Zach Bergeron, Associate and Construction Economist discusses the key ingredients of a worthwhile reconciliation.
There is no denying that garnering a second opinion can be tremendously valuable. We employ this strategy when buying a new car or in considering multiple mortgage brokers to ensure we are getting the best pricing or interest rate. Most notable perhaps, is the second opinion we might pursue when a loved one is given a troubling medical diagnosis; the premise being that we try to reach a comfort level with our decisions. While pre-construction is not a life or death situation, getting a third party to perform a parallel estimate and conduct a reconciliation meeting is the closest one can get to that desired level of comfort during the preconstruction process.
What is a reconciliation you ask? Let me start with what it is not:
- It is not anything that resembles an argument or disagreement in any way shape or form; your third-party cost consultant should not be in the business of trying to prove their worth and the construction manager’s faults.
- It is not the cure to a budget bust that has been surpassed by either over-embellished design, fault in the establishment of the budget via early preconstruction or the client’s insistence on carrying a budget that cannot be achieved with the program desired.
- An alignment of scope of work, quantities, and unit rates by the construction manager and your third-party estimator to find the fair and reasonable cost of the design; each party has performed their estimate in parallel and this is the time to resolve the discrepancies.
- An audit as to the quality of the design documents; the clearer the design the likelihood that delta between scope and quantities should be minimized whereas ambiguity in design may lead to larger assumptions being made.
- Preconstruction quality control at its core; by evaluating via parallel estimating and then reconciling, much of the risk of being considerably under or over budget has been mitigated.
- As most cost-consultants are often hired by the design-team or client direct, that party’s interests are represented, and the design and intent can be protected.
At Vermeulens, we refer to reconciliation as the “The Show” and probably like many of our peers, it is one of the reasons we are hired. Putting together a third party, unbiased estimate adds value. Facilitating a meeting that can give the client and design-team an assurance of where their millions of dollars will be spent, within a couple of percentage points, is the largest impact that your third-party estimator can provide. What really makes me passionate about the reconciliation process is working collaboratively with all parties in an effort to assist in the creation of the eventual project.
The key ingredients of a worthwhile reconciliation meeting are as follows:
At a minimum, the meeting should include your third-party cost consultant, the construction manager’s cost estimator, the lead architect and the client; these people are paramount and are preferably involved throughout the duration of the meeting.
A reconciliation meeting is not improved by the quantity of individuals at the table, but by the quality. Additional attendees are welcome, but it is often best to avoid having 'too many cooks in the kitchen.' A good rule of thumb is if the person cannot resolve a discrepancy between the estimates either through calculation or stating the design intent, then their time is likely more valuable outside of the room.
The reconciliation meeting needs to stay on task. A quick round of introductions, perhaps some opening remarks by the client and then 15-minutes into the meeting the only task is to align on scope of work, quantities, and unit prices. All too often, meetings are derailed by focusing on the variance in the pricing of previous design milestones, design itself or, most-notably, value management discussions that attempt to get back to budget. All of these are relevant discussions to the preconstruction process, but they have no place at a reconciliation meeting. Until there is a correlation between a reasonable percentage on the bottom line of pricing from both parties, most conversations are typically irrelevant or premature and make reconciliation meetings inefficient.
Setting an agenda up front and staying focused saves the client money and keeps the process on the right track. All too often meetings take place without a proper structure to guide the discussion. It does not have to be anything formal, but just a plan of attack for the meeting and a resource to keep/get back on track.
Among its many benefits, the agenda will offer the best use of everyone's time. Particular consultants can be brought in when the agenda dictates. The alternative might be that engagement is diminished when a mechanical consultant must sit through the geotechnical or landscape discussions.
Most important is the actual ability of the cost-consultant to facilitate an efficient meeting; reeling the conversation and individuals in when they go overboard.
I alluded to ‘proving of worth’ factor that might be construed as necessary to the reconciliation process. Let me assure, it has no business in our business. The key element is collaboration. Egos are to be put aside for a time to allow for a touch of humility. By doing so, progress can be made, a thoughtful debate can occur, and, with a little luck, everyone will walk out of the room learning something new.
When the meeting closes and the overall delta between your third-party estimator and your construction manager has been reduced, you now know your next step. That next step could very well be proceeding with the design or an additional effort to get back to budget. If a reconciliation does not take place, the alternative is to proceed without a second opinion. I am not insinuating that the construction manager’s estimate cannot be trusted, but, until it is fully vetted by a third-party, you are essentially rolling the dice.
Still not sold on whether or not reconciliation is right for your project? Think of it this way: typically speaking a reconciliation is order-of-magnitude, less than one-hundredth of one percent of the cost of construction. Comparing that investment with the risk mitigated by reducing the cost differential between two parallel estimates from, say, 5% to even 1% is incredibly valuable. Isn’t the life of your project worth that second opinion?