According to estimates from the economic consulting firm Markstein Advisors, construction spending is likely to reach $1.45 trillion annually, with the average cost of rework on projects exceeding 12 percent per the Construction Industry Institute (CII) . Additional studies from the Structure and Infrastructure Engineering Journal indicate that 52% of project overruns are due to design errors and omissions within the contract documents. These figures conservatively establish the cost of deficiencies within the contract documents at approximately 87.4 billion dollars annually; which is considered adequate for the “Standard of Care” within the building industry.
When contractors receive incorrect or incomplete drawings, owners & architects can expect incorrect or incomplete bids from the start. RFIs are formal requests made by contractors to clarify aspects of the project that are unclear, while Change Orders are requests to alter the scope of work. These can quickly accumulate and lead to time consuming schedule delays, expensive cost overruns, and litigious disputes between parties.
The cost of an RFI (Request for Information) can vary depending on the complexity of the project and the nature of the request. However, according to a study by the Construction Industry Institute, the average soft cost of an RFI is estimated to be around $1,080. This cost includes the time and resources required to generate, distribute, and respond to the RFI, as well as any potential delays or disruptions to the project schedule. It's important to note that this is just an estimate, and the actual cost of an RFI can vary significantly depending on the specific circumstances of the project.
The cost of a change order in construction can vary widely depending on the scope of the change, the size and complexity of the project, and the stage at which the change is requested. However, studies have shown that the average cost of a change order in construction can range from 6% to 15% of the total project cost. It's important to note that change orders can also have indirect costs, such as potential disruptions to the project team, increased project risk, and lost productivity. These costs can be difficult to quantify but can have a significant impact on the overall project budget and schedule.
The most fiscally responsible way to prevent a problem in construction is to eliminate it in design. CHECKSET works with developers, architects, and construction managers to help eliminate unnecessary change orders through expert reviews of drawing sets and specifications.
By proactively identifying errors and omissions embedded in contract documents, CHECKSET’s proprietary methodology can reliably reduce construction RFI's and change orders by up to 70%, saving significant time and money for project stakeholders. With a team-based review process, projects are reviewed by licensed, industry experts selected based on experience and knowledge of local jurisdictions, each analyzing the documentation through a unique review focus.
Both the Construction Industry Institute (CII) and NAIOP, the Commercial Real Estate Development Association highly advise investing more time and money upfront to ensure accurate, comprehensive, and complete construction drawings is key to avoiding greater costs, conflicts and delays during the build phase.
Another study by the University of Maryland found that peer reviews can also lead to better communication and collaboration among project team members. In addition, peer reviews can also help to identify potential safety hazards or code violations, which can also lead to costly RFIs and Change Orders if not addressed in a timely manner. By identifying these issues early on, peer reviews can help to ensure a safer and more efficient construction process.
Based on an average review budget of $26k for a project of this scale, developers can reliably expect up to a 40x ROI (return on investment).
The charts below illustrate the financial impact of RFIs and change orders on a 80-unit multi-family development. The sample project has a target total cost of $14.4 million, with approximately 30% going to soft-cost and 70% to hard-costs.
Based on figures provided by NAIOP, the Commercial Real Estate Development Association, a non-reviewed project of this typology can expect RFI expenses of approximately 1.6%, or $230,400. Based on a Navigant Consulting study that established an average RFI soft expense of $1,080, resulting in approximately 213 RFIs. This budget overrun is then compounded by the resulting change orders, which on average exceed 12.5%, or $1.8 million in additional expense, combining for $2,030,400 in cost overruns.
CHECKSET aims to close the gap between the minimum standard of care (which requires 10-15% contingencies to be absorbed by the development team) and a fully optimized deliverable that minimizes these unnecessary deficiencies.
According to surveyed clients, projects that have been comprehensively reviewed by CHECKSET have benefited from up to a 70% reduction in RFIs when compared to equivalent, non-reviewed projects. Consequently, the RFI count would reduce from 213, down to 64, reducing their associated cost overrun from $230,400 to $69,120, for a total RFI savings of $161,280. Furthermore, given the substantial reduction in RFIs, Change Order expenses would conservatively be reduced by approximately 50%, providing an additional $900,000 in savings. These combined for a total of $1,061,280 in harvested savings, representing a 6.46% cost savings for the total project budget.
Based on an average review budget of $26k for a project of this scale, developers can reliably expect up to a 40x ROI (return on investment). Needless to say, partnering with CHECKSET simply makes financial sense.