes the building foundation, walls, roof, windows, doors and finishes as well as all the systems that give life to the building such as the mechanical (HVAC), electrical and plumbing systems along with telecommunications and internet cabling and life safety (sprinkler and fire alarm). These costs consist of both the materials and the labor costs necessary to install each of these components. The construction costs on our project will make up approximately 65 to 70% of the Total Project Cost, depending on the option selected.

• Net Zero Costs – For three of the proposed concepts (L2, L3 and C), we have the option of pursuing a Net Zero Energy building which, using solar photovoltaics, will be capable of meeting the energy needs of the building. The added cost for achieving this goal will be added to the Hard Costs above and will account for approximately 4 to 5% of the Total Project Cost.
• Soft Costs – The soft costs consist of the architecture and design fees, the engineering fees, consultant fees (i.e., Net Zero consultant), third party testing & inspections, utility company charges and owner’s project management (OPM) fees. Additionally, the soft costs include the furniture, fixtures and equipment (FF&E) that will be installed at the completion of the physical construction. You may hear the design team or our OPM refer to the soft costs as everything that would fall out of the building if you were to tip it upside down and shake it out (we don’t recommend doing this!). Soft costs on our project are anticipated to be approximately 20% of the Total Project Cost.
• Site & Phasing Costs – In addition to the hard and soft costs, given that the school is part of a larger campus and that school will be in session while the construction is occurring, we will be incurring phasing costs which include temporary relocation of students and faculty as well as improvements to the site utilities and circulation that service the school and campus. These site and phasing costs are expected to constitute between 7 to 10% of the Total Project Cost.

Question: If you can build a new luxury home for around $300/sq ft., why does it cost over $500/sq ft to build a school?
Answer: The main differences between our project and a single family residential project are as follows:

• Prevailing wage requirements – As a public construction project, no matter which option we select we will be subject to the Massachusetts Prevailing Wage Law which establishes minimum wage rates for works on public construction projects. In addition to the hourly wage, payments by employers to health and welfare plans, pension plans and supplemental unemployment benefit plans under collective bargaining agreements or understanding between organized labor and employers are also included in the established wage. This equates to labor costs that are likely 2 to 3 times that which you might see on a typical single-family residential project. For example, according to the Department of Labor Standards the prevailing wage for laborers working on a public project in Lincoln in 2020 will be entitled to an hourly rate of approximately $77 whereas a laborer working on a single-family residence is likely earning somewhere in the $20 range. Prevailing wages for electricians, masons, and plumbers are projected to be in the $110+ per hour range come 2020 when we are anticipating construction of the school project will start.
• Filed sub trades – Massachusetts General Laws require what is known as the “filed sub-bid” system for selecting certain subcontractors on public building construction projects. There are 16 trades under the filed sub bid laws including masonry, certain types of flooring, fire protection, plumbing, mechanical and electrical. The Law requires that contractors submit construction bids in two phases. First, filed subcontractors must submit their bids to the Awarding Authority, which will compile a list of all sub-bids received. The Awarding Authority will send the list to all interested construction managers. Construction managers will then need to submit their bid including any filed sub-bidders that will be used on the work. This reduces the control the construction mangers have on who they can hire therefore requiring additional supervision and coordination.
• A project of our size will require a medium to large construction management firm utilizing medium to large sub-contractors who can provide the needed workforce within the agreed upon schedule. The larger the firm, the greater the back-office support and overhead and thus the greater the cost. Compare this to a home project where you are more likely to find the firm’s owner (electrician, plumber, carpenter, etc.) working alongside his small crew with little back-office support.
• A project of our size will require significant overhead from the Construction Management/GC firm that is awarded the bid. Given the large number of people that will be working on the project and the intricacies of phasing, site safety and security, etc. there is a great deal of coordination that will be happening behind the scenes in bidding and awarding sub-contracts, managing schedules, procuring materials, screening workers, project management and field supervision. This falls under general requirements, general conditions, overhead and profit and, depending on the firm can sometimes approach 20 – 30% of the overall construction cost.
• Performance and Payment Bonds– Contractors and filed sub contractors on public construction projects, subject to pre-qualification, are required to post bonds with the Awarding Authority. Construction Managers must obtain payment and performance bonds equal to 100 percent of the actual contract value. Filed subcontractors must obtain payment and performance bonds equal to 100 percent of their actual subcontract value.
• Finally, there is the differentiation of work. Work that a builder might self-perform on a home project is likely to be broken down between sometimes two or three separate trades on a public project where organized labor rules the day. The benefits of this approach include clean and safe work sites but at a cost.

  

Question: When we evaluated the building repair cost back in 2012, the cost was $33.8 Million and now it is $49 Million – why has that cost increased so much?
Answer: The simple answer is that construction costs and more recently material costs have been skyrocketing over the past six years and are anticipated to continue to rise in the foreseeable future, at least out until 2020. In terms of the prevailing wages that I mentioned above, based on a review of the wages carried in the 2012 Maguire report and a comparison with the DLS wages that have been set for the coming years, we are looking at an increase across the board of 36%, with some trades such as plumbers and electricians experiencing prevailing wage increases of 50% or greater over the eight-year period from 2012 to 2020. The compound annual growth rate across all the relevant trades for our project averages 4.65% year-over-year. Our region continues to experience tremendous growth in construction demand, and we continue to have a limited supply of skilled labor, which is why prices are anticipated to continue rising. Add to that the recent uncertainty over raw goods pricing fueled by an active hurricane season last year, the threat of new tariffs, etc., and now construction materials are starting to see rapid price escalation as well.

Question: I recently read about an efficient new school that was built in [name a state] for $200 per square foot. Why can’t we build something like that?
Answer: There are many things that impact the cost of construction on a building. When looking at those other schools you need to ask the following questions:

• How long ago was the school built?
• What kind of structure does the building have – i.e., is it wood frame, steel and/or masonry construction?
• What does the building look like in comparison to ours? Does it have similar amounts of windows and doors? Is it small and compact or spread over multiple stories?
• How many students does the school serve and what kind of infrastructure do they have? Do they have full kitchen and dining area or are they so small that they only have a kitchenette with students expected to bring their own lunches?
• What are the other community services that they provide beyond the school itself? Do they have a large auditorium, multiple wellness centers, etc.?

Over the last  months I, like many of my fellow committee members on the SBC, have studied the budgets and floor plans of a large number of schools both within our state borders and beyond. There are few schools out there that match the complexities of our site as well as our current configuration. For instance, you will be hard pressed to find a K-8 school with an auditorium the size and scale of Donaldson. This difference creates a unique challenge for us as we try to test our current estimates against those of other schools in our state and beyond, but it is certainly not impossible to do. You must use caution, though, in assuming that this school or that school which was built for a fraction of our current estimates is a comparable option to our specific school. For one, as I discussed above, we are subject to some of the highest wage rates on public projects of any region in the US. In March, I reached out to a resource on school construction costs via the “School Planning and Management” publication; when asked for his input on cost trends in our region he offered up this:

“I do not know how the MSBA chooses projects on which to report but I can tell you that school construction costs in Massachusetts have tended to be among the highest in the nation. Lincoln, right on the border of the Boston Metropolitan Region, is likely to be in the high-spending part of the state.”

My research on costs for schools from Texas, Utah, Virginia and even just north of the border in New Hampshire and Maine has certainly born this out. When I look to other schools within our region with similar size and capacity as well as similar construction types to that of our current building, my analysis of the costs of those projects has given me confidence that the current estimates put forth by Daedalus Projects, our OPM, are accurate. Are there contingencies built into those estimates, absolutely, but at this conceptual stage, it would be reckless of us to consider lowering those, particularly in light of the rapid increase of material costs in just the first quarter of this year alone.

If you need further validation of the estimates, I encourage you to look to our west to the Town of Harvard and the Hildreth School, which is planned for construction in 2019. Adding in the appropriate escalation to match their bids to our timeline, their current bids have come in at $512 per foot for construction and $653 for the Total Project Cost (in 2020 $). The Hastings School in Lexington is $509 per SF for construction and $652 for total cost. The Kennedy School in Natick, likely benefitting from a compact footprint spread over a higher floor count (4 floors) and some economy of scale with their larger total footprint, comes in at $480 per SF for construction and $601 for Total Cost. Head further west to Marlborough and you will find a similar story as that seen in Harvard and Lexington with their K-5 school budgeted at $529 per SF for construction and $652 for Total Cost. These comparables put our range of $286 to $497 per SF for construction and $354 to $640 per SF for total cost into perspective.