Cost. Quality. Time. Pick 2!

June 18, 2012 Yosef Shwedel
GS2LAW Business & Real Estate

Any owner or developer will tell you that they want their project to be completed quickly, cheaply, and to the highest quality. While this may sound good in theory, in the real world it is nothing more than fantasy.

Most people are familiar with the game “rock-paper-scissors” and the strategic conundrum it places players in – rock beats scissors, scissors beats paper, paper beats rock. Owners and developers in the construction industry face a similar dilemma when it comes to the holy trinity of cost, quality, and time. The oft-repeated stricture of contractors to owner/developers is “Cost. Quality. Time. Pick 2.”

So which one should an owner sacrifice? Well, of course, that depends.

First, let’s look at the inherent components of each of the three elements.

Time. Time, unlike, cost and quality is purely linear. We all know the length of a minute, hour, day, and year. However, time is interrelated with both cost and quality. For example, if you want your home renovation completed as quickly as possible, you may be faced with paying premiums on certain goods and/or increased labor rates if the contractor is entitled to charge overtime. Conversely, if you give a contractor too long to complete a project, you may end up paying more in terms of the contract price factoring in the contractor’s overheads (equipment rental, insurance, cell phones) for a longer period than is strictly necessary. However, by giving a contractor a little more time, you are also more likely to get the specified quality delivered in a more cost-effective manner.

Cost. Cost is the most elastic of the three elements, as the rate at which costs are incurred on a project can (and often do) vary drastically. As a starting point, it is typically very difficult to forsake cost without also forsaking a degree of time and/or quality. As part of the adage goes “Money talks…” and the construction industry is no different. That said, if minimizing cost and trying maximize time and quality effectiveness is paramount, then the key elements for an owner are preparation and thoroughness. Preparation in terms of the owner knowing exactly what they want before the project is put out to bid (so the contractor, in turn, knows what they are bidding on and does not have to build contingencies into the contract price). Thoroughness in terms of ensuring that the drawings, specifications, and project contract all accurately reflect what the owner wants, such that change orders and extensions of time are minimized.

Quality. Quality is often the lightning-rod for major disagreements between owners and contractors during contract negotiations. Owners often feel that a minor increase in quality shouldn’t necessarily result in an increase in time for completion, or why a minor decrease in quality doesn’t result in huge savings to the project. Contractors are fearful that the time it takes to get something “right” may be increased where the standard is higher. Conversely, just because a standard is lower, doesn’t change the contractor’s daily overheads.

So, again, which two should an owner pick?

If the project’s primary purpose is for commercial or investment purposes or there is a need to complete the project as quickly as possible, it may make sense to forsake quality. Building codes and the accepted market standard will guide quality and there may be limited benefits to adding quality if quality is unlikely to differentiate the project in the marketplace. Examples may include projects to build warehouses, car parks, business parks and investment residential buildings.

If the project’s primary purpose is designed to provide an “experience” to visitors, is aimed at the high-end market or is personal to the owner, cost maybe need to be sacrificed because in each case the project will want to stand the test of time whether it is because it is a commercial venture, it caters to people with demanding standards or because you are going to be living it for a long time. Examples may include museums, luxury resorts, the family home or a vacation residence.

Finally, if the project’s primary purpose is to deliver a unique experience or building, then time may need to be generous as it may take some iterations, in both design and construction phases to get “it” perfect. In such cases, quality is fixed and there may be contractual ways to control costs (i.e., the architect will agree to 3 revisions of drawings before charging extra). Examples may include casinos, tourist attractions, and building a residence from the ground up.

No owner or developer likes a project costing too much, taking too long or not being of the desired quality. Unfortunately, the reality is that unless you are both time and cash-rich, you will need to think long and hard about which of time, cost and quality is most expendable.