Balancing CAPEX Realities with OPEX Savings

It’s a simple concept. Capital expenditures, on average, comprise only 10% of total building costs while lifecycle operating costs make up the remaining 90%. Therefore, it’s more sensible – if not more financially advantageous – to balance fiscal decisions by taking both aspects into account.

CAPEX and OPEX are not mutually exclusive. They each impact the balance sheet and total cost of ownership (TCO). Problem is, certain elements of building lifecycle costs – taxes, incentives, energy, maintenance and replacement – are very difficult to predict or analyze upfront (pre-build) with any high degree of confidence or accuracy. At least, not until now.


Total cost of ownership calculations include:

Initial Construction Costs

Long-Term Energy / Operating Costs

Maintenance / Replacement Costs

Rebates, Deductions & Incentives

Retrofit Strategies

Project Financing / Cost of Capital

Inflation / Energy Price Escalation

Equipment Life / Cost Segregation


 


CASE STUDY #1:

NATIONAL HARDWARE STORE CHAIN

By determining construction & operating cost savings for a 400,000 ft2 distribution center roof-retrofit solution that featured LED and daylighting systems, SmartView revealed:

$138,000/year savings

(LEDs+Controls+Daylighting)

$1,080,000 tax deductions

$50,000 energy rebate


CASE STUDY #2:

REGIONAL DISCOUNT STORE CHAIN

When considering a 480,000 ft2 distribution center expansion, SmartView analyzed the operating/maintenance cost savings and energy tax rebates/incentives resulting from specified wall/insulation systems, LED controls, and roof daylighting. Cost segregation of depreciated assets was included in the final SmartView calculation:

$700,000

(Cost Segregation Year 1 Cash)

$1.82MM savings

(Over 1st five years)

$90,000+/year

(energy savings)

EPAct $345K

(additional cash still pending)

What these case studies emphasize is that initial construction costs (CAPEX) typically pale in comparison – and are greatly offset by – lifecycle operating cost savings (OPEX).

The future of construction planning and decision-making is here now, and at its core is detailed TCO data.

“Today, TCO analysis supports acquisition and planning decisions for a wide range of assets. These include especially those that bring large maintenance and operating costs across a long ownership life. Total cost of ownership is therefore center stage when leaders face purchase or planning decisions…”Building the Business Case Analysis by Solution Matrix Ltd.

The ultimate advantage in balancing CAPEX realities with OPEX savings is uncovering the hidden (less obvious) cost savings, which can be easily overlooked. Of course, having more information is always preferable for the most astute and perceptive business executives.

To learn more, contact Castle Black Construction at:

901-443-0151 or info@castleblackinc.com. 

PRE-ENGINEERED METAL BUILDINGS VS. CONVENTIONAL METAL BUILDINGS

Weekly Tips & Advice

From The Executive Desk at Castle Black Construction

So, you’ve made the smart choice and have decided to construct a metal building. Now there’s another decision to make: pre-engineered or conventional ? Both yield strong, durable and low-maintenance buildings but there are some significant differences between the two options.

9 ADVANTAGES OF A PRE-ENGINEERED METAL BUILDING

In most cases, a pre-engineered building (PEB) will yield a quicker, lighter and more quality-controlled product than its conventional counterpart.

  1. Quick and affordable design. Typically, your PEMB will have a quicker and affordable design and build process. In most cases, all of your engineering, architectural design and relevant sketches, drawings and plans are included in the price of your metal building. Metal building manufacturers have highly-specialized computer software programs and in-house designers who can quickly and efficiently tailor your building’s design to your needs.

    This is somewhat different from a conventional building, which is designed from scratch, with substantial design and detailing work required from various consultants. Conventional design methods are typically less timely and more costly – often costing 30% more than PEMBs.
  2. Delivery speed. Once you’ve decided on a building design, a metal building can arrive at the jobsite location in about six to eight weeks. Conventional buildings must be ordered piecemeal and that can result in product delivery times ranging from 20-26 weeks, causing weeks to months of delayed building time.
  3. Improved quality control. Your steel building will be designed and fabricated in-house, with strict levels of quality control at every stage of the game. There is also the added advantage of a single source of safety and responsibility. Conventional metal buildings are mostly fabricated on-site, where more than a single source is at work and where quality control is less easily monitored and enforced. Not only can this affect the durability and longevity of the building, it can also jeopardize the safety of future occupants.
  4. Smarter and more efficient design and build process. PEMBs are highly-specific to the project, without a pound of material wasted. They are typically constructed from standard steel plates stocked in masse by the manufacturer. The frames are usually tapered and have flanges and webs of variable thicknesses and depth along the individual members. The frame’s geometry is more indicative of the internal stress of the building, reducing the amount of materials used.A conventional metal building is often framed using mill-produced hot rolled steel beams and columns, which are much less streamlined due to their “all-purpose” nature. Extra materials can mean extra cost and added weight.
  5. Lighter overall building weight. Continuing with the idea of a smarter and more efficient design and build process, the precise materials used to construct a PEMB result in a building that is 30% lighter than its conventional version. This makes a tremendous difference in materials cost, as well as the impact on the foundation and soils below.
  6. Simpler foundations. A lighter building requires a lighter foundation; a heavier building requires a heavier foundation. For that reason, your PEMB will also mean a simpler and more basic foundation pour. Conventional steel buildings require a more extensive and heavier foundation design.
  7. Seismic advantages. The more a building can move flexibly during a seismic event, the less damage it typically incurs. The lighter and more flexible qualities of the materials used in a PEMB result in a higher resistance to seismic tremors. The heavier and rigid form of a conventional option makes it more difficult to perform well in seismic zones.
  8. Better integration = better overall performance. When you order a metal building, the entire design process and all of the parts are tested and proven to work together as a functioning system. They have the same connections, so erection is streamlined and there is only one point of contact so, in the rare event there is an issue, the supplier will take responsibility and address it.A conventional building is designed, fabricated and assembled in separate phases, by a mix of professionals, with the hopes that they will integrate as a whole during construction. If they don’t, you have to deal with multiple suppliers and fabricators to resolve the issue(s), which can make for costly construction delays and a finished building that may not perform as well as you hoped for.
  9. Easy expansion. It’s always advised that you select a building design as likely to accommodate your needs in 10 years as it does today. Even so, your building may need to be expanded in the future. This is very easy to do with a steel buildings since they’re built with future expansion in mind. Expansion of a conventional metal building means going back to the drawing board.

These advantages of a pre-engineered metal building mean you get to enjoy a higher-quality product, in less time and at a lower price. Once you experience the advantages of a pre-engineered metal building firsthand, you’ll never look back.

5 Reasons to Negotiate Your Next Project

Weekly Tips & Advice

From The Executive Desk at Castle Black Construction

One of the most important decisions an owner has to make when making the decision to move on a construction project is selecting who makes us the project team and method the project should be delivered. What is project delivery? Well, in the construction industry there are many but the most common methods used are: Design-Bid-Build, Design-Build, and Construction Management. So overall, a project delivery method is your design and construction team and the process of how you want the construction project accomplished. Now, all of these methods have their pros and cons? This is another subject that I will discuss at a later date.contract-negotiation

While the design-bid-build method is the go-to choice for construction projects, there are a number of reasons why the negotiated approach has seen a surge in popularity and why it might be a better fit for you and your project. So, let me give you 5 good reasons why I feel the negotiated method is a much better process for everyone.

#5 Better Information – The collaborative process of negotiating allows you to be more informed about what’s going on with your project than you would if you went with the traditional design-bid-build method. With negotiated delivery, you get to be engaged from the very beginning, telling team members what you value most on your project. You get more information about how your money is being spent and recognize savings and benefits early in the process, while allows you to place value in the beginning stages. Which brings me to number….

# 4 Cost Savings – Managing your project budget begins when those critical and crucial design decisions are being made. Bringing the construction team, like Castle Black Construction, on board early in the design process allows them to maximize value by providing cost input into design decisions. It also allows them to capitalize on early purchasing of any necessary major equipment by locking in lower prices. Additionally, under a negotiated delivery format, any savings are returned to you based on contract negotiations, whereas under a design-bid-build delivery the Contractor retains 100% of any savings.EXECUTE

#3 Fewer Changes – What’s the easiest way to minimize changes during construction? You guessed it: Involve your construction team early during the design phase and prevent changes before construction even begins. Under a negotiated delivery system, your Contractor can provide invaluable pre-construction services, such as reviewing drawings for potential errors ahead of time, thereby reducing the number of changes. Fewer changes mean significant savings on any project. In contrast, if you go the design-bid-build route, you run a higher risk of changes during construction, which stop progress and cost you time and money.

#2 Partnership – In a negotiated delivery, the Contractor is part of your team and will always look for ways to add value to the project. The objectives of the Owner, Architect and Contractor are aligned early in the process to make up the project team. In contrast, the hard bid format can produce adversarial relationships, as the Contractor must look primarily at their own bottom line since their service has been purchased as though it’s a commodity….When everyone is a team, you WIN as one unit.

# 1 Increased Transparency – Negotiated delivery is built on the premise of a trust-based relationship between you and the project team. You get to see exactly how your money is being spent–not just a high-level recap, but detailed cost transactions showing where your money is going. Possibly more important than tracking expenses during construction is transparency in the preconstruction phase, which enables you to see and decide where you are going to spend your money before construction begins.

 

Finding New Buildings in the Dust of Old

With the continued and growing emphasis on sustainability in construction we could be on the verge of a radical shift in how we think about the current stock of buildings. The time may be coming when we stop planning for building replacement, and instead plan for building reuse. That in turn would significantly change the roles of designers and builders.

Continue reading “Finding New Buildings in the Dust of Old”

How To Build A Construction Plan

Learn how to market your contractor business professionally. In depth knowledge of attracting clients with online marketing strategies and deep thinking about who you want your clients to be.

The housing industry has proceeded at a red-hot pace for several years running. An all-time record was set in 1998, when 886,000 new-site single family homes were sold. That represented a 10% gain from the robust total of 804,000 homes sold in 1997, and an 8.1% rise from the prior record of 819,000 units in 1977. Single-family housing construction accounted for $48 million of the total $125 million generated in the industry.

Continue reading “How To Build A Construction Plan”