However, ASU president William Harris said that the overrun was due to changes in the scope of the project and that it is still on track to be completed in time for November's Turkey Day Classic.
"When we originally went to the bond market two years ago, we went with a projected cost for the project using estimated drawings," Harris said. "There have been many changes to those plans. Some of the phases of the project that we bid out, the bids came back higher than we originally anticipated. And there has been some increase in costs over the last two years.
"The final cost is $12 million more than we anticipated," Harris added. The original projected cost for the 22,500-seat stadium was $50 million. That's the amount university officials procured when they went to the bond market two years ago.
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NOTE: In my opinion, an exceptionally well written story by Josh Moon, Montgomery Advertiser, but with a misuse of contract management terminology. Strictly by definition and application, this is not an overrun, as described or scope creep as some believe. Anytime the client (ASU) authorizes changes in the scope of the contract by formal contract modification, it is nothing more than a contract change. A Change Order may increase or decrease the estimated costs of a project/contract -- in this case it increased the ASU stadium project estimated costs by 19.35 percent or $12 million. Therefore, the revised project baseline has been increased from $50 million to $62 million.
A major project may be re-baselined (revised) at any time the price is increased or decreased. However, the project baseline (estimated project costs) and the contract baseline (contract award amount) must always be in total alignment (or equal). Currently, the contract is out of alignment with the estimated project costs, as it is budgeted/funded at 80.65 percent or $50 million.
A cost overrun is simply when a contractor exceeds the estimated project/contract costs without (1) prior written notification to the client; and (2) prior written approval by the client. Cost overruns are a bad thing for a contractor as the client is not obligated to reimburse the contractor for his overrun of the contract award amount or ceiling. To do so is solely at the contractor's risk and expense or in layman terms -- the contractor eats the costs of any overrun! No fee or profit is paid on contractor cost overruns.
Scope changes can make a project larger or smaller and can affect the timeline and the cost of the project. In a nutshell, scope creep is the change or growth of project scope. In this instance, making the design change at the front end of construction may save millions more, as no aspect of the project requires demolition in the later stages of construction to make the modifications and there is minimum impact on the project schedule for completion. Assuming the project manager completed the apppropriate cost benefit analysis, I see no problem with upgrading a project 1/5 of its initial estimated costs.
Scope changes can make a project larger or smaller and can affect the timeline and the cost of the project. In a nutshell, scope creep is the change or growth of project scope. In this instance, making the design change at the front end of construction may save millions more, as no aspect of the project requires demolition in the later stages of construction to make the modifications and there is minimum impact on the project schedule for completion. Assuming the project manager completed the apppropriate cost benefit analysis, I see no problem with upgrading a project 1/5 of its initial estimated costs.
In this case, a more accurate depiction of the situation is: "The stadium project is presently underfunded by $12 million dollars (19.35%) due to approved change orders and upgrades in project scope initiated by ASU. The budget shortfall will be addressed soon by procuring additional funding from the bond market, upon approval of the action by the ASU Board of Trustees." The prime contractor and its subcontractors are currently performing on schedule, at the revised estimated contract costs, and are delivering a quality product as expected."
It appears ASU is doing an exceptionally great job in project management and has all the necessary cost controls and an effective third-party project management team in place. The initial $9 million saved on the bond rate discount nearly covers the costs of the change order upgrades ordered by ASU. With the contractor spend rate at an average of $3.9 million per month, ASU made a very wise decision to delay acquiring the additional $12 million needed, as market conditions are improving and bond rates are falling slightly. With $31 million on hand in the stadium construction fund, this will not become a problem until August 2012.
There is no scandal or abnormal business practices going on here; just routine contracting and sound project and budget management by Alabama State's administration. I only wish all institutions and governments would manage their financial and real property resources in such an effective and efficient manner as ASU is demonstrating on this stadium project.
-beepbeep
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