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Why do construction projects go over budget?

On Behalf of | May 17, 2024 | Construction Law

Construction projects are notorious for going over budget. In some cases, projects will cost two or three times what they were predicted to cost. This often happens on major commercial jobs, like the construction of a new football stadium

However, even projects on a smaller scale, like the building of a new residential home, can go over budget. This can lead to disputes between construction companies, homeowners, HOAs and other parties. So why do projects often run into this issue where they can’t stay on budget? Below are a few potential reasons.

Costs have increased

One potential problem is when costs increase for parts and materials. These projects can take months, if not years, to complete. Over the course of the year, the price of materials like shingles, drywall, trusses and 2x4s could jump significantly. This can add a lot of costs to the project, even if the initial estimate was accurate.

The estimate missed the mark

Of course, this can also happen when the initial estimate was simply wrong. Maybe the construction company originally believed that the project would be a lot less expensive than it was, but they overlooked substantial costs. It is not necessarily that the project itself is running over the budget, but that the budget was never sufficient for the project.

The scope of the project changes

One complicated problem arises when the construction company gets new orders. For example, the homeowner or property owner changes their mind on the home layout or design. This may add new elements to the project or even undo work that has already been completed. Both scenarios can dramatically increase the cost of the project overall.

Financial issues like these can lead to disputes. All parties involved need to consider the proper legal steps they can take to seek a resolution.