Have you ever wondered why an increasing number of highly successful builders have more work than they can handle at fair margins but never tender for their work? Then read on.
First, let me explain the problems and pitfalls of the tender market and why I consider that tendering for work is a mug’s game. If you rely solely on the tender market for the majority of your work then you will be working extremely hard in a high-risk environment.
You will be making a lot less money than you are capable of, and you will probably want to be out of the industry within three to five years. The main reason for this is that you will not make enough profit to continue running a sustainable business, but it does not have to be this way.
It costs many thousands of dollars for builders and subcontractors to produce an accurate tender. These costs are replicated by as many builders who are, unfortunately, in the same game. What about the builder? Why is it that the only professional in the chain that does not get paid in the design and tender process is the builder? The designer gets paid, the engineer gets paid and the quantity surveyor gets paid. What about the builder?
Unfortunately, the builder only gets a ticket to enter the tender lottery and only wins the lottery if they make a mistake. When tendering, the lowest price is invariably taken. This price could be as much as 5% to 10% below the next lowest tender and, in some cases, can even be below cost.
If by chance your tender does happen to be the lowest it may still be beyond the client’s budget and so negotiations begin. As the lowest tenderer you then get the pleasure of seeing how you can reduce your costs further so that the project can proceed without a redesign being necessary.
I am sure you have all been there at some time. By this time you will have invested significant intellectual knowledge, money and time into trying to win the project, so will be reluctant to lose the contract and will usually make unwise compromises.
The best course of action for a prudent builder would be to move on to more profitable work and let their competitors struggle to try and make a living out of a project that has all the wrong fundamentals. Unfortunately, a lot of builders who have already put in a tender that is too low then agree to unrealistic time frames and penalty clauses and, consequently, have a life of misery trying to deliver the impossible.
My view on this course of action is that you will probably be “fl at out and going slowly broke”. Hence my comment earlier that you will be out of the game in three to five years. So, how do the smart builders avoid the tender trap? Simply put, they offer solutions to the client’s problems. A typical client wants a project that is designed and built within budget, is finished on time with minimum inconvenience and they want to have a quality product at the end of the process. This is not too much to ask for, and it should be the end result of the majority of building projects.
Unfortunately, the traditional design and tender market rarely delivers on the above and, unless clients are educated about this, they will blindly fall into the same old trap of employing a designer and going to tender for the cheapest price.
Unfortunately for the client, the first sign of trouble is usually when the tenders arrive in at 50% to 100% above their budget. By this stage, huge amounts of money and time will have been spent by all involved, only to find that the project cannot proceed or is delayed whilst a new design is completed and tenders recalled.
This is a really dumb way of doing business and, unfortunately, our industry allows it to keep on happening. It is time to wake up and move on and leave this mess to those who think you only get work by offering a cheap price.
There is a better way. More and more clients, builders and designers are now working in project teams to deliver quality, fast-track buildings with certainty of budget and time frame. If the builder, client and designers from the outset develop their budgets and review the design and time frames at each stage of the way then there are significant advantages for all involved in the process. The client gets quality advice on budgets along with economic building systems.
There is a constant review of documentation and resources are put in place along with supply chains so that projects can be delivered in a timely and economic manner. The designer and client get to work with a reputable builder from day one, developing a strong working relationship which enables the best construction solutions and accurate budget advice to be incorporated into the design.
This takes away the risk of drawings being developed that do not match the client’s budget. With larger projects the time frames can be significantly reduced by staged commencements whilst detailed design is being completed for later stages.
No matter what size the project is, there are always advantages in taking the team approach. The builder benefits by having certainty over upcoming projects, and they also have reduced overheads by not wasting resources chasing fruitless work.
The builder also gets paid a fair price for delivering a total solution from upfront advice to a timely completion. In conclusion, I consider that the key to success in the building industry of today is to change your mindset from being a “price provider” to being a “solution provider”, and everyone will be a winner.