While Giving Remains Unaffected, Project
Costs Change Dramatically Post-Katrina

By Jennifer Furla, Executive Vice President
Kansas City

While the Giving Institute and the Giving USA Foundation are expected to report slight to no impact on other charitable giving in 2005 due to the rush to aid in relief efforts following Hurricanes Rita and Katrina, capital campaigns are feeling real impact in their project costs as a result of scarce building supply.

We hear about it on the news: Oil is up to $70 a barrel. Steel costs have escalated since the War in Iraq. But what about the 14% increase in lumber costs? And drywall costs going up 25%?

For nonprofits that initially priced their projects prior to fall of 2005, these economic changes may mean increases in project costs of as much as 25%. Two organizations in the Midwest recently revised their campaigns upward from slightly under $10 million to about $12.5 million each – due simply to increased construction and material costs for their projects.

And for campaigns just now going to the pricing stage, there’s not likely to be much relief in sight. Experienced contractors will tell you that, historically, when construction prices climb as they have this year as a result of a specific occurrence, they do not tend to drop once the occurrence or situation is removed. Instead, they tend to rise and remain high for a longer period, eventually trending slightly downward until they reach economic equilibrium.

With the war not likely to end soon and another vicious hurricane season predicted this summer and fall, nonprofits must take extra care in doing the important pre-project planning in pricing campaigns prior to going to donors in search of support.

Some things you should do and be aware of:

Define your project early. Work with your board and staff to clearly define your project and determine what will be needed in terms of square footage, space and program needs, and site needs to accomplish your vision. At this early stage, plan big. Include all your needs, design your “dream home,” and then be ready to trim it to realistic constraints.

Establish a project planning committee comprised of volunteers who have the knowledge and experience to help you navigate the complexities of project design and construction. This should include people who have knowledge of real estate development, construction, building management and finance. It may also include volunteers who have played key roles in other recent campaigns who will offer valuable experience in key steps to take – and avoid.

Solidify relationships with key project partners and ask for their help in initial project pricing. While there are costs involved and you may not be ready to select your contractor, advice from both of these partners is critical to accurate project pricing.

Be an informed consumer. Pay attention to recent reports on pricing of materials and know the building trends in your area. Seek the advice of your colleagues gleaned from their recent experience. Educate your volunteers early in the process so that they understand the full costs of your project.

Above all, when going out into the community to test a campaign goal, work with your board and campaign planning committee to make sure you are presenting a realistic picture of your project costs. It’s much better to present a conservative number that is well supported, than to present a “best-case” scenario that later must be increased due to overly optimistic estimates of project costs.