Site Improvements

What are Grading Risks?

Based on my experience, I would venture a guess that most homebuilders prefer to buy finished lots, which means fully improved with the grading, utilities, and street work completed.  In addition to shortening the project life, the builders can avoid site improvement risk and do what they do best – build homes.  But in certain markets, where the competition for land is more intense, the homebuilders many times take on the grading and site improvements, which has a lot to do with the land developer and investor side of the business.  But that’s another topic in and of itself.

If finished or fully improved lots are not available in the market, the homebuilders next choice would be to have the grading completed.  The terms “blue top” or “rough graded” lots typically mean the lot pads and streets have been graded, but no underground utilities or street improvements have been started.  Fyi, you may also hear the terms “mass graded” or “superpad”, which mean a significant amount of grading has been completed, but the streets and lots have not been cut to finished form.  Many believe the grading has the most uncertainties, and therefore risk, which is why the builders enjoy receiving a graded site done by others.

For the most part, installing underground utilities and street improvements have less unknowns.  The utilities installation involves the digging of trenches and laying pipe, while street improvements involve gravel base, asphalt, and concrete curbs.  It is not to say that no risk is encountered with these improvements, but the grading risks are generally higher because you really don’t know what lies beneath the ground.  Extensive soils tests and reports are very critical in assessing the risks, but you still never know what you might encounter.

So what are these grading risks?  One of the primary issues is rock, which can vary from site to site.  Some grading efforts require the rock to be blasted, and then there is the question of whether you can bury boulders in deep fills or need to haul off the rock.  Rock handling can be costly and you do not know the extent of rock issues, even with a good soils report.  Another issue is alluvial soils and compaction.  Alluvial soils are generally softer soils, maybe as a result of water runoff over centuries, and are not stable enough for construction.  The solution may be to remove and recompact, which might entail digging up 5 – 10 feet of soil and recompacting in place.  Again, a process that adds to costs.  Another potential grading cost impact is slope stability.  In certain cases, slope remediation may require buttresses or keys to be graded into a slope, which again adds to grading costs.

One last grading issue is the “balancing” of a site, which means the cuts and fills balance out.  This means that no exporting or importing of soils is necessary.  A competent civil engineer will focus on the grading design to maximize the potential of the site balancing.  The import or export of soil is done in trucks, with costs adding up depending on the number of truckloads and how far away the export/import is traveling.

To all you grading experts out there, we welcome your comments and experiences below.  Or if you have questions, feel free to ask.

John Kaye has over 30 years experience within the land development and homebuilding industries, having held senior management positions with The Irvine Company, Koll Real Estate Group, and Brookfield Homes. As a developer, John has overseen the land acquisition, entitlements, and development of master planned communities, residential tracts, urban infill sites, and land assemblages. His experience and skill sets include land acquisition, land brokerage, project management, market analysis, finance, and strategic planning.

    1 Comment

  1. Mike Rafferty
    May 3, 2019
    Reply

    RE: Grading Risks

    During my career I have been involved in numerous major mass grading operations. Some comments;

    1. Alluvium is always a risk. To minimize this risk the more borings is better than too little. We even had one grading operation where we qualified the alluvium quantities to such an extent that the grading contractors felt comfortable enough that they were willing to take on the risk themselves.This approach was called a “Unclassified” bid. We put the onus on the contractors to do there own due diligence and any alluvium removals were included in their contract no matter what the final quantities were.This eliminated the risk of extras for excess alluvium quantities.

    2. Rock is a very serious risk. Soils Consultants are always concerned about burying the rock below structural pads. If the fills are deep enough they might allow wind rows of rocks and limit the rocks to a certain size. We had one very large grading job that we competitively bid the rock removal work as “Unclassified” bid which again means the grading contractor took on the rock risk. Another risk with rock is putting a “rippable ” clause in a “Classified” contract. Determining if the rock is rippable usually has to meet a certain test that is put in the contract. This can still cause a conflict between the owner and the grading contractor on whether the contractor is trying hard enough to rip the the rock. This can result in a large extra or a dispute since if it’s not rippable then a blasting extra goes into effect. Try to be creative to find rock disposal areas on the project. Park sites are a Godsend if the project has one

    3. One major risk during the grading operation is finding an ancient landslide that went undetected by the borings. If this is found it must be removed. Sometimes the landslide is so deep you have to resort to buttresses which can get very expenses. The worst part of the ancient landslide risk is not discovering it. This could lead to major issues with the movement of homes and could cause them to slide ( Think of the major slide in Laguna Niguel off of Crown Valley Parkway. ). The slide usually becomes active by continuous heavy rains or an earthquake. I always compare a mass grading operation to opening up a patient with cancer( I know that sounds morbid). Your never quite sure what your going to find when you begin the operation.

    4. The upside of taking the grading risk is most of the time the land will be discounted because of the risk to the buyer. If you negotiate a hard position for the grading cost credits against the land price and beat the credits with a good grading bid you might look smart. So if you like Las Vegas, you’ll love mass grading!

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