The cost of construction materials is expected to increase at a pace of approximately 1% per month throughout the year, according to Chris Harrison, executive vice president and general manager at the Weitz Co. The exception is steel and rebar, for which costs are trending downward.
Harrison and Doug McMillan, president of zumBrunnen, presented their insights at the 24th Annual Ziegler LeadingAge National CFO Workshop in New Orleans last month. According to the executives, who spoke at a session titled “Construction Update & Forecast for the Senior Living Sector,” the increasing costs of construction materials, freight and wages, combined with worker shortages and lengthened lead times needed for materias, are the primary pressures facing the industry. The session was detailed in Ziegler’s Senior Living Finance e-newsletter for the week of May 2.
Providers can use some strategies to make construction projects go smoothly, the experts said.
First, Harrison and McMillan suggested working with experienced in-house and industry partners.
“There needs to be a dedicated team focused on successful project execution and one that is regularly focused on constant and consistent reconciliation of scope, schedule and budget,” wrote Lisa McCracken, director of senior living research and development at Ziegler.
Second, smart construction contracts are essential, Harrison and McMillan said. Contracts should be a “win-win” for the provider and the contractor.
“Important elements include insurance provisions, liquidated damages, schedule provisions, requirements for status reporting, documentation, payments, etc. and change order management among other items, McCracken wrote.
Third, plan for various project contingencies, ranging from hard costs, soft costs (such as design and marketing/sales) and internal contingencies inside of the guaranteed maximum price contract.
