The real cost of delaying school infrastructure projects featured in ‘The Educator’
Escalating construction costs have seen many schools put projects on hold and become paralysed by indecision. But what is the cost of not acting? In an insightful article published in The Educator Magazine, Australia’s leading magazine and website for senior educational professionals and decision-makers, m3architecture director Michael Christensen explores the risks of delaying school infrastructure projects, and shares strategies to assist with decision-making.
Build now or wait? Beware the real cost of delaying school infrastructure projects
17 March 2023
On-going capital works are vital to schools. From a minor refit to a piece of major infrastructure, most schools will have a project in the pipeline at any given time. With the extraordinary escalation in construction costs over the last 12 – 18 months, many schools have put projects on hold and become paralysed by indecision. But what is the cost of not acting? And what can schools do to stay on track with their goals?
The waiting game – will costs go down?
A report by Steel Wrobel Quantity Surveyors from August 2022 says that construction tender prices have escalated by between 35 and 45 per cent since 2020. Covid-19 pushed prices through the roof through an unprecedented combination of health, social and economic factors. Not surprisingly, for the bulk of education projects that were priced in 2021 and 2022, cost estimates are no longer accurate.
For schools with a project waiting for the green light, there are two commonly asked questions. Should we wait? And will prices come down? While no-one has a crystal ball, the answer to both questions is no.
Director at m3architecture, Michael Christensen, has 25 years of experience in education master planning and design and has seen several economic cycles across his three decades of practice. “Delaying projects may lead to further expense down the track,” he warns. “Tender prices have corrected to align with the cost of building materials, but they are unlikely to drop.”
Christensen’s view is supported by quantity surveyor and Steele Wrobel director, Ben Foster. Foster draws on more than 30 years’ experience providing cost management services. He says that historically, a rapid spike in costs tends to level out and then continue to rise.
“The rate of escalation looks to be moderating, but even at normal pace we would expect it to average 4.2%. Labour scarcity and project volume will continue to impact on the market in 2023,” says Foster, who notes that approvals in the education sector are trending upwards.
With market volume having the biggest overarching impact on the cost and timing of construction, it is critical to get jobs scheduled sooner rather than later. “There are major engineering and infrastructure works in the pipeline across the country,” says Christensen. “In Queensland, we have cross rail and a number of very large healthcare projects and further along it will be the Olympics. Once the contracts for big jobs are signed, there’s increased competition for labour and materials and you’ll end up paying a premium.”
Quantifying the cost of indecision
Using a new building with a $10 million construction value in 2020 as an example (excluding costs such as fees, IT and furniture), a simple calculation puts the current cost of the same project at between $13.5M and $14.5M. This translates to an increase of between $145,000 and $190,000 per month for every month that the project was put on hold.
What about today? The minimum cost of delaying a project priced at $10 million today is approximately $50,000 per month, based on an escalation rate of 6 per cent per annum.
To put this into perspective, at a minimum this equates to 200 new student chairs, 50 new projectors or 40 large scale interactive touch screens – per month! Over a year, these same costs would equate to approximately 6 new members of staff. Data from recent government contracts suggests that escalation could be on the rise again to something closer to 12 per cent per annum, which doubles the above figures.
The cost of delaying projects is not just measured in dollars. Beware of holding back whilst your competitors press ahead with campus improvements. “The quality of facilities is a key factor in attracting students,” says Christensen. “New facilities offer a marketing advantage and are integral to building and maintaining your brand. The longer you hold off, the further ahead others can get.”
Most importantly, meeting your organisation’s specific teaching and learning needs is paramount. Christensen recommends taking a pulse check on your master plan. “It’s essential to have a master plan that goes hand in hand with your business plan and to review it regularly,” he says, noting that a master plan needs to tie everything together into a logical development strategy. “Falling behind will have a cumulative impact on your school’s future.”
Strategies to assist with decision-making
As an organisation, the one thing you can control is providing good, clear and timely direction on your project’s scope and quality. This is where you can save the most money.
Put another way, to get the most value for every dollar you spend requires your school community – your leadership group, stakeholders, independent boards and funding organisations – to make tough decisions now. Agree on what you need and what you can fund (with all the relevant contingencies) and give that directive. Note that getting good advice on raising finance is critical to organisations where inexperience could lead to unnecessary financial conservatism and even more delays, an issue Christensen says he sees often.
Despite unprecedented cost escalation over the past two years, it will never be cheaper to build than it is right now, and inaction costs even more. Tough decisions are needed. The following strategies will assist with moving ahead and staying on course.
Communicate: Alert all stakeholders to the costs of indecision and changes and to the importance of timely decisions.
Amalgamate stakeholder groups: Small, empowered groups make decisions more quickly than larger groups with multi-layered approvals processes. Create a new project control group with the smallest number of stakeholders. It could be as simple as formalising a group with the principal and a member of the Board and empowering them with decision-making.
Stay informed on cost: Obtain regular updates on cost estimates for all aspects of a proposed project at every stage, and/or at 3 monthly intervals if delays are being experienced. These updates should include all project costs, including furniture, IT, window coverings, infrastructure services, approvals costs and fees.
Allow for contingencies: Continue to allow for reasonable contingencies in your pricing as the design develops. The unexpected will arise, and cost escalation is never a problem isolated to one day.
Make decisions and be flexible: Make tough decisions early and be flexible. For example, it may be possible to create spaces that allow for multiple uses and teaching opportunities rather than building only specialist spaces. Keep an open mind. Recalibrating expectations is vital for all.
Commit to your masterplan: Building outside the remit of your master plan may save you money today but will cost you tomorrow. For example, don’t under-develop a part of your site with low scale buildings when you know that it should take taller, more dense development later.
Avoid scope creep: If the primary need is for GLA’s, don’t add an upgrade to the gym unless you can find more funds. If something must be added to a current project, decide what to remove or where the money will be found before committing.
Don’t compress design and documentation time frames: Good design will ensure you are getting the most value from your investment. High levels of documentation provide certainty to clients and contractors alike, reducing risk, and vital to obtaining tight tender results and competitive pricing whilst minimising costly variations and delays later.
See the article on the The Educator here.