Building a house or any construction is a complex business to manage. Construction is a process that requires a considerable amount of labor, resources, and materials. You have to look at many factors simultaneously, and there are many decisions you have to make.
It is essential for you to make a budget beforehand, plan things accordingly, and see the value of your project and how much profit you can make from it. At the same time, you have to look at the cost of improvements and maintenance, which you would have to manage as well. While you can do all the work related to the finances yourself, you need to hire a contractor to handle the actual construction work of the project.
Usually, a contractor gives estimates or quotes about the amount of budget needed to complete the project. This estimate is provided by keeping in mind the cost of raw materials, cost of labor, and keeping 10-20% for any potential overruns. However, the projects sometimes end up costing more than the estimated price. This override of the budget causes a decrease in profit and a concern for the project owner. But neither parties are a reason for this cost outside the budget, and it is a difficult situation for both parties.
Causes of Budget Overruns in Construction Projects:
- 1 Causes of Budget Overruns in Construction Projects:
- 2 What to do When Contractors go over the Budget?
- 3 Conclusion:
Budget overages are a common phenomenon, and there can be many reasons for it. These reasons are neither under the owner’s control nor are the contractor, and they are just the demands of the project, which results in higher costs. If we understand the causes of the overrun in budget first, we will be better able to know how to deal with such a situation:
1. Extra Labor Needed:
This can occur when the contractor needs to hire more labor than what has initially been decided to complete the project on time. Or it can be that the project is delayed, and the additional time taken by the manpower increases the labor costs. This causes the overall project costs to go over the budget.
2. The Previous Condition of the Project is Worse Than Expected:
The contractors see the damages which have to be repaired and changes to be made before starting the renovation or remodeling of the projects. But sometimes it happens that when they start working, they see many other things require improvements, resulting in additional labor and materials, which shoot up the cost.
3. Changes in the Cost of Material:
For big projects which take years to complete, the cost of the materials at the start of the project may increase later on. This results in the overall prices being more than the budgeted price, which is predetermined. Especially those materials required in higher quantities, if their prices go up in the market, they are likely to increase the project’s final cost.
4. Additional Help Required:
If the contractor starts his work and sees a case that cannot be solved, he might have to hire another contractor to deal with it, or some additional help would have to be appointed. For example, if the contractor comes across some electric work that he cannot handle, he would have to hire a trained electrician to deal with it. If this problem had not been known before, the additional cost of the help appointed increases the project’s overall cost more than the budget set beforehand.
What to do When Contractors go over the Budget?
The above mentioned are some of the reasons why budget overages can occur. When the cost of the project goes over the budget, it is no one’s fault. But it usually results in an outrageous reaction from the owner towards the contractor. Although natural, such a reaction is of no use, and the critical situation can be handled in a much strategic way. Here are some steps you can follow when you are faced with such a problem. These strategies help you handle the situation in a much better and intelligible way so that the project results are fruitful for both the owner and the contractor.
1. Discuss The Problem:
One way to deal maturely with budget overages is to first understand the problem by discussing it in detail with your contractor. There is no benefit in shifting the blame on the contractor. Instead, we should sit down and evaluate each and everything. We should start by looking at the initial expectations of the projects and the cost expected for every step and analyzing the whole construction process.
In this way, we will be able to evaluate what happened outside of what had initially been expected, resulting in the higher cost. We can pinpoint where things took a wrong path, and the project went off course. In this way, we can let the contractor know where problems had occurred so that he can reevaluate and solve the problem. However, it is necessary that you civilly discuss the matter and stay calm throughout.
2. Discuss the Matter with only Relevant People:
When the problem of going over the budget occurs, it is wise to only talk to the key decision-makers about it, which only involves the contractors. Telling the contractor his mistakes in front of his employees or people he has hired to work for him will make him feel insulted and humiliated. In this case, he would be unlikely to accept his mistake at all.
Because at the end of the day, even if the budget is high, the contractor still worked a lot on the project and his hard work is important to him. If he is insulted about his work in front of others, he is likely to try to protect his dignity and not try to understand the problem. The contractor must see where the problem had occurred so he can solve it in a better way. For this, it is essential that we talk to him alone and discuss respectfully so as not to invoke his dignity and pride.
3. Look at the Facts:
Discussion of facts is essential to better understand the depths of a problem. Sometimes, you as an owner will have difficulty understanding why a particular step or a specific material resulted in a higher cost or why the contractor took that step. To understand the contractor’s point of view and the problem itself, you need to look at the fact and figures. This will help you get a clear picture of how and why the problem occurred. Therefore we must look at the facts of a project that went over the budget.
While looking at the facts, you can:
- Make a list of the work and procedures performed by the contractor and the cost used for each task and purchase of every item.
- Ask the contractor why he performed a particular task, especially if that task was not on the original plan.
- Ask the contractor how a particular task he performed helped add value to the project. Maybe the contractor had a better reason for it, keeping in mind the benefit of the project.
- Ask the contractor if the tasks performed could have been done more economically.
This will help us to better understand how the project was executed and what resulted in the increased cost. We will know all the aspects of the situation in clarity and will be able to handle the situation better. This will help us to deal with the problem more rationally and realistically.
4. Listen to the Contractor:
As owners, we do have some vision about the project, and the increase in the budget does make us think as if we are at a loss, but we should know that we are not professional and do not know the work, and that is why we have hired contractors in the first place. Therefore, we should think objectively and listen to the contractor in a calm and composed manner. Most of the contractors are experienced professionals who make decisions according to their expertise and skills. They are honest, and their goal is not to waste your money but to provide you with the best services and materials for your project.
We have to listen to the contractor’s sides and why they took certain decisions to better understand them because, in the end, they are working for our betterment, so it is our duty to listen to them. If we listen attentively and try to understand the logic of the contractors, we will be better able to make terms with the fact that the cost is more. Maybe the contractor’s decision was for our safety because he saw that there was some internal mold in the walls, and he had to get more work done, which cost more. Understanding the contractor’s position and listening to him makes us more comfortable with the problems and understanding the logic behind the increase in cost.
5. Don’t Shift Bames:
The contractor can also mess up and make mistakes, and even in this situation, we should not humiliate and insult him or threaten his job. We must cooperate with the contractor because even if the project is not according to what we wanted, the contractor tried his best. To get the project back on track according to the original plan, we need the contractors to help with it.
Fighting and putting all the blame on the contractor can even lead him to leave the job without completing it or completing it half-heartedly which is of no use. Therefore we should cooperate with the contractor to fix the error and find the solution to the problem. We should focus not on how and because of whom the problem occurred but on how to solve the problem and deal with it now.
6. Review the Quote and Estimate in the Contract:
Before starting the project, the contractor signed a contract, which consists of all the terms and conditions, including the budget estimates and quotes which are given by the contractor about the cost of the project. It is advised that you go through the contract once again to ensure that you have not missed anything. You need to double-check whether the contractor provided the quote or estimate or not. Also, check if the provided proposal was signed by the contractor. You also need to see if there is a mention of any additional charges to be applied or not or does the contract provides flexibility for additional costs when they arise.
All these things help us to make sure whether there is actually a problem or not. Sometimes what we think to be a reason for the extra charge or a problem or a mistake of the contractor is not as such in reality. The solution to the problem is sometimes right in front of us. Therefore, we must review the contract once more to ensure we’re on the right page.
7. Don’t Delay:
Open communication with the contractor about the project is necessary to be constantly updated about the progress and status of the project. Even if we trust the contractor and don’t want to interfere in his work, it is still necessary for us to stay in touch regarding the project’s milestones. If we notice that the contractor has made an error or we suspect that an issue may be arising, we should address it right away before it becomes a big problem that becomes difficult for us to manage.
We should ask the contractor about the problem instantly without letting it get worse, in the end, the costs accumulate so much, and we end up solving the problem afterward when all the damage has been done. Therefore, we should stay in touch and make sure that the work is done in the right way; this would also help the contractor stay on the right path and prevent you from having any cost burdens in the future.
To complete any project, the owner and contractor need to have a good relationship. Understanding and open communication can prevent many problems from becoming significant concerns. We can better be able to deal with any issues, including overruns of budget if we cooperate and do not have a pessimistic attitude. Such cooperation should be mutual, and it helps the project to turn out better than expected.