Reducing costs risks on hotel projects


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This article was published in Hotel Business on 20 October 2016.

For further information, please contact Alan Woolston, Partner, Fladgate LLP (awoolston@fladgate.com)


 

All hotel developers, regardless of the level of experience, can easily encounter similar pitfalls that cause delays and increased costs. In many cases these traps would seem to present a lesson in how not to build a hotel. So for those looking to commence such a project, let us consider the most common causes of cost overruns in a bid to avoid encountering such problems.

Firstly, additional costs on hotel projects often relate to insufficient coordination between disciplines, such as the electrics, steelworks, or fire engineering designs. In one particular example, the Harmon Hotel in Las Vegas was due to open in 2009 but was put on hold for years and was subsequently demolished on public safety grounds. An investigation into the build highlighted insufficient coordination between the installation of the steelwork and the placement of the concrete, with some steelwork having been moved without the approval of a structural engineer. Whilst this is an extreme example, it shows the importance of allowing sufficient time for design coordination. Doing so reduces the risk of encountering serious complications and minimises the higher costs associated with finalising design work in the post tender construction phase.

Another major cause of building cost overruns relates to incomplete design information. Many projects are tendered without full designs or with the design process having been compressed due to time constraints. This is often a huge error. Contractors who may have offered a low price to win a job can come under pressure to recoup their losses in other ways, such as by exploiting missing or incomplete information in tender documents and drawings. No matter what the size or complexity of a hotel scheme, accelerating the project to the detriment of the design process is often a costly move.

Finally, increased costs can arise from last minute changes to the client’s brief, often in response to competitive market conditions or demands. Sometimes amendments to the initial plan are unavoidable, but if proper forethought is given to market demands and trends during the initial planning period and if any changes are then finalised prior to tendering, any adverse cost impact can be reduced.

In the majority of cases rushing a hotel project is not advisable and regularly costs a client more in time and money than it attempts to save in time. The most successful hotel projects are those that have been thoroughly thought through, planned and investigated.

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