Editor’s Note: This the second of two blogs addressing construction challenges for long-term care providers.
Before the Blueprints
In part one of this series, we covered assembling a team of professionals and strategies to putting together a project plan, including preparing a complete budget, understanding the project’s cash flow, defining the project scope and, what may seem counterintuitive, putting together funding options earlier rather than later in the timeline. However, there’s still more planning to be done before construction starts.
Once the requirements of the project are determined, design and development begins. However, carefully managing this process is essential. Poor execution results in unnecessary delays, additional costs and confusion. Excessive disorganization can and does jeopardize project financing. Ultimately, it’s the owner or senior executive who is responsible for project implementation, management and completion.
Strategies for Success
Let’s discuss additional critical factors to having a well-developed project plan that ensures successful management and provides cost-efficient results. Strategies to adopt:
- Understand how project phases will impact the schedule and budget. Many projects, especially renovation projects, cannot have certain parts of construction occurring at the same time because of constraints on the project site and/or operational needs that require one aspect of the project be complete before another can begin. This can impact the availability and cost of financing. More importantly, it can impact on-going operations.
- Get a realistic construction estimate and update it regularly. The estimate will evolve as the project moves from concept phase to schematic design to design development. The project manager should identify key dates during the process when estimates will be updated and who will provide the estimates. Contrary to conventional wisdom, it isn’t the architect. While architects are a pivotal part of the team, they are working in the detail of the design process and may not be in the best position to provide a true market place estimate of the construction cost. Professionals who provide cost estimates as part of their professional services should be consulted at the schematic design and design development phases.
- Create a comprehensive project schedule. The schedule should recognize all the elements that could impact a project (finance, planning, design, permitting, construction, regulatory approval, move-in and start-up). Contingencies need to be incorporated into the schedule. Generally, a borrower can’t close on a financing until project bids are in, contracts are finalized and performance and payment bonds are in place. The schedule will outline the process for getting to bid compilation and a guaranteed maximum price (GMP), so the financing can close as well.
- Determine the right delivery method based on project needs and the hospital’s risk tolerance. The financing structure (bonds, USDA, HUD/FHA) can impact what project delivery method can be used to build the project. Methods include: design/bid/build, design/build, construction manager at risk, construction manager agency services and many hybrids of each of these. Each method has distinct pros and cons. The project manager makes it easier to understand the differences and determine which method will align with financing, project and organizational need.
- Establish a bid process. The methodology for bidding out the project and the number of bid packages used can impact pricing quality as well as the amount of time between bidding the project and closing on the financing. Understand the bid process that best supports the financing requirements and the project’s delivery method.
Meeting the Need
You’ve heard the warning before, but beginning in 2011, and continuing for the next 18 years, about 8,000 baby boomers will turn 65 each day, according to the American Association of Retired Persons. Many of these individuals will eventually need some form of assistance in daily living and entertain the idea of moving into a senior living community where many amenities are offered that make daily living easier than home ownership.
For senior living providers, renovating and expanding will be necessary to stay competitive and to meet consumer needs. Each construction project, however, will present new-found challenges, with uncertainties in the health care sector and the economy placing even greater burdens on already strained budgets. Having an integrated project team working together and following these strategies to build smarter will help manage total project costs.
Kyal Klawitter is a project manager with Walker & Associates, a health care project management service firm. He may be reached at [email protected].
Quintin Harris is a vice president with Lancaster Pollard in Lawrence, Kan. He may be reached at [email protected].