With the construction of a long-awaited California psychiatric hospital now a year behind schedule, Santa Clara County commissioners have fired the project’s general contractor and hired a private auditor to oversee work moving forward.
The project’s estimated costs may now be close to $500 million — over double the original budget of $233 million. The general contractor, XL Construction, has pointed to the systemic challenges that the construction industry is facing, such as materials and labor shortages, as a partial explanation for the delays and rising costs.
With public pressure mounting, Santa Clara County hopes to minimize any future delays and keep the project on track for a December 2024 completion date.
Santa Clara County’s difficulties are likely unsurprising to many in the construction industry. XL Construction isn’t alone in its troubles: Strong demand for construction work coupled with ongoing materials shortages and chronic underemployment have affected contractors globally.
Read more: Labor Shortage Getting Serious for Construction Contractors
Some have even intentionally turned down work in order to protect supplies. An estimated 85% of home builders, for instance, have resorted to limiting sales in the face of overwhelming demand.
Rising project costs and extended delays have become commonplace across the industry. Construction News, a UK based media outlet, reported that 9 out of 10 large-scale construction projects are now behind schedule. For projects over $135 million, roughly a quarter were delayed by over 250 days.
Data from nPlan, a machine learning forecasting company, suggests the pandemic has caused construction delays to become a global issue.
After compiling data from over 500,000 construction schedules from companies across the world, nPlan found the median delay for projects has more than doubled from pre-pandemic levels to over 200 days. Roughly two-thirds of projects are now delivered late by at least two months, and a troubling 10% are delayed for more than a year.
In its explanation for the Santa Clara hospital project’s delays, XL Construction was likely telling the truth. Levelset even tracks the business as having an 81/100 payment score.
Unfortunately, the pandemic has generated a host of new issues that, when compounded by the industry’s existing payment and cash flow concerns, have made project management a nightmare for even the most reputable contractors.
Just as subcontractors and parties down the payment chain have been put in uncomfortable positions by issues at the top of projects, project owners and general contractors can fall victim to the volatility of the many moving pieces below them.
Due to pressures that many contractors are feeling across the world, Santa Clara County is now on the hook for several hundred million dollars more, and must deal with the public’s frustration at a year-plus delay.
While the hiring of an auditor and a new general contractor may provide some new confidence in the project, it remains unclear if the county will be able to overcome the widespread industry pressures.
In such uncertain times, it’s incredibly important for project owners to secure a payment or performance bond and proper insurance. For general contractors — as well as subcontractors down the payment chain — the use of a mechanics lien can be an incredibly powerful way to secure right to payment in the event that things go sideways.