The majority of the data on which this guide is based comes from failure – delays, disputes, costly design changes, and last-minute regulatory pegs-in-the-ground. It’s the hard way to learn, but sometimes the best.
We set out to understand how and why commercial builds become so stressful, firstly speaking with a handful of project owners, often institutional lenders or property investors. They fund the projects and, if they go well, they make money. The project owner by definition doesn’t complete construction on the building, but they are pivotal in the decisions and activities that define the build and its progression.
Start with a real feasibility study – not just a gut check
The feasibility study is the first serious test a project faces, and most owners underinvest in it. A proper study covers more than a rough cost estimate. It analyzes zoning laws and land-use regulations to confirm the site can legally accommodate the intended use and scale, examines soil quality and topography, identifies environmental hazards like contamination or flood zones, and verifies utility access for water, gas, power, and sewer.
Zoning issues discovered after land acquisition can kill a project or force expensive redesigns. Environmental remediation can add months and significant cost. These aren’t edge cases – they’re common outcomes when developers skip or rush this step. Run the study before signing a purchase agreement, not after.
The site analysis should also flag utility upgrade requirements. Some commercial developments trigger the need for new transformer installations or water main upgrades that the municipality charges back to the developer. Knowing this early changes the financial model significantly.
Choose a project delivery method before you hire anyone
The way in which you structure the contractual relationships on your project impacts everything: budget certainty, design flexibility, and which party bears the most risk. In commercial construction, two approaches are most common – often referred to as Design-Bid-Build and Design-Build.
Design-Bid-Build is the way things have always been done. You hire an architect, receive a completed set of drawings, then take competitive construction bids from general contractors. This insulates your design professional from any conflicts of interest but spares your builder from contributing their insights to the design process. Therefore, unexpected costs and constructability issues are typically the builder’s problem and emerge after the work has been bid or, worse yet, after construction has started.
Design-Build puts the design and construction responsibility in the hands of a single entity. This means you, as the owner, interact with one contract and have one point of accountability. Construction often finishes sooner since the design phase can run concurrently with construction. More importantly, the builder’s perspective on constructability can inform design, hopefully leading to fewer “expensive surprises” in the form of change orders once the work’s commenced. The downside to this happy arrangement is that less competitive pressure is applied to the final construction price since you’re not bidding the work for construction.
Vet your project partners on objective criteria
The most important hire on a commercial build is your general contractor. Opting for the lowest bid will absolutely cause you problems. A contractor who lowballs the bid and then covers costs with change orders can end up more expensive than a higher initial bid from a more experienced team.
You need objective vetting criteria here. Ask for an Experience Modification Rate, an insurance number that assesses a contractor’s safety record versus other firms. A number below 1.0 means a better-than-average safety record; above 1.0 means higher than average risk. Ask for bonding capacity documentation – a contractor who can’t bond for a project of your size is a financial risk. Ask for documentation on their subcontractor relationships – and whether those subs have worked with one another.
Hiring professional commercial construction services gets you project managers who already know your local municipal approval processes, the scheduling rhythms of your local subs, and the common failure points that differ between regions. There is real value in that. A contractor who sends a rep your local building department has seen before is going to have an easier time.
Check references, but be specific in your questions. “Would you hire them again?” means less than “Were you alerted to unforeseen conditions immediately?” or “How did you handle the first big dispute?”
Build a budget with contingency built in from day one
On average, construction projects are completed 20% later than planned, and 80% over budget (McKinsey & Company). The statistic applies across-the-board, to well-managed projects just as much as those plagued by inefficiency. It simply underscores how difficult it is to predict the complexity of construction.
The industry standard response is to build in a cushion. Typically, 10% to 15% of the total construction budget is earmarked for a contingency fund. This money is set aside to cover “unforeseen” site conditions, shifts in the cost of supplies, and “unforeseen” regulatory requirements and delays. The industry is assured this is not enough. Too many unforeseens. The bucket is supposed to be a lifeline, not a slush fund, or a sign that competitors are trash at hitting their numbers. Instead, it represents a concession that there are far too many moving parts and players in any commercial construction project to predict final cost with any real certainty.
Where owners get themselves into trouble is treating the contingency as a ‘nice-to-have’. The overall figure might come in lower on paper, but that only holds until it doesn’t. The first actual surprise which would otherwise be absorbed derails the train.
Use pre-construction as a cost-reduction phase
The pre-construction phase happens before the first spade of dirt is turned. It starts when the initial design is developed and ends when construction begins. This is where the virtual becomes real.
The biggest value of pre-construction in the building process is cost control. Value engineering during pre-construction is a cost-effective way to improve the design and construction process. It allows the design to remain largely intact while inserting constructability, efficiency, and material suggestions that can lead to substantial savings over the course of the project.
For example, if there is a way to accomplish the same function more simply – say, by using fewer structural components, or cheaper or more readily available materials – substantial long-term savings can be created. Once the design is completed and construction is started, such changes can be very costly, because they generally force changes to be made in other parts of the project.
It is very important to remember that, if done well, value engineering results in no loss of total quality. It simply eliminates or reduces aspects of the product, service, or process that do not add value when compared with their cost. A good example is the substitution of a less expensive but equally functional and aesthetically equivalent part for a specified part. The function and appearance of the part remain consistent with the original part, and there is a direct savings in the cost of the installation.
Navigate permitting like a project phase – because it is one
Obtaining permits is not just a bureaucratic step that occurs between planning and breaking ground. For any commercial development, it’s a multi-part effort that could stretch over several months and risks delay if overlooked early on in the process.
Commercial constructions need to comply with strict regulations to ensure safety, accessibility, and minimal environmental impact. These regulations are overseen by different departments within city government and require separate permits before construction can start. For instance, building, fire, electrical, and plumbing permits are necessary for every construction. If there are environmental risks connected with the site, you might need additional approvals, and some jurisdictions oversee utility connections over a different authority. While construction of the building must adhere to prevailing accessibility standards, plans are also reviewed to guarantee this; any necessary project modifications might delay approval.
Control change orders with a formal process
Change orders are part of the game on any commercial project. The real question isn’t if they happen, it’s whether they are managed or allowed to become runaway scope and budget creep.
A change order is simply a formal amendment to the construction contract that alters the work, the budget, or the timeline. The discipline every owner and project manager needs to apply is that no out-of-scope work gets executed without a written, approved change order. Verbal agreements between owners and contractors to proceed with additional work “and we’ll figure out the cost later” are one of the most common sources of construction disagreements.
Your change order process should demand a written description of the scope change, a cost impact analysis, and a schedule impact assessment before you will entertain approval. The schedule piece is every bit as important as the cost. A change that adds $15,000 to the budget but pushes the opening back three weeks may have a far bigger economic impact than the direct cost.
Set the expectations on this early in the contract. Make it understood with your general contractor that you expect a written approval before execution, not a request for retroactive forgiveness afterward.
Close out the project with the same rigor you opened it with
5% of the job – the final 5% – invariably takes 25-50% of the project schedule. The extended schedule costs real money. Commissioning the building systems can be an annoyingly iterative process. The construction is supposed to include a running and tested building, but reality intervenes. Ownership actually ensues long before commissioning is complete.
But you can’t get the Certificate of Occupancy until the building passes its commissioning tests. That means the fire suppression system has to work. The elevators need to pass muster. But they aren’t going to work right if they get coated with drywall dust from other trades working overhead. Or if there’s no water on site because the water main from the street hasn’t been connected. A subcontractor’s worker carelessly backs into the handsome front door; it would be silly to fix the damage from that if a guy with a ladder is about to drop a bucket of paint on it.
Before the team disperses, collect operations manuals, equipment warranties, and as-built drawings – the revised construction documents reflecting what was actually built. These documents have real value during future renovations, equipment servicing, or insurance claims. Losing them means paying to recreate information that should already exist.
The work before the work is where projects are won
Every phase discussed above flows into the subsequent. Insufficient feasibility study leads to a faulty design. Faulty design leads to costly changes. Inadequate partner selection leads to schedule overrun. These things will happen.
The best construction projects are the product of the best planning. The best planning is rooted in accurate information. The best information is culled from the most thoughtful analysis. The most thoughtful analysis is brought to the table by the most capable partners.
