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How do construction cost overruns happen?

On Behalf of | Jan 31, 2023 | Construction Law |

Wouldn’t it be awesome if your construction project was completed on schedule and within the designated budget? While this is every client’s dream, not all construction projects go as planned. 

One of the issues construction projects run into is cost overrun. But what is a construction cost overrun, how does it happen and what can you do about it?

Understanding cost overrun

Let’s face it, construction projects are complex. It is not uncommon for even the simplest project to exceed the original budget. Simply put, construction cost overrun happens when the project’s actual cost exceeds the planned cost. This happens for a variety of reasons. 

Here are two of the leading causes of construction cost overruns:

1. Errors in cost estimation

Inaccurate cost estimation is not uncommon. If it happens, the entire project can take more than the original budget to complete. Here are some of the factors that can lead to cost estimation errors:

  • When the contractor underbids for the project
  • When the contractor fails to understand the project’s scope and objectives
  • When both parties fail to take into account the risks that might arise during the course of the project
  • When the contractor makes arbitrary assumptions and predictions

2. Poor site management

Size notwithstanding, a construction project involves a significant amount of materials, machinery and manpower. This makes site management crucial to the project’s completion. Poor site management often leads to project delays, which in turn leads to project overruns and disputes.

Cost overruns can lead to lots of disputes. Fortunately, you can take the following steps to prevent it from happening through proper project planning and hiring the right vendors. Find out how you can safeguard your rights and interests while handling a construction dispute