What Happens When Your Construction Project Runs Over Budget/Out of Funding?

Sometimes you read about a massive construction project with an estimated budget that just keeps going up. You might wonder how governments, even state or national ones, can keep dedicating billions more. For your business, ensuring that your projects have sufficient funding to keep going is a matter of survival. Here are a few things you can do if you find yourself in a situation where your project is running over budget or lacks enough funding to finish.

Determine Your Obligations
The first thing that you should do is figure out what your obligations are to the project and to the client. This is where an investment into refining contract language that protects you becomes very important. It applies whether you are working directly with the property owner or as a subcontractor. Carefully review the contract that you have signed, and consider hiring a lawyer to help you review it if necessary. This will help you to know what you are required to do, and which actions could possibly put you in trouble.

Look at Additional Funding Options
The most obvious solution is to look for additional funding options. For a reliable property owner with good credit, it may be as simple as applying for additional financing. In some cases, like a lost grant, it may be much more difficult. The right option depends heavily on the type of project and its scope. But if you can find a way forward with this option, you may be able to avoid a lot of stress and conflict in renegotiating or canceling the contract.

Consider Revising the Project
If it’s not possible to get more money, then you may need to renegotiate the contract to limit the scope of the project. Whether or not you can do this depends on the contract and who is responsible for the funding shortfall. For example, if you are working with a client who was only able to secure partial funding for the project, then your personal responsibilities may be lower. On the other hand, if budget overrun came as a result of a fault in your original estimate, you might be on the hook to cover at least part of it. In any case, attempting a reasonable renegotiation of the project may allow both parties to reach a satisfactory conclusion under the new circumstances.

Minimize Additional Investment
The last thing that you want to do is keep investing into a project that is failing fast. How you approach that feeling depends on the contract. If you get to the point where you may need to cut your losses, it’s probably best to consult a lawyer to make sure that this is the wisest course of action. Otherwise, this is an important reason to vet clients and projects for funding or ability to pay. It’s also a vital advantage of regular communication between property owners and contractors, or general contractors and subcontractors. Knowing where you are at on any given day can help you determine where to go next.

Evaluate Solutions for Future Projects
Once you get to the other side of a situation like this, one of the last things that you may want to do is spend a lot of time figuring out how to avoid it. As tempting as it can be to take a break and minimize how much time you have to think about it, it’s better to debrief and make improvements while everything is still fresh. Make notes of miscommunications or errors in calculation that led to the shortfall or overrun. This will help you to implement better practices in the future to cut down on the chances that this will happen again.

Budget overrun in construction is so common it might be part of the job description. But if you want to avoid it cutting into your profits, you’ll work to minimize it in your projects. For more advice on running a successful contracting business, contact CSLS today!

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Contractors State License Service (CSLS) is the largest school in California devoted to the Construction professional. For over 23 years, CSLS has helped its students pass the exam to become licensed contractors in the State of California, licensing more students than any other school. From our main offices in Southern California, CSLS operates over 25 locations with full-service support and classrooms. We have grown to this extent by providing quality, professional services. In comparison, this provides 7 times the number of convenient locations than the second largest contractor school. Contractors State License Services is one of the only contractor schools in the state that is run by educators, not lawyers or people mostly interested in the bonding and insurance business. Contractors State License Services formerly operated under the oversight of the State of California's Bureau for Private Post Secondary and Vocational Education. As of January 1 2010, the new Bureau for Private Postsecondary Education (BPPE) came into existence replacing the BPPVE. CSLS now operates under the provisions of the California Private Postsecondary Education Act of 2009 (CPPEA), Article 4 Section 94874(f). Our Mission is simple; We can help you pass your California Contractors License Exam. Celebrating our 25th year, CSLS has helped over 120,000 students pass the California contractor licensing exam to become licensed contractors in the State of California. Additionally, we offer complete home study and online contractor’s license programs to help you pass your California contractors license exam. CSLS offers licensing classes for all types of contractor licenses, including General Engineering Contractor, General Building Contractor, Specialty Contractor, Insulation and Acoustical Contractor, Framing and Rough Carpentry Contractor, Cabinet, Millwork and Finish Carpentry Contractor, Concrete Contractor, Drywall Contractor, Electrical Contractor, Elevator Contractor, Landscaping Contractor, Warm-Air Heating, Ventilating and Air-Conditioning Contractor, and many others. For a complete list of contractor licenses, visit www.MakeMeAContractor.com and tuned for more informative posts.