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Don't Keep Your Budget A Secret

Updated: Apr 16, 2021

Several years ago, my employer asked me to be a Project Manager / Owner's Representative for a large construction project. The organization was building a new multi-million dollar facility on an undeveloped piece of property. The facility had some very specific functional needs that had to be incorporated into the design. The organization also had a very specific budget for the project because they were committed to paying cash and not financing anything. So, I was tasked with finding an architect and a general contractor to design and build the project within our parameters.

Because of the budget constraints on the project, a design-build or a modified design-assist delivery method would have been the most efficient and economical approach. However, for some reason, the leaders in my organization were committed to keeping all of the various components of the project "siloed" and separate from each other. Further, they refused to reveal the budget to the design and construction teams.

What resulted was 4 different re-draws of the design to get the project into the budget. Each one of these re-draws resulted in additional architecture and engineering fees incurred by the organization. In all, approximately $40,000 was spent in unnecessary design fees that could have ultimately been used for the construction itself. The really sad part is that this facility was a church missions facility that lost $40,000 of functionality simply because leadership did not want to reveal their budget to the design and construction teams.

When I would press them on the issue I was told, "if we tell them our budget, they will charge us that exact amount, and we may get less building than what we are paying for. If we keep it a secret, we are more confident that we are actually getting that actual amount of work."

When I consider some of the traditional stereotypes of the construction industry, I can partially understand this mindset. The construction industry has not always enjoyed a stellar reputation for customer service and pricing honesty. However, these stereotypes are just that...they are over-generalizations that do NOT apply to every firm operating in the built environment.

My job as the Project Manager / Owner's Representative was to locate, vet, monitor, and insure that the design professionals we hired were of upstanding character and produced an appropriate product on-time and within our budget. So, the architecture and engineering teams I selected were of high moral and ethical character, offered complete pricing transparency, and did not overcharge us just to "make a buck." They took time to understand the project from an operational and, more importantly, a missional perspective. The architects and engineers were partners in mission with the organization to achieve our missional objectives.

What churches need is an experienced, qualified Owner's Representative who can locate and monitor all of the stakeholders in the design and construction process. Churches are unique in the built environment. Not only is the design of their facilities different from standard commercial projects in other sub-sectors, but the nature of church committees, building campaigns, church financing, and stewardship of gifts and tithes are not found in other markets. For these reasons, churches need someone who can help them navigate the world of architects, engineers, and contractors to produce the perfect facility for the right price.

Three common mistakes that churches make regarding their budgets for a construction project are:

#1 - Not revealing the budget to the design team. Most churches have a pretty strict budget for any capital project. Not revealing this to the design team can result in unnecessary delays and costs down the road. It is best to reveal your budget up front. Find an experienced Owner's Representative to find a design team you can trust and LET THEM KNOW HOW MUCH MONEY YOU HAVE TO SPEND. If they know up front how much you have to spend, they can design your facility to meet that budget. Trust me, it will save you time and money down the road.

#2 - Not being realistic with the budget available for a construction project. We see this a lot with churches. Often, a church will look into a capital project, maybe even getting some budget estimates from a construction professional. Then, they will wait for several years before they actually get around to the project. What they don't realize is that there is, historically, a 6.5% inflation each year in the cost of construction. So, the church plans to build a $1M project 5 years down the road. They don't realize that what costs $1M to build today will cost approximately $1.37M in 5 years. They raise $1M and are still $370,000 short of realizing their new building.

Another version of not being realistic about your budget is what I call "reverse engineering" your mortgage capacity. With this mistake, churches will look at their monthly budget and determine that they have "X" amount of money available at the end of each month. They will use this to determine what they think they can comfortably carry for a mortgage payment. They will then conduct an internet search for "mortgage calculator," input their desired monthly payment and interest rate, and be given a mortgage amount that corresponds to those figures. What churches don't realize is that there are a host of factors that determine the amount of debt a church can safely carry and that go into an underwriter's calculations of what the lender is willing to loan. We have seen this play out with disastrous results. One of our clients did this and decided they could afford a $1.5M building. However, when they actually submitted their paperwork to their bank, they only qualified for $700,000: less than half what they calculated themselves.

#3 - Not understanding all of the additional costs that go into a construction project. Many churches do not understand all of the costs that are associated with a capital project. For instance, if a church wants to build a $1M building, it will costs substantially more than $1M. Architects' fees often run between 4.5 - 7.0% based on the location and the reputation of the firm. Civil Engineers, Mechanical - Electrical - Plumbing Engineers, and Structural Engineers usually must be included in the design. Based on their needs and calculations, things like soil tests, base stabilization, surveying, and grading may need to take place. Each of those brings additional costs. (We have seen the civil dirt work on a fairly basic $1.5M building run over $300,000). And, there's always permitting. While the skilled trades will include things like plumbing permits and electrical permits in their fees, it is the owner's responsibility to pay for demolition permits, tree removal permits, site development permits, building permits, state and federal right of way permits, and utility taps and tie-ins. These can easily add tens of thousands of dollars to the project's bottom line.

The easiest way to get a grasp on all of this complexity and to protect your church financially is to hire a good Owner's Representative who will guide you and be your advocate to deliver the best facility you can possibly get on time and within budget.

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