The Cost of Delay

Posted on January 27, 2012

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With his $22 million in loans in hand, an administrator I know was preparing for a major capital project.  I introduced his somewhat recent situation in a previous post.  His hospital project was approved and ready to take off.  Fifteen months later, things are still waiting to break ground. This delay may not seem like a big deal. Or worse yet, it may sound like a common refrain to a healthcare administrator. Note well:  it doesn’t have to be like this.  Substantial delays are to be quickly overcome, and frivolous delays are not to be tolerated.

Honestly, I am not sure where the blame lies because fifteen months and no moving dirt…is either negligence by him or abuse to him. Because in the past fifteen months, known or not, a lot happened that affected his project, mostly negative, regardless of his and his project team’s inaction:

  • Material costs went up
  • Labor costs went up
  • Cash appreciation was almost zero
  • The Certificate of Need (CON) could have expired / needed renewal
  • Secured loan / grant monies were jeopardized
  • Patient satisfaction languished
  • Employee morale suffered
  • Opportunity for quality (patient safety, improved outcomes, infection control, etc.) improvement was forfeited
  • Doctor recruitment was postponed
  • Electronic health records (EHR) implementation delayed

Those are just some of the quantifiable effects of delay.

Perhaps most alarming:  the purchasing power of the loan money secured fifteen months ago went down. The money originally earmarked for the hospital buys less square footage and equipment today than it did fifteen months ago.

Whatever project estimate was used for planning purposes is long obsolete. Subcontractors will typically guarantee their numbers for 30-60 days. Everything needs to be rebid, which adds at least three more weeks to the whole operation.

Core inflation in the U.S. (excludes food and energy) went up 2.2% last year (Nov. 2010 to Nov. 2011 – December numbers not available yet). That means a $22 million project now costs $22,484,000. If the hospital was to be built for $325 / s.f., that is about 1500 square feet lost—not a big deal for a multi-hospital system with deep pockets, but significant to a rural hospital living with a facility over 60 years old. 1500 square feet is an operating room and a couple support spaces…or a break room, locker room and some bathrooms…or some generous storage rooms.

The importance of decisive action and hiring a design-build team that can move just as quickly, if not more so (to help sustain the client’s smart pace), is critical. An occasional commodity price trend for a particular material may break in the hospital’s favor during a delay in the short term, but in general most aspects of a project will cost more in the future. Time is the enemy of project budgets, and therefore, there is no better time to build than today.

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