Smart developers, like smart investors, know a deal when they see one.

Pent-up demand, a sluggish supply chain, hungry contractors and subcontractors, and new regulations and building codes are all conspiring to increase costs for capital projects. As a result, we could see the rate of construction cost increases jump from the steady 3 percent range of recent years into double digits. The time to address physical capital needs is now.

Consider just a few of the upward pressures on cost. According to the Boston Redevelopment Authority, there are thousands of apartment units in the construction pipeline, with more waiting in the wings. As developers rush to market, demand for materials will increase and construction costs will start to rise. When the supply chain is unable to keep up, we’ll see prices continue to push upwards.

Amid the recession, suppliers have reduced the warehousing of materials, so more is built to order, which increases costs and lengthens schedules. Longer schedules mean more delays and higher costs. Add in bidding wars for critical materials and the premium prices that will be required to jump to the head of the supply line, and costs continue to climb.

Rising Costs

And materials aren’t the only supply chain critical to your job that will be playing catch-up. The economy has taken its toll on the whole industry – subcontractors in particular – and only the toughest and most resilient players have survived. They did it by cutting fees and winning jobs at or below cost, but now the pressure to recoup losses from years of break-even jobs is mounting, and their costs are rising as well.

New regulations and revised building codes will be another contributor. Under what is referred to as the Prompt Pay Law, owners are now required to address change orders within a set time period or they are deemed accepted. While protecting subcontractors against unpaid bills and saving all parties from messy fights at the end of a project, it requires even greater attention from owners. Left unattended, it can result in higher costs for those who don’t have adequate management in place. For projects that have been on the shelf as the economy recovers, many owners are returning to find new building codes require new design. And late-stage design changes come at a cost.

So what can owners do to protect their vision and make sure their project isn’t a casualty of volatile price shocks?

Project Management Help

First, professional, independent project management will represent the owner’s interests exclusively and keep the supply chain from running the job. Owners need to get aggressive about supply chain-related cost increases, extended timelines and potential change orders. General contractors are often in the same position as their subcontractors, trying to recoup recession losses with trimmed staffs that diminish the construction manager’s ability to manage subcontractors as aggressively as in the past.

Second, set up a delivery system that is proactive and transparent. A lot of owners are frustrated by the confrontational aspect of the construction industry. One alternative to the low-bid, lump-sum process is an open-book regime.

In the case of public construction, some owners are taking a page from the private sector by following Chapter 149(a), which brings contractors in early and ensures they are chosen on the basis of their qualifications and not simply the lowest price. The new law has helped to provide transparency with up-front cost estimating and reduced change orders, cut down on waste by involving professional construction management early in the process, and elevated subcontractors from product providers to service providers.

Third, timing is critical. As developers rush to be first to market, construction costs will spike, financing will eventually be rationed, and the feasibility of some projects will be threatened. Although the initial cost spike is likely to be temporary – followed by a relative dip and a second cost spike of some proportion – owners need to ensure they are being mindful of these ups and downs and planning to enter the market at the opportune time to maximize investment and protect their vision.

‘Great Opportunities’

The current market presents owners with unprecedented challenges and opportunities. But with great recessions come great opportunities.

Some of the city’s most iconic buildings – International Place, for one – were developed by forward-thinking owners who took advantage of low construction costs and pent-up demand as the city climbed out of an economic slump.

With professional management, transparent delivery systems, and smart timing owners can achieve more of their vision today than at any time in the next decade.

Jack Hobbs is president and CEO of RF Walsh Collaborative Partners, Boston.