Reduced Costs Create Opportunities in Recession

Even though the economy has forced many hospitals and health systems to delay or cancel capital projects, there is still a bright spot on the horizon — reduced costs. Commodities, materials and land have all seen a recent and fairly dramatic drop in prices.

Hospitals and health systems have benefited this year from lower material costs and the availability of construction trade labor. If healthcare providers can obtain the necessary funds to start new projects, they will be able to build them with prices more favorable than in the last two years. Even projects currently under way may have a chance to realize savings over earlier cost projections.

The costs of concrete and steel have dropped by as much as 15 percent to 20 percent since late 2008, according to reports. The price drop is a nice boost for hospitals and health system planners who are about to begin construction on major projects and for those who may still be ordering materials.

There is no better time to plan for healthcare developments than right now, but even if hospitals have put projects on hold, they should revisit them to see if they can make budget adjustments based on pricing changes. What you don’t want to do is do nothing for the next three months or six months until the market turns around and then say, “I wish we had the drawings done so we could bid the project now.”

On average, it takes four months to get drawings completed, so hospitals and health systems shouldn’t wait. Otherwise, inflation could hit right when the drawings are done and the window of opportunity will be closed.

Capital “frosts and freezes” are a reality for many hospitals today. However, these tough economic times represent a great opportunity for health systems to take advantage of this pause period and re-evaluate the projects in their queues.

Hospitals can use this time to do a capital project review. This allows them to take a new, clean look at capital projects. As a result, when the market turns around and it is time to move forward, the project has been appropriately re-thought, re-sized or re-scaled in scope.

When a capital project review is performed, a team of experts takes a critical look at every aspect of the project. Reviews can be performed on projects at any phase of development, from the initial concept to projects under construction.

Within a short period of time — 90 to 120 days — the team develops a report to help a hospital understand whether it should cancel a project, put it on hold, or consider whether it needs a whole new destiny.

Al Seeley, executive vice president of Lillibridge, has more than 35 years of experience in medical facility development and construction.