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3 Reasons for Construction Cost Overruns

September 28, 2022
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When it comes to running a project that is completed on time and within budget, proper documentation and efficient construction management are key. It is not uncommon for a project to go over budget. While this is sometimes caused by a lack of foresight in the budgeting and planning stage, there is a multitude of factors that can cause a project to incur cost overruns throughout the construction process. With over 50 years of construction management experience, we have listed 3 common reasons for a project to go over budget.

Unforeseen Conditions

Unforeseen conditions are factors that are not identified at the beginning of the project. Without proper construction management, these unexpected situations can impact a project quickly and lead to unanticipated costs. For new construction, unforeseen conditions can be the discovery of poor soil or rock removal. For pre-existing structures, this could be the finding of hazardous materials or structural wood rot. Most projects will experience some level of unforeseen conditions. Proper due diligence prior to receiving the final construction documents can help alleviate cost overruns. Having adequate contingency allocated for unforeseen conditions or overages is also a great way to mitigate unexpected costs from unforeseen conditions.

Outdated Pricing

Outdated pricing can occur when there are delays between the bid date and the actual start date of a project. During this time, materials and labor costs may increase in price, making the original contract price inaccurate. Outdated estimates on a project’s budget are one of the most common reasons for cost overruns. One way some project teams ensure accurate pricing is by having purchase orders and subcontractors signed within 90 days of executing the prime contract. A team may also define a material escalation limit in their contract to ensure cost overruns are manageable if a delayed start date does occur.

Supply Chain Issues / Un-Timely Procurement

Over the past 3 years, project teams have had to adapt to a supply chain riddled with delays and shortages. It is important to anticipate these issues, so unexpected costs and delays aren’t exacerbated later. If materials are not ordered in a timely manner, a project team may run into extended lead times leaving no choice but to pay a higher price for available materials or delay project development. Proactive procurement is the best way to mitigate this potential cost overrun. Early buyout of subcontractors and constant communication with subs and vendors will assist in mitigating these potential issues.

Cost overruns can be a nightmare situation for every party involved. While some of the reasons for these setbacks are unavoidable, some are attributed to inadequate planning or lack of experience. At Moran Construction Consultants, our team of professionals has 250 years of combined construction management experience. From outstanding projects to poorly executed ones, we have seen the planning and oversight required to run a successful project. Working alongside the project team throughout the construction process, we are able to recognize and mitigate potential cost overruns. Give us a call at 225-351-2003 or contact us online to learn how we can help safeguard your investment.