My grandfather was a welder and steel worker. I remember driving though downtown Denver while he pointed out each skyscraper. He talked about walking the steel and driving red hot rivets into place. I had a chance to experience this personal pride and self fulfillment during my recent visit to The Accelerated School.
The Accelerated School, also known as TAS, is a charter school in South-Central Los Angeles. It accommodates pre-school and grades K-12 on a single campus. Their stated mission is to get every student into the college of his or her choice.
“The Accelerated School is based on the beliefs that all children can learn and achieve, that parental involvement is key to children’s success, and that good schools transform communities.”
I was the project manager. The negotiations of the public/private partnership started in 2000. We built the campus and then opened it in 2005. In 2009, 95% of TAS’s first senior class graduated and over 90% went on to college. Keep in mind, this is South-Central LA, and yes, it is within the LA Unified School District.
Last Friday I revisited TAS. It felt like a bustling airport. Whether young or old, all the students (and there are over 1,300 of them) wore a smile and carried a positive attitude. And they should — they were all going somewhere. My thoughts drifted back to my grandfather; he was the one who helped me define where I wanted to go.
When people ask me what I do — what Colbi Technologies does — I smile and tell them that we help people build schools. We help people build schools because good schools have the power to transform communities.
The toughest part of budgeting is starting with a blank sheet of paper. As with any big problem you must tackle it by breaking it into pieces. Here is some background on budget pieces.
Per the Public School Construction Cost Reduction Guidelines published by the OPSC in April 2000, the typical project budget consists of three basic parts: Site Costs, Soft Costs, and Hard Costs. Each of these parts can be subdivided further.
Site Costs vary greatly and must be addressed on a case by case basis. There is a bit more correlation of hard cost versus soft cost.
Soft Costs include design costs, testing, inspection, plan review and permit fees, construction management and program management fees, and other costs like legal, financing, printing, and special consultants. The largest portion of soft costs will be for design, followed by program management costs, inspection and testing, and printing.
Hard Cost categories include building construction, site improvement, furniture and equipment, and demolition. Labor compliance is considered a hard cost by the OPSC. Interim housing has a lot in common with hard construction work. Assets built for interim housing will not remain in place, at least in theory. In practice, interim facilities can end up be being used as permanent assets.
Based on the review of over a hundred new school construction contracts, the Construction Cost Reduction Guidelines provided a breakdown of the cost distribution for new elementary, middle, and high schools. Building construction varied between 78% and 80% of total project costs minus site acquisition costs.
Testing and inspection ranged between 2% and 3%, furniture and equipment between 4% and 5%, and design costs between 6% and 7%. The publication also noted that the data did not include costs incurred beyond those eligible under the OPSC State School Building Program.
As depicted to the left, it’s our experience that costs associated with general construction are a bit less — closer to 70%. This amount includes site work associated with the building, which is an additional 5% to 8% in the OPSC publication. General construction depends largely on other construction costs including small specialty contracts indirectly related to the general construction work.
A confusing item the OPSC publication is the reported 1% expenditures for contingency. As discussed previously, contingency is a budgeting tool to ensure there is enough money to finish the work. The budgeted contingency amount is moved where it is needed in the project budget and then spent from there. It is never expended as contingency.
When reviewing this type of information, keep in mind that it is compiled at the completion of the project and provides little to no help on how much contingency must be added to the budget in order to insure there is enough money to complete the project. That must be based on knowledge of the project.
Breaking a project into pieces and using historical cost distribution is a valuable tool in developing realistic project budgets. Historical cost distribution info serves both as a checklist of costs that may be needed and a conceptual estimate of the magnitude.
Developing project budgets requires that you engage your brain and think the project all the way through keeping the most important thing in mind – having enough money to complete the project.
Any well planned capital program must be prepared to handle change. Change is inevitable.
Having a complete list of projects and a budget allocation for every project that contains a contingency begins to set the strategy for dealing with change at the project level. However, in any program with a number of projects there will be one or more problem projects. That is why you need a program reserve.
One project in your program should be used to manage shared costs. This project may also hold and track your program reserve.
When most people think of a reserve they envision a static dollar amount set aside for emergencies. That’s somewhat correct. A reserve must be usable when it’s needed. For this to be the case there must be an uncommitted (unencumbered) and unspent cash balance available to be used for that unexpected problem project or emergency. This means that tracking a program reserve involves two elements:
The Account-Ability Budget Adjustment Request (BAR) provides an easy way to document the exchange of budget allocations between two or more projects. When using a program reserve to augment a project, just run the BAR against your program management project (with the appropriate decrease in the program reserve amount) and the receiving project (with the appropriate increased budget allocation).
Account-Ability Budget Aging provides the tools to plan out cash flows that roll up to the program level. These tools provide a sophisticated palette to ensure that each project has available cash and that there is also a reserve available in your program management project.
Remember: the priority is to have enough money to finish the program!
SITE ACQUISITION AND APPROVAL
When acquiring a site for a public school district in California, the process is lengthy with many layers of approvals. This section of the record is intended to document the process so that a record is available for each approval and how it was achieved. The bullet points below are the dividers that will most likely be required for a binder, or the tree designations for electronic filing. If you actually do condemnation and relocation of residents, those will be banker boxes on their own.
This binder or file section will include:
Additional approvals may be required in your area, such as the Coastal Commission.
The testing and survey documents contained in this section are those performed during the due diligence phase of the project and they should not be confused with tests and surveys necessary for planning or those required during construction. Each type should be filed with the appropriate phase of the project.
If you have Eminent Domain proceedings, look at page 2 of the SAB 50-06 Detailed Listing of Expenditures to verify that you are retaining all the appropriate documentation. If you use a consultant, you can supply that page in Excel format for the consultant and require that the information be reported to you on the spreadsheet. This will be useful in getting everything in the correct columns. The four digit numbers on page two do not refer to object codes, but rather the California code sections for the types of Eminent Domain expenses.
See this sample checklist of documents for site acquisition and approval.
Boards, COCs and the public all expect stability. With regard to a building program, stability means keeping the bottom line of your project budgets from changing. Achieving this stability requires an understanding of the use of project contingencies — something that cannot be taken for granted.
A 2007 public report from a bond advisory group recommended that project contingencies being used in planning budgets should be lowered. A school builder was quoted: “If I can’t estimate the cost of a school within three percent, fire me!”
If budgets were developed after approved plans are available, I might agree. However, that is not the case — budgets are established prior to hiring an architect. Of course, there are exceptions (usually indicating a broken budget process): the LA Times documented millions of dollars wasted in the process of designing local community college projects for which there was no funding to actually build.
A standard presentation in construction management contains the chart (below) which plots the ability to impact the cost of a construction project.
The way to maintain the bottom line of project budgets is to manage the project contingency in correlation with this chart — you need a larger contingency prior to design. As your plans for the project become more detailed (as you learn more about the project), your unknowns are fewer and your contingency can be smaller. By the time your builder is on board, three percent may be adequate. If you only have a 10% contingency when the only planning you’ve done is written a one-sentence description, then you’re doomed.
Contingency levels must be determined on a case-by-case basis. In general, the better the planning is and the greater the experience with the specific type of project, the lower the contingency can be.
Starting with a large contingency during conceptual development provides the flexibility to absorb work needed to complete the primary project scope without changing the bottom line. Examples of related work include: traffic lights at the cross-walk near a new school or reconfiguring existing sprinklers so they don’t rot the exterior walls of that new portable building.
And remember — the most important thing is to have enough money to finish the project!