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Trying to Make Sense of New City Hall’s Increased Building Cost Rate

As you know, the cost to build our new City Hall has gone up by nearly $8 million over the past 8 months. One of the reasons for this high-cost increase is attributed to the increased rate per square foot of construction. The City Hall developer has told us last week that the City will need to pay $420 / sqft now, instead of $350 / sqft, that we ‘re told to pay 8 months ago.

That is a 20% rate increase over a very short period of time.

For the past few days, I’ve spent some good amount of time in trying to understand the reasons behind the cost increase.

Those of you who are familiar with the construction industry, the rate of the construction cost of any building mainly depends on two factors – material cost and the labor cost. For a larger building, the rate does not quite change, the total cost only changes.

The City Hall developer told us they anticipate a 60% to 40% ratio of labor to material cost for the project.

Developers also factor in contingencies/markup/profit, and special design elements of the structure when they make estimates.

I first looked into the recent material cost rate. Based on what we’ve heard about other recent City projects, I thought that the material cost was the main culprit behind the rate hike. For example, the cost rate for the Gateway Park project went up significantly last summer (over 3 years period) when the City Council approved its construction budget. This was mainly due to the tariff the U.S. imposed on importing steels and aluminum back in March 2018. Because of the imposed tariff, the market was very volatile last summer, when we approved the Gateway Park project.

But I was wrong for the City Hall project.  The material cost has largely gone down from last summer to date, by as much as 5% for some materials. I found this by looking at the rates of the main building materials, such as steels, aluminum, etc based on the U.S. Bureau of Labor and Statistics data.

Aluminum

Steel


Lumber

That said, around this time frame, the labor cost has appeared to go up a bit. This has been reflected by the RS means historical cost index table, which keeps track of the overall construction cost (labor, material etc) over the years. (please see below).

According to this chart, the price index has only gone up from 222.9 to 227.3 from July 2018 to January 2019. Based on the guidelines presented in the chart below, if the rate in July 2018 is $350,  the rate in January 2019 should be $356.9 [= (227.3/ 222.9) * $350]. This only reflects a 1.9% increase.

It’s true that the City Hall developer had to factor in contingencies, plus some interior and exterior features in their latest estimate, however, I find it rather puzzling that those features amounted to a whopping 20% rate hike just in an 8 months period.

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1 Comment to “Trying to Make Sense of New City Hall’s Increased Building Cost Rate”

  1. By Rosemary Perticari, April 23, 2019 @ 12:38 pm

    I am so glad that you tracked this down. I was wondering the same thing. It seems that a serious discussion needs to happen with the developer to make sure that you are not being price gouged! I have read that there is a diminishing pool of qualified construction and trades people. Does that mean they must be paid more? What is the developer’s profit margin on this job? Is it excessive for this type of project? Lots more questions to answer Fazlul.