“The Squeeze Play” Cost containment and budget control

1. “The Squeeze Play”Cost containment and budget control • Leigh A. Coop, Director of Facilities Vacaville Unified School District • Bill Savidge, AIA, Director of Facilities & Planning Fremont Union High School District • Jay C. Davison, AIA, Managing Partner Capital Program Management Group

2. A District-wide approach to equity • Get Board to adopt District-wide priorities for expenditure of funds • Agree on a base condition level to which each campus will be brought • Provide each site a “guaranteed” scope rather than a “guaranteed” budget

3. Design standards & defined scope • Develop a set of district-wide design/materials/systems standards to guide all design work • Provide design teams with very specific written scope of work for each project

4. Project budgets • Budget all of your projects before starting any of them. • Verify that the scope relates to the available dollars. • Budget appropriate contingencies at the project level • Assign appropriate program costs to a program budget

5. Simple project cost ratios Excluding costs of site purchases: • Modernization: Construction bids represent about 70% of project costs • New construction: Construction bids represent about 75% of project costs

6. Contingencies • Prior to bid: allow a “design contingency” of 10% of construction budget to allow for award, or maintain a program reserve • Post bid: allow construction contingencies (for design errors & omissions, and unforeseen conditions) of: • Up to 5% for new construction • Up to 10% for modernization (more if unknown dryrot or termite damage is suspected)

7. Costs assigned to program • Inflation (construction cost escalation): historical average is 4% per year • Encroachment on other District operations (e.g. M & O) • Prevailing wage compliance • Program management, including District staff assigned to program

8. Costs assigned to program (con’t.) • Budget tracking & reporting • Outside audit costs • Oversight committee support • Informational website • Web-based project control system • Program contingencies

9. Recommended program contingencies • Program contingency comprises three major categories: • Major catastrophe (e.g. dryrot or toxics) • Litigation • Board changes priorities • Set aside an unallocated reserve account to balance budgets

10. Did you remember inflation?

11. Effects of program time on escalation cost—6 years

12. Cash Flow and Bond Issuances • Prepare realistic cash flow projection in as much detail as you can • Consult with financial advisor • Make sure that you have allowed adequate contingencies at each level • Invest the money you don’t need right away in short-term notes

13. Cash Flow and Bond issuances

14. Spending efficiently & effectively • Prototypes and fee structures • Timing of bids • Prequalification • Alternate delivery methods • Project controls • Grouping of projects and purchases

15. Leveraging your local funds • State funding cycles • Short-term investment (arbitrage) • Other potential funding sources • Short-term financing • Cost of bond issuances

16. Peace among fiscal systems • Most school district fiscal/accounting systems do not adapt well to construction projects • Construction budgets should be kept in a separate system; but: • The design of the second should reflect the needs of the first; and: • The budget system must maintain an audit trail

17. Example of a project budgeting system

18. Budget audit trail example

19. How it all fits together Program Constructionbudgets $ $$$ $ Pre-construction Budgets Post-construction budgets $ Budget

20. Questions?