Over the last ten years the cost of construction materials have been rising, and the Associated General Contractors of America forecast that this trend will continue for at least the next five years.
It may sound obvious, but in such a tough operating environment, understanding the impact of the rising cost of construction materials is a critical factor in delivering successful airport terminal projects.
When it comes to the airport terminal itself, many aspects of its design are rigid – the requirement for baggage, security and IT systems, for example – and generally are not subject to significant cost compromises.
In addition, the overall duration of large airport capital programmes (often lasting five or more years after initial concept development until beneficial operation) further exposes these projects to the impacts of rising construction material costs.
The global economy and ever-changing business models of the airlines also compound already intense cost pressures associated with such large-scale capital projects.
Establishing an early programme strategy that includes costs as part of the planning, design and implementation stages requires proven processes executed by highly experienced design and construction teams.
Indeed, effective implementation of cost control in airport design requires a holistic and flexible approach that includes consideration of various factors that are unique to each airport project.
These factors may relate to total project duration, impact to ongoing operations, financial strategy, programme delivery strategy, asset management approach, building code requirements and sustainability objectives. The following strategies are critical elements to creating a holistic and flexible cost control approach.
Consider escalation early
Given that airport terminal projects take a substantial amount of time to plan, design and implement, it is critical that estimates of probable costs at all stages of the project include construction cost escalation.
Since construction costs are typically estimated to the mid-point of construction, it is important to take a conservative approach to establishing the date of beneficial operation. In the planning stages, balance the facility need dates based on projected growth in operational activity with realistic implementation times, as it may not be feasible to deliver a capital programme to exactly coincide with demand.
In addition, many of the larger capital programmes experience a “period of validation” at some point during their lifespan that can further delay beneficial operations. This delay can have a significant impact on total programme costs if it is not accounted for in the overall project duration.
At Sacramento International Airport, for example, architects Corgan Associates recognised this issue early on as the planning for the new terminal occurred during one of the most volatile construction pricing markets. Double-digit escalation was assumed to compensate for the worldwide demand on materials during the mid-2000s.
The recognition of escalating cost during the development of the programme budget allowed implementation of the full project with the final cost coming in under budget.
Set realistic expectations
Probably the single biggest contributor to increasing construction materials costs as a portion of the total project cost is a failure to establish realistic expectations of the type and quality of construction materials, particularly interior finishes, to be used in the project.
When budgets for airport terminal projects are established early in the design phase, it is important to gain consensus on the type and quality of construction materials that are included in the estimate of probable cost.
This will significantly reduce the potential for changes in materials later in the design phase, which can increase the project cost.
Establishing realistic expectations early can also guard against unnecessary cost reduction exercises that commonly result in the use of lower quality materials that compromise the original project goals for performance and visual appearance.
Include construction expertise in the design process
Early in the design phase, include construction expertise so that cost effective construction practices are considered in the design. As the design concept is developed and the facilities begin to take shape, it is beneficial to understand how the project might be constructed and whether or not ‘normal’ construction practices and equipment can be utilised or if ‘specialised’ equipment or personnel are required that would increase the cost of construction.
It is also helpful to understand the potential construction phasing strategies so that the fundamentals of the design (structural elements, exterior facades, interior modulation, for instance) can be efficiently implemented in co-ordination with the chosen construction schedule.
During the schematic design and design development phases of the Dallas Love Field Modernization Program, the construction manager-at-risk was closely involved with the evolution of the design, including design presentations with stakeholders. This allowed a real-time construction cost perspective to be applied to the selection of construction materials.
When choices between materials had to be made due to cost implications, it was conducted through a transparent process that involved the stakeholders, designers, and contractors – which unified everyone’s expectations of the final product.
Use standard construction materials
Regardless of whether escalation is included in the initial estimates of probable cost, every project is likely to undergo a value-engineering or cost reduction effort as the design phase progresses.
Many times the replacement of one material with a more cost-effective one requires significant changes to the design that practically eliminate the savings associated with the alternative product. The use of standard-size materials and commonly used finishes allows for the flexibility to replace various elements with more cost-effective products without changing the design. By using standard construction materials, this can be accomplished in most cases without impacting the initial design intent.
In addition, using fewer material or finish types can increase the buying power of the contractor and potentially offset any unforeseen increases in material costs.
During the development of the design for Sacramento International Airport’s Terminal B, a modulation grid for the building was developed based on standard material sizes. The modulation allowed the team the flexibility to select from a variety of materials and to further sub-divide the grid as necessary.
Value engineering was reviewed throughout the design process and when alternate selections were necessary, they were easily incorporated into the finishes without requiring redesign.
Ceilings and wall finishes are two examples where initial selections were changed during documentation and construction to help maintain budget without impacting the design intent.
Use a life-cycle perspective
One of the biggest mistakes that can be made as the design process nears completion is to replace various building components or materials with ones that have a lower initial capital cost and are less durable and have higher maintenance requirements.
Using a life-cycle perspective takes into account the total cost of ownership of every element of the building. Building components that use significantly less energy or have a higher life expectancy often times result in lower total cost of ownership when compared to less-expensive products.
With operations and maintenance (O&M) costs being one of the largest elements in most every airport’s budget, it is critical to consider the long-term implications of making short-term cost reduction decisions.
Specify local materials
The use of local materials can be a key strategy not only in hedging against the rising cost of construction materials but also supporting the project’s sustainability objectives. Because transportation costs often represent a significant portion of the total cost of materials (especially those sourced from other countries), products that do not have complex supply chain requirements should be less susceptible to market price inflation.
Local materials also reduce the project’s risk exposure to schedule delays, which can have a greater impact on the total project cost than the rising cost of construction materials.
Evaluate programme delivery method and exposure to market risk
Establishing the programme delivery method (design-bid-build, construction manager-at-risk, design-build, for instance) is often one of the most significant decisions in large airport capital programmes.
Various factors, such as local regulations or the owner’s preference, can influence which delivery method is selected for a given project.
An often overlooked factor in evaluating the delivery method is the exposure to market price fluctuation.
For example, while design-bid-build often produces the lowest bid it may result in a longer total implementation duration (design to construction completion), which increases the project’s exposure to construction materials price fluctuation.
A comprehensive cost control strategy must consider all of the elements listed above to effectively mitigate the project’s exposure to the rising costs of construction materials.