Good design and quality finishes alone will not make your project successful. You need careful construction planning and budgeting to get the outcome you envision. Without both, costs can spiral quickly out of control.
Start with a Clear and Complete Budget
Your budget is the most important monitoring tool you have. A clear, complete budget gives you control from day one. Meticulous construction planning makes that budget much easier to build accurately.
In practice, most builders divide budgets into broad categories based on subcontractor bids. Some estimate costs by time, such as how long a dumpster will sit on site. This approach works for small projects. Larger builds demand a much higher level of detail.
Organize your budget across three levels: Area (such as Equipment Room), Phase (such as Finishes), and Task (such as installing a specific HVAC unit). Break each category down into wages and supply costs separately. Your finished budget should account for every element of the project. Verify that nothing is missing before work begins.
Poor planning at the start causes most construction project failures. Review the construction plan in full. Confirm it includes everything you want before you approve the base cost.
Understanding Total Cost and Escrow
Builders typically add a fixed percentage fee on top of the base construction cost. This fee covers administrative costs and profit. Add the base cost and the administrative fee together to get your total project cost.
Once you finalize the total, calculate your escrow amount. Hold a predetermined sum in a separate bank account. Retain 100% control of that escrow account yourself. Release funds only when the builder completes phases, not when they begin them.
The American Institute of Architects publishes standard contracts and forms to help owners manage construction spending. Use these two forms to track project costs:
- G702 — AIA Application for Payment
- G703 — AIA Continuation Sheet, Schedule of Values
Find instructions for completing both forms at AIA Contracts.
Control Every Payment and Document Everything
Require supporting documentation for every cost the builder submits. Invoices, timesheets, and receipts must accompany every charge. Withhold payment if the builder cannot provide documentation. Never give the builder or any employee access to your debit or credit cards.
Require the builder to pay all expenses directly and submit them per your signed agreement. Bill based on completed tasks or phases only, never on work that has simply started. Confirm this language in your contract before you sign it.
Code every charge to the correct area, phase, and task. Miscoding makes tasks appear over or under budget. It can also shift costs onto a change order, causing you to overpay beyond the original budget.
Monitor Builder and Subcontractor Time
Find out what other projects your builder and subcontractors are running alongside yours. Identify which employees your project has full-time and which ones it shares. Time tracking errors happen frequently. Builders can charge costs from another client’s project directly to yours.
Require employees to sign all timesheets. Require the Project Manager (PM) to approve them. If the builder employs the PM, hire an independent part-time PM yourself. You can also ask your architect to audit the site periodically. Regular site visits confirm that workers are on site for the required hours and that work meets the construction plans.
Hire an Accountant Who Knows Construction
Hire an accountant with direct construction experience. This person reviews all billing and monitors your financial controls throughout the project. They should work directly with your PM and architect to verify every charge the builder submits.
Require your accountant, PM, and architect to approve all billing before you release any payment to the builder.
Protect Your Investment
Your project will be part of your life for years. Build a team that puts your interests first. Careful financial monitoring and thorough documentation keep your project on budget and on schedule.
Consult Your CFO brings deep experience in construction project financial oversight. Learn how a fractional CFO can protect your investment. Contact our team or call 410-371-0821.