The $1.2 Million Lesson: Why Owner’s Reps Belong at Day One
The Capital Catch-22: Why Early-Phase Projects Are Most at Risk
Every capital project begins with vision, urgency, and hope. But the earliest decisions—the business case, initial schedule, scope assumptions, and delivery strategy—often get made with minimal technical input. Why? Because at this phase, the capital hasn’t been approved, and most organizations are hesitant to spend operational dollars on something they can’t yet capitalize.
It’s a cycle we’ve seen play out time and again:
The project team pushes for fast board approval.
Finance holds tight to OpEx spending.
The Owner’s Rep (OR) isn’t brought in until after the budget is set.
By then, it’s too late.
Let’s break down why this happens—and how costly it really is.
OpEx vs. CapEx: What’s the Big Deal?
For those unfamiliar with the finance side, here’s the core issue:
OpEx (Operational Expenditure): Hits your books now. Most companies want to avoid it—especially if the project might not proceed.
CapEx (Capital Expenditure): Can be amortized and depreciated, but only after a project is fully approved.
The dilemma? Early-stage work—business case refinement, scope definition, schedule strategy, procurement planning—is most valuable before the capital is approved. But paying for that out of OpEx feels risky, especially if the project doesn’t go forward.
The irony? Not engaging support early is what causes so many projects to fail in the first place.
A Real-World Cautionary Tale: The Carolina Test Cells Project
One of our clients, a large engine manufacturer, had a capital project in the Carolinas for six new engine test cells and facility expansion. They submitted a $60 million capital request and got it approved.
But something didn’t sit right with their internal procurement team. They brought us in—after approval—to validate scope, budget, and schedule. Our fee? Just $12,000.
Our findings:
The actual project cost would be closer to $115 million.
The timeline was six months longer than planned due to long-lead equipment.
We used RSMeans and current market information and benchmarked against a similar test cell project we had delivered in Georgia, and the numbers checked out.
Still, the local team—understandably invested in their original plan—wanted to move forward. We offered a value engineering (VE) option that brought the cost down to $80 million, but it was still well over budget.
The local team pushed ahead with design.
When the 30% design phase came around, the engineer’s cost estimate came back in line with ours: $115 million.
By that point:
The client had spent $1.2 million on early design.
They had no viable business case to support the new budget.
A redesign based on our Value Engineering (VE) concept would have cost another $1M+.
Even after VE, the project would still be $20M over the original approved number.
The result? The project was canceled. The local team lost credibility. The corporate team lost confidence. The executive team lost trust. The entire initiative was reduced to a minor capital patch job.
And it all could have been avoided—for less than 0.0002% of the project budget.
The Flip Side: A Midwest Win Through Early Engagement
Contrast that with another manufacturing client who engaged us at the business case stage for a $400 million expansion in the Midwest.
Together, we:
Vetted assumptions and scope.
Developed a benchmarked cost estimate.
Got the project approved with board confidence.
During the programming phase, we proposed a nontraditional delivery and sourcing strategy—breaking the project into five packages, tailored to long-lead procurement, contractor capacity, and schedule flexibility.
This approach was new to the client. Riskier? Slightly. But smartly managed, it could save $50 million or more.
They trusted the process. We managed it.
The final procurement came in $70 million under budget. They reinvested the savings to expand project scope—and stayed ahead of schedule.
The difference? Early engagement, realistic planning, and full alignment across stakeholders.
Why Finance Teams Say No—and How to Get to Yes
Finance departments aren’t wrong to be cautious. OpEx is a sunk cost if the project doesn’t go forward. But here's the truth:
The biggest risks in capital projects happen before the capital is approved.
OpEx invested in strategy, validation, and planning de-risks your CapEx.
NOT investing early is what leads to write-offs, redesigns, or cancellations.
As a former real estate executive for Fortune 500s and the U.S. government, I always kept an OpEx line item for early-phase project planning. Nine times out of ten, those projects proceeded—and I could then capitalize all the costs. The tenth? Still worth it for the clarity I gained.
What Happens When Owner’s Representatives Aren’t Engaged Early
Without early OR involvement:
Business cases can be built on flawed assumptions
Programming lacks alignment with actual needs
Schedules are optimistic and unvalidated
Procurement teams are left to chase incomplete scopes
Executives are forced to micro-manage later to regain control
It’s not just about cost. It’s about trust, confidence, and momentum.
What ORs Do in the Early Phase—and Why It Matters
Albers Management brings:
Requirements capture: What does the business really need?
Cost validation & benchmarking: What will it truly take?
Schedule realism: Are we setting ourselves up for success or failure?
Sourcing strategy: How do we go to market smartly?
Stakeholder alignment: Are we all actually solving the same problem?
We don’t just manage scope, schedule, and budget—we ensure they’re based in reality.
How to Navigate the OpEx Barrier
Here are ways to bring on OR support early without breaking policy or budget:
Create a Capital Planning Reserve
A modest OpEx reserve (e.g., 0.5–1% of your capital forecast) for early programming can protect 100% of your CapEx from bad assumptions.Use Pre-Capital Designation
Some organizations allow early OR costs to be reclassified as CapEx if the project proceeds. Align with your finance team to enable this pathway.Bundle with Feasibility or Site Studies
OR support can be packaged under technical assessments that already have OpEx justification.Structure in Tiers
Engage your OR in tiers: initial validation (low cost), then proceed to deeper support as confidence grows.
Final Thought: Don’t Just Build Projects—Build Confidence
If your OR is only engaged after approval, you're bringing in the parachute after the fall.
“The $1.2 million lesson” wasn’t just about sunk costs. It was about lost opportunity, lost trust, and a project that never had a real chance.
At Albers, we don’t just manage projects—we set them up to succeed. And that starts long before the first dollar of capital is spent.
Next-Level Insights Coming Soon
We’re expanding this short blog into a full-length guide covering strategic forecasting, risk modeling, and cost governance in complex capital projects.
Get Notified When It DropsWant a deeper, behind-the-scenes perspective?
Read the personal blog version by David Gray:
What Are Project Controls? – DavidGrayProjects.com
About the Author
David Gray is a principal at Albers Management and a national expert in capital program delivery. With experience managing over $20B in complex infrastructure and healthcare projects, he leads with strategy, structure, and service.
Outside of Albers, David shares long-form insights and behind-the-scenes lessons at DavidGrayProjects.com, where he writes about project strategy, leadership, and the future of infrastructure.
Visit DavidGrayProjects.com →