The rapidly escalating construction costs over the past couple of years have driven many schools to put their ongoing campus improvement works on hold – projects that are vital not only for their operations but also to maintain a competitive advantage. But can schools afford to play the waiting game for the costs to go down and still stay on track with their goals?
A report by Steel Wrobel Quantity Surveyors from August 2022 reveals that construction tender prices have escalated by 35-45 per cent since 2020. The pandemic years saw prices go through the roof, affecting the cost estimates of the bulk of education projects priced in 2021-2022.
So should schools wait to resume their projects, expecting prices to come down?
"Delaying projects may lead to further expense down the track," warns m3architecture director Michael Christensen who has 25 years of experience in education master planning and design, and has seen several economic cycles across his three decades of practice. "Tender prices have corrected to align with the cost of building materials, but they are unlikely to drop."
Quantity surveyor and Steele Wrobel director, Ben Foster agrees, drawing on more than 30 years of experience providing cost management services. Observing that historically, a rapid spike in costs tends to level out and then continue to rise, he says, "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."
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."
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 – an increase of $145,000-$190,000 per month for every month that the project was put on hold.
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. This equates to 200 new student chairs, 50 new projectors or 40 large-scale interactive touch screens per month; or, approximately 6 new members of staff over a year. Data from recent government contracts suggests that escalation could be closer to 12 per cent per annum, which doubles the above figures.
The cost of delaying campus improvement projects is not just measured in dollars – it’s also about the competition.
"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 masterplan. "It's essential to have a masterplan that goes hand in hand with your business plan and to review it regularly. Falling behind will have a cumulative impact on your school's future."
Strategies to stay on course
Providing good, clear and timely direction on your project’s scope and quality is where you can save the most money. 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. Despite unprecedented cost escalation over the past two years, it will never be cheaper to build than right now.
The following strategies will assist with moving ahead and staying on course.
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 masterplan 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 GLAs, 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 timeframes
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 are vital to obtaining tight tender results and competitive pricing whilst minimising costly variations and delays later.
Photography credit for all images: Christopher Frederick Jones