Airports in America are some of the busiest in the world and to keep pace with ever increasing demand, airport upgrades are critical to better serve the travelling public. Massive modernization programs are underway at many airports across the country, with ‘under construction’ signs located at many airports. everywhere. It is estimated that in the next three years, it will cost more than $70 billion to complete upgrades and modernization projects for our nation’s aging aviation infrastructure.
Cost estimates are a critical part of any capital improvement project, but often, airport owners, project managers and consultants may inadvertently miss the mark in creating a realistic estimate.
Any discussion of cost should define scope maturity and weigh risk, the complexity of the project, the local construction market, security requirements and the timing of when an owner should expect cost certainty during the design process.
It’s important that owners, project managers and stakeholders consider a number of factors in the initial planning of the program before an initial cost estimate is delivered. There are numerous factors that can impact a project’s true costs, which include:
Scope and budget
The entire team has to have a complete understanding of the scope. Many times, program budgets are set without a clear description of what is in and what is not in the scope of a major improvement project.
As the planning and design on capital projects progresses, typically the scope tends to increase but the budget requirement does not. This is why large contingencies are required when the design definition is less than 30 percent. There are three contingencies that should be addressed: design contingency, which addresses the unknowns of the scope in early design; the contractor’s contingency, which addresses the contractor's risk; and the owner’s contingency, to address scope identified during construction.
Design to Target Budget
Designers must design to the target budget. At various levels of completion, the design must be confirmed to be within the target budget and contingency. If the construction contract delivery model is construction manager at risk or construction manager/general contractor, the contractor and designer should each develop an estimate.
If the delivery method is design-bid-build, the client should consider a third-party estimating consultant to validate the estimate. If the estimate is outside the target budget, the owner should consider value engineering, examine the materials or change means and methods to bring the design back to the target budget. As the design is advanced, design contingency is reduced.
Various layers that go into a facility or terminal can affect cost estimates. What class is the building? How advanced is the technology? Is the technology available or will it to be determined at a later stage of design? For example, a new airport terminal will be more expensive than a maintenance facility or commercial building because of multiple security systems, advanced IT systems, passenger transportation elements and baggage systems. A terminal is simply much more complex, which increases cost.
Each project will need to manage security needs for both the final facility and during the actual construction phase of the project. If construction will occur airside of an active airport, contractors, laborers, consultants and other contributors must receive background checks to obtain security access to the site as well as daily or multiple daily security screens to gain access.
Owners/contractors must factor in the ability of skilled labor to pass these security requirements. Airport construction also means equipment and materials are subject to security screening. That will contribute to a decrease in efficiency along with an increase in the cost of construction.
Client terms and conditions
How much risk is the owner trying to transfer to the contractor that is not necessarily the contractor’s responsibility?
Requests for an unreasonable schedule or acceptance of liability could increase the project cost. Additionally, once the program is underway, there could be unforeseen design or building conditions. For example, are there hazardous materials not yet identified or have all existing conditions such as abandoned underground utilities or foundations been identified? These unforeseen conditions can cause delays and cost increases as well as respective claims.
Exterior market conditions
Final factors that can affect cost estimates include local market conditions. In a booming economy, skilled labor, materials and equipment can experience shortages, and therefore become more expensive. Because of an airport’s location, complexity and security needs, some contractors may deem it more burdensome to work at an airport and subsequently not pursue the work or increase the price to exceed projects located in other portions of the city. This market effect needs to be incorporated into the project budget.
With those factors in mind, owners, stakeholders and project managers can begin to approach reasonable estimates for programs. But those same factors can mean capital program costs may fluctuate until final delivery. Maintaining open lines of communication between all parties may assist in delivering a sound estimate.
Clearly, cost certainty includes a well-defined scope and budget, design to target budget, technical complexity, client terms and other conditions to deliver the improvement project on budget.
Timothy Bond, PE, PMP serves as senior aviation program manager and vice president for HNTB. He is based in Seattle and works with aviation clients nationwide. Bond is well-known in the aviation industry, both internationally and in the United States, bringing more than 34 years of experience in planning, design, construction management and program management. He has experience in a variety of project delivery methods, including design-build. Contact him at (469) 704-6192 or [email protected].