Why Precast Costs Less

The total cost of ownership equals quality, service, delivery and price.

Would you pay a higher price if it bought a lower cost? For contractors and specifiers, there is a big difference between price and cost. While price is but one element of cost, it is the initial, most visible and the easier of the two to understand. Focusing on price is not a preferred strategy in any business, especially where high-quality, reliable manufactured goods are concerned. Instead, for precast concrete products, the focus should be on the Total Cost of Ownership (TCO).

How is TCO calculated? The Total Cost of Ownership is equal to the sum of the four cost components: quality, service, delivery and price.

In terms of cost elements, a distinct advantage of precast concrete over cast-in-place (CIP) is speed of delivery and ease of installation, or service. Both contribute directly to lower Total Cost of Ownership. Precast concrete, especially when produced in certified plants, boasts the additional benefit of higher quality. Controlled batch proportions placed under uniform conditions consistently creates a better product than can be cast in place. For illustration purposes, we will use an ordinary precast underground structure.

On the construction site, scheduling is an important, unpredictable and expensive risk. Nature stacks the cost odds against CIP concrete. It is a much quicker and less risky choice to have the precast delivered and installed the same day rather than excavate, form, pour and strip the CIP concrete, cure, damp proof and backfill. Given the cost matrix in Example 1, it could save six days in construction scheduling.

Example 1 - Cost Comparison of Precast to Cast in Place Concrete
Operation	Precast	CIP
	Number of Days	Number of Days
Excavate, Backfill, Connect, etc.	Same	Same
Pour, Cure, Strip Base	1	2
Pour, Cure, Strip Walls		2
Pour, Cure, Strip Top		2
Damp proof all Exterior Surfaces		1
Install on site	Additional	Included
Total Duration in Days	1	7
Price (Furnish and Install)	$2,000.00	$1,400.00
Total Cost of Ownership (TCO)	$2,400.00	$1,400.00 + ???

For illustration purposes, consider a typical below-grade structure. For the inside dimensions of a 4-by-8-by-4-foot structure of either precast (6 inches thick) or CIP (8 inches thick), assume these facts:

The TCO of precast is fixed at $2,400. However, the TCO of CIP is just beginning at $1,400. That raises the question among doubters as to why a contractor would spend more for precast. But many savvy contractors and specifiers recognize that their costs are actually less with precast.

The six days of additional scheduling are required by the mechanics of pouring and curing concrete on site. The work could be done off site in a quality controlled precast plant while other work on site progresses. Even if a contractor has a concrete crew doing multiple projects on site, the efficiency gained by substituting as much precast as possible cannot be ignored.

A contractor saves money for every minute he or she is ahead of schedule. If a $1 million contract yields a 10 percent profit margin and can be completed in 10 months, that equates to $10,000 per month, or $333 per day in profit. Saving six days means an additional profit of 6 x $333 or $2,000. Furthermore, that savings is compounded by the elimination of general conditions costs of about $500 per day for the burden of supervision, insurance, fixed and variable job site costs, etc.

And these are just actual costs. Add to this the avoidance of liquidated damages, and the cost advantage of precast concrete becomes the overwhelming choice. The cost advantages are summarized in Example 2.

Example 2 - TCO of Precast vs. Cast-in-Place Concrete
Cost Element	Precast	CIP
Price	$2,400.00	$1,400.00
Cost of Additional Time (Delivery) 6 days at $333 Discounted 50% for conservatism Cost Savings Additional Time	$0 -$0 $0	$2,000.00 -$1,000.00 $1,000.00
Cost of General Conditions (Service) 6 days at $500 Discounted 50% for conservatism Cost Savings Additional Time	$0 -$0 $0	$3,000.00 -$1,500.00 $1,500.00
Total Cost of Ownership (TCO)	$2,400.00	$3,900.00

The price of precast concrete may have been 75 percent higher than CIP, but its Total Cost of Ownership was actually about 45 percent lower, making it the clear low-cost choice.

This cost comparison offers a best-case scenario for CIP. Some of its built-in problems include the coordination of trades required to pour concrete on site, especially in union-intensive areas. Four separate trades could be involved, thereby adding cost, confusion and unnecessary risk of downtime to accommodate carpenters to form and strip, rod busters to place rebar, laborers to pour concrete and finishers to damp proof. Other problems associated with CIP concrete are poor quality control associated with additional water, untimely deliveries and placement problems, all of which are eliminated by the precast option. Add to all this the problems associated with keeping a hole open - such as water infiltration, accidents, frozen ground and temporary heat in cold weather - and the choice of precast looks even better.

A proven strategy for increased sales, growth in market share and greater profitability is to capitalize on the low-cost advantages. Precast is the better mousetrap at a lower cost. Make the TCO strategy a part of every contract. You are seeking the best value, and by definition the best value is the lowest Total Cost of Ownership.

Robert Menard is a construction industry expert and a professional speaker. Reach him at 214-513-8484 or visit his Web site at www.RobertMenard.com.