Cost Corner – M&H Cost Analysis Approach

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by Mike Dwyer, Principal, M&H Cost & Review Group

Optimism prevails among architects and engineers as new construction planning appears to be increasing. The Architectural Billing Index (ABI), an indicator of construction work entering the pipeline due to active projects on the boards of architectural offices, is rising steadily and shows the strongest growth since 2007. Improved design coordination and competitive pricing by prospective contractors bode well for budgeting of construction projects. At Merritt & Harris, analyzing a construction budget goes much deeper than just analyzing the numbers.

Each trade line item is reviewed based upon the plans, specifications, and project documents. Foundations are priced in accordance with the geotechnical engineer’s recommended foundation system. When analyzing other trade prices, we need to be aware of any special systems and/or materials, or unique project requirements defined in the plans. While the specifications are critical to pricing, other factors and documents need to be considered.

The construction contract needs to be reviewed to ascertain what the contractor intends to provide. Are there large allowances for undefined scopes of work? Does the contract alter the specifications? Is the construction schedule achievable? Has the contractor built similar projects? How much of the budget is confirmed with actual subcontractor bids?

The professionals of record agreements also need to be reviewed. Not only do we expect the architects and engineers to provide the design, but it is important that they also review work as it progresses to confirm that it is in accordance with their design. Deviations in the field can often cause delays, stall the receipt of Certificates of Occupancy, or lead to excessive cost overruns.

Although the developer may not see the need for providing the many documents required for a review, a comprehensive analysis by the construction consultant is a key component to the success of the project.

Some interesting “red flags” we’ve seen in  budgets provided for review have been line items presented in alphabetical order; the statement, “There is no need for a contingency”; a note that the contract is a “lump-sum GMP”; and the declaration that the contract contains a “NOCIP (meaning no insurance).”

If you’d like to discuss more critical construction issues you may encounter in a pre-construction review, please email at  or phone me at 917-449-9248.

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