College Construction Management Programs

There is a debate within construction management programs in colleges and universities spanning the last three decades as to how much engineering should be taught as opposed to construction management.  Because there is more combined subject-matter that could be taught than will conveniently fit within a 4-year degree program, there has and still is a tension between two approaches.  One approach favors more technical education in mathematics, engineering, and the basics of architectural design, while the traditional construction management approach favors classes in estimating, planning, scheduling, cost-control, jobsite safety programs, finance, and project management.

Over the last decade or two, college construction management programs that previously tilted toward a more engineering based focus…are now shifting back towards a greater emphasis upon pure construction management, to meet the demands of the industry.  Large building construction companies are telling colleges they want new graduates coming out of construction management programs to have more skills in project management, and to possess a familiarity and facility with the latest building construction design and project management computer software.

One of the real-world realities that enters into this mix and that requires common-sense consideration, is that high-rise skyscrapers in New York City, for example, are built…in their entirety…without any tradespeople onsite ever having to differentiate or integrate calculus equations as part of their work.  Massively complicated structures are built from the ground up with only the occasional tradesperson applying simple 3-4-5 trigonometry to check the accuracy of the square-ness of their interior wall layout.  The most complicated mathematical computations performed onsite are probably done by the surveying crew.  A large gulf exists therefore between the technical design that occurs in an office environment, and the practical assembly of building components that takes place on the actual building site.  The information that connects the design to the construction is the design calculations, translated into project documents usable by the building tradespeople working onsite, known as the plans and specifications.

The idea that the general contractor’s onsite construction supervision staff would perform complex engineering calculations that displaced the engineering design performed by the project engineers and architect of record, would be a dangerous development.  The last thing the general contractor and subcontractors on a new building construction project want to do is to assume part of the liability for the building’s design.  There has to be a clear separation between design and construction.  Even in the design-build contractual arrangement, we want qualified licensed designers performing the actual design work, with valuable practical input from construction experts.  We do not want half-qualified and partially trained people designing the structural elements or the mechanical systems for even the simplest buildings, no matter how sophisticated the building design computer software is.

How then does this relate to the question of the proper balance between engineering and project management in construction management college programs, especially with the proliferation of highly developed design software systems today?  Where should responsible educators draw the line in crafting curriculums that match the needs of employers and at the same time provide the foundation for professional growth after graduates enter the workforce?

New Home Price Affects Final Quality Approach

The price range of the new house determines the final approach taken to achieve a quality product.

For high-end luxury new homes the various subcontractors directly related to visual quality…the subcontractors for painting, finish carpentry, finish plumbing, drywall, tile, and flooring…to name a few…will not allow the jobsite superintendent or anyone else to make repairs to their work.  In this price range…these subcontractors obtain work through word-of-mouth referrals based upon their reputation…so they take full ownership over the quality of their finished work.

I once worked as the project manager/onsite superintendent on four multi-million dollar houses in Newport Coast, Southern California.  At the completion of the first house, I asked the painting contractor for a small amount of flat wall paint so that I could do minor touchup myself instead of adding these items to an already massive punchlist for a 10,600 square-foot house.  He humorously told me that I cannot touch his work…even the flat wall painting…which was a departure for me coming from a previous background in tract housing where the sheer volume of the number of houses needing final prep precluded getting the painter to touchup every last smudge on the walls.

The opposite approach is found in the economic low-end of production tract housing and condominiums…where the various subcontractors cannot financially afford to do perfect Steinway or Stradivarius workmanship and still make money.

As a superintendent in this price range I learned that it was easier and less time-consuming…after all of the punchlist repairs were made by the subcontractors…to do final prep repairs myself along with assistant superintendents and customer service staff…in order to aim for zero-item homebuyer walkthroughs.

Newly constructed houses in the middle price ranges require some middle ground mix of subcontractor pickup repairs plus some amount of builder prep-crew final touches to achieve final acceptable quality.

In my opinion, people in building construction who say: “the subcontractors should be able to make their final pickup repairs to produce low-item homebuyer walkthroughs” are leaving out the important qualifying information as to the price range of the houses being discussed.

Final quality is not an apples-to-apples comparison when house prices can range from $200 thousand to $10 million.

Projects that Finish Late Lose Money at the Back-End

One of the considerations for new housing projects large and small…large tract housing projects or single-family spec houses…is that construction loan interest becomes larger at the tail-end of the project.

Construction loan interest costs…which are fixed monthly expenses…which must be paid to avoid a loan going into default…are calculated on the total amount of funds that have been disbursed through the loan…and are therefore a growing unpaid balance until the property is sold and loan balance paid off.

At the beginning of the construction the disbursements out of the construction loan are relatively small compared to the total loan amount…and thus the interest costs are also relatively small.

But the vigilant management of time and the sense of urgency in prosecuting the work should never let-up from start to finish…because time gets more expensive as the construction progresses and disbursements accumulate.

This is one reason why constructability analysis based upon recorded past lessons learned is a proactive investment in preventing construction problems that cause delays in time.  Unanticipated design and construction problems that arise throughout the course of the actual construction…that cause work stoppages…and that dovetail with other adverse events like bad weather or materials procurement problems…should be analyzed in terms of their loan interest costs at the tail-end of the project…or the current costs to accelerate the work to catch up on the schedule.

Paying two or three months of loan interest costs at the end of the project for a high-end luxury house that has a loan balance of several million dollars outstanding because the structural plans had problems requiring re-design and resubmittal to the city/county for plan check…resulting in a work stoppage 14 months ago during the concrete and structural steel phase of the project…translates into the most expensive loan interests costs because they are calculate on a near fully disbursed construction loan.

The same concept applies to tract housing, custom homes, and apartment projects.  Time is money…whether in construction loan interest or lost rental income…when projects are completed late.

The point of this post is to suggest that the value of preventive constructability analysis upfront…can be viewed in hindsight as huge when looking back on the costs of a project that finished late.

The value of mistake prevention looking forward at the start of a new project is difficult to calculate…how can the avoidance of a future potential problem that was eliminated ahead-of-time…that did not occur…be evaluated in terms of dollars.

The idea that diligence and urgency is an approach that should be applied uniformly and universally throughout the duration of a housing construction project from start to finish…is a concept that is reinforced by the accelerating accumulation of loan interest costs as the work progresses.

Out-of-pocket Expenses and the Construction Loan

While working as the vice-president of construction and onsite project manager for the construction of four high-end houses in Newport Coast in Southern California…the construction lender could not entirely cover the hard-costs for houses having sales prices of $6.75 to $12.5 million…each house exceeding their loan limits.

We therefore capitalized (owner’s equity) 18-1/2% of the upfront costs of the construction budget, paying out-of-pocket for the concrete work and part of the lumber costs.  The idea here is to postpone the disbursement of construction loan funds to a later point in time during the construction…so as to start the clock for loan interest costs beginning part-way into the total project duration…rather than paying interest on construction disbursements for the entire duration of an 18-month construction schedule.

I also worked for nine years as a construction manager for a bank.  Several savvy single-family builders manipulated their construction disbursements to minimize loan interest payments.  Even though the construction budget lines itemized on the construction loan document have the required funds for each category of the work…the borrower is not required to withdraw/use funds for every budget line-item during the course of the construction.

Some borrowers would complete and sell the new house, close escrow and pay-off the loan…yet still have unused funds in several categories like HVAC, flooring, landscaping, supervision, and builder’s fee…thus not paying interest on the funds leftover in these line-items.  This is a perfectly acceptable approach by the builder/borrower…using out-of-pocket funds for some activities rather than taking disbursements that come with loan interest costs.

The construction lender is required to adequately “fund” the new construction project…but the borrower is not required to use all of the funds itemized in the budget.

Keeping Self-Perform Work Crews Busy

There is a sweet-spot compromise between finding and keeping competent yet economical subcontractors…and maintaining self-performing tradespeople…for the local builder of single-family houses.

I once worked…in my middle twenties…for a home remodeling contractor in a thriving beach community…who maintained an in-house, self-perform crew of six people including himself…with a part-time employee doing occasional rough cleanup…and the usual specialty subcontractors…plumbing, electrical, HVAC, cabinets, drywall, etc.  Our crew did the demolition, concrete, framing, and finish carpentry.     

            The challenge for this remodeling contractor was to always keep enough work out in front of us so we were busy five days a week and occasional Saturdays.  This locally popular remodeling contractor would tell new prospective clients he would accept their project…but it would take three months before the start date.  The other balancing act was to get the subcontractors to show up on time and with full-size crews…as they also had their own challenge of keeping their workforce busy.

Later in my career, I also worked for a large single-family homebuilder doing a mix of “spec” and custom homes in an upscale, economically high-end location…who employed a self-perform crew of 50-plus people in eight specialty trades…plumbing, electrical, finish carpentry, painting, low-voltage, concrete flatwork, tile, and general labor.  This homebuilder subcontracted the other major trades.

The problem for discussion here is that the scheduling and coordination of these varied and different sized work crews…some have 4 or 5 people and others having crew sizes of 10 to 12 people…all having different length durations of time to perform their work on each project…resulted in several projects sitting empty and unmanned for days as crews were shifted daily in the reactive mode of “putting out fires”…in response to never having enough people to go around according to the absolute and overriding imperative of keeping everyone busy.

By employing numerous diverse specialty trades…in order to be both economical and have control over the quality of the work…the builder in this example in essence supervised and managed eight disparate in-house subcontractors with the requirement to give every worker a full-time, 40-hour workweek…otherwise people would leave and find work elsewhere.

The cost for this approach was the loss of overall time.  The number of small clusters of two days here and three days there of projects sitting empty and unworked-on waiting for crews to arrive…added up to most or all of the projects being completed late as much as three to six months.

This particular homebuilder was so committed to this approach that it was unwilling to change…and over time developed a reputation within the community of not being able to deliver their projects on time as promised.

If every person within a large self-perform crew of diverse specialty trades must be kept busy…then what has to give in this arrangement is time.  In the three-way relationship between cost, time, and quality…if cost and quality predominate…then time suffers.

Using subcontractors can be frustrating in terms of controlling manpower and production rates…and in maintaining consistent quality.  But expanding into multiple diverse specialty work crews in-house is not the panacea that it might appear at first glance.

Using Square Footage to Calculate Dollars per Square Foot

I worked in the construction management department of a bank for nine years.  In interacting with realtors, builders, and bank loan officers, the term “dollars per square foot” is often used to describe and differentiate between qualities of craftsmanship, levels of amenities, and geographical location of a particular new house under construction or for sale…all communicated through this one phrase.

During the last five years of working for this bank, I was given the task of evaluating new single-family construction loans in terms of the sufficiency of each construction budget line-item…lumber, framing labor, cabinets, HVAC, flooring, etc.

To create a more accurate method to evaluate each new loan, we produced “cost models” representing each geographical area by taking past recent completed loans in these areas, and dividing each budget line-item by the house square footage to create a bench-mark average consensus of the dollars per square foot for each construction activity and a global number for that geographical area…all in comparable units of dollars per square foot.

While calculating the square footage from the building plans from outside-of-wall to outside-of-wall, plus the internally, in-house agreed-upon convention of 50% for garages and balcony decks, we discovered that our total square foot calculations exceeded by about 10% the square footage given on the title page of the architectural plans.

For a construction management department…within a lender…evaluating the budgets for new single-family construction loans…getting the right dollars per square foot is important to avoid construction loans falling short of funds midway or at the end of the construction…requiring the borrower to come back to the bank for an increase called a “loan modification.”  Loan modifications add an increased element of risk to the overall bank loan portfolio…too many as a percentage of the total number of loans and the bank regulatory agency will note this negatively in its periodic audit…affecting the bank rating and stock value.

So…why this 10% difference in calculating house square footage?  The architect uses “living space”…inside-of-wall to inside-of-wall…as the criteria for calculating the house square footage.

I have never heard the official reasoning behind this approach, but we assumed one reason is that living space is a number that the home buyer can evaluate that leaves out the thickness of exterior and interior walls…unusable space for living.  But another convenient reason in terms of cost to the builder and the home buyer is that an understated house square footage based on living space…reduces city building permit and plan check fees when cities and counties accept this living space square footage number given in the architectural plans.

Because the actual construction costs of concrete, lumber, drywall, painting, roofing, and stucco plastering extend from outside-of-wall to outside-of-wall…a square footage total understated by 10% using living space…will artificially inflate costs per square foot overall and for every budget line-item…making it appear there is more money per line-item in the budget than there is.  From a real estate sales standpoint this gives the house a better appraisal valuation in terms of construction costs and amenities.

In effect, an apples and oranges difference is created which inaccurately skews the talking-point cost appraisal number higher by 10%…unless the caveat is disclosed that the figure given is based on living space…which is almost never done…because few realtors, builders, or bankers make the distinction.

Only a construction person would bother to calculate the real square footage on the plans…rather than accept the architect’s “living space” square footage…and this would only be done for the purposes of uniformity and reality in comparing construction costs in the banking industry…for evaluating new construction loan budgets…and for other interests related to construction costs such as cost estimating.

In closing, an example would be helpful.  Using round numbers…assume a 3,000 square- foot size house in the year 2000 in East Manhattan Beach in Southern California on the inland side of Sepulveda Boulevard, with a lot price of $500,000 (knock-down the old existing house), a projected new house sales price of $1,100,000, and construction budget costs of $300,000.

If we use these figures…the construction costs are $100 per square foot.  The builder, realtor, and anyone else involved in the marketing and sale of the new house will use this number to communicate the quality and amenity level of the construction.

But what if, after calculating the square footage of the new house using the criterial of gross square footage plus the convention of 50% for garages and balconies (they have real costs) instead of living space…the actual square footage is 10% higher at 3,300 square feet.

This new larger number as the divisor in the denominator correspondingly produces numbers throughout the budget and overall that are smaller than derived using the architect’s square footage.  The construction costs per square foot are now $300,000/3,300 square feet… yielding $97/square foot…not $100/square foot.

In a new construction loan budget, if the number for the line-item HVAC is understated by 10% at $18,000 when it should be $19,800 per the cost model…along with every other budget line-item like cabinets, countertops, finish plumbing, and hard surface flooring, for examples, not only is the potential for the need for a loan modification increased by 10%, but the value of the product has been inflated artificially from $97 to $100, in an industry where these comparative numbers are important, valued, relied upon, and evaluated by the consumer.

What is the Sweet-Spot Economically for Self-Perform Crews?

For the high-end, custom and spec homebuilder…there is a sweet-spot compromise between maintaining a mix of economical subcontractors plus in-house, self-perform tradespeople…as opposed to manning the jobsites with the optimum number of workers in order to complete each house on schedule.

I once worked for a homebuilder who maintained on the payroll over 50 people in seven different building trade specialties…plumbing, electrical, finish carpentry, painting, concrete flatwork, audio/video, and general labor…plus independent subcontractors in the other trades such as framing, drywall, HVAC, roofing, and flooring, for example.

The idea here…to self-perform some of the work…was to economize on labor costs, eliminate some profit and overhead that would otherwise go to subcontractors, maintain continuity of ways of doing the work and quality of workmanship, and exercise direct control over the self-perform crews in terms of scheduling and timely customer service repairs.

On the surface, these are in theory all excellent reasons to build and maintain a large self-perform workforce…but in practical application it is very difficult to keep self-perform crews busy for a 40-hour a week paycheck…and at the same time keep all of the jobsites manned at the optimum rate to complete the construction on time…within the tight constraints of a fixed and rigid numbers of detached houses being built at one time.

The duration lengths of time and the move-ons and move-offs for each building trade differ radically over the course of the construction of any house…but is especially complex for high-end luxury houses…spec or custom.

The only way to keep everyone busy yet also fully manned on every jobsite would be to have tradespeople who are capable of working in two or three or even four different specialty trades…which is not realistic.

The result of not being able to fully man each jobsite every day using mostly self-perform work crews…because of their specialization and the differing time durations needed for each construction activity…produces a result that some jobsites will sit empty for several days or more waiting for the needed crew to finish on another of the homebuilder’s houses a few streets away.

What seemed economical at the front-end of building the homebuilding company may not be so economical if construction loan interest costs for not completing houses on time…or dissatisfied customers must wait for their house to be completed two or three months late…as a result of the practice of the impossibility of fully manning every jobsite using predominantly self-perform crews that are inadequate to successfully fill the daily jigsaw puzzle of pieces needed.