Your answer to the above question may determine your success and how long you survive in the industry.
Ever wondered why an increasing number of highly successful builders have more work than they can handle, but never seem to tender for their work? The answer: They are more than likely “solution providers” for their clients.
It’s becoming increasingly clear that acting as a free price provider for potential clients is not a sustainable way for builders, or the construction industry as a whole, to move into the future.
The problems and pitfalls of the tender market are extensive, and create a mug’s game for those that are more often than not short stayers in the industry.
Relying solely on the tender market for the majority of your work means you’ll be working extremely hard in a high-risk environment. You’ll be making a lot less money than you are capable of, and you’ll probably want to be out of the industry within three to five years, primarily because you won’t make enough profit to continue running a sustainable business.
But it doesn’t have to be this way.
It costs many thousands of dollars for a builder and his sub-trades to produce an accurate tender, and these costs will be replicated by all the builders participating in the race to provide the cheapest price.
Why is it that the only professional in the construction chain that isn’t paid during the tender process is the builder? The designer gets paid, the engineer gets paid and the quantity surveyor gets paid. But what about the builder?
Unfortunately, the builder only gets a ticket to enter the tender lottery, and only wins the lottery usually by making 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, is even below cost. Builders are ever optimistic that they will make it up on the way, but history shows this very unlikely.
If your tender does happen to be the lowest in price, it may still be beyond the client’s budget, and so negotiations begin. It astounds me that so many builders will blindly price work not knowing what the client’s budget is, or if they can even afford to proceed.
As the lowest tenderer you then have the pleasure of seeing how you can reduce your costs and margins further, so that the project can proceed without a redesign. I’m sure you’ve all been there at some point.
By this time you will have invested significant intellectual knowledge, money and time into trying to win the project so will, of course, be reluctant to lose the contract, and may make unwise compromises as a result.
The best course of action for a prudent builder is to move on to profitable work and let your competitors struggle to try and make a living out of a project based on all the wrong fundamentals.
Unfortunately, many 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.
Once the project is complete, they carry liability for the project that they were never properly recompensed for for 10 years. Sound unfair? It is.
However, the only person to blame in these instances is yourself — for taking on the impossible. My advice to you: don’t do it. You would be better off fishing.
With this type of business practice, you will undoubtedly be working flat-out, going slowly, painfully broke, and on the road out of the game within three to five years.
So, how do the smart builders avoid the tender trap?
Simply put, they offer solutions to the clients’ needs. A typical client wants a project designed and built within budget, finished on time with minimum inconvenience, and they want a quality product at the end of the process.
They also want their builder to be around in the future, should any issues arise. This is not too much to ask and, ideally, should be the end result of all building projects.
The building process is an interruption to the client’s normal routine and something they would happily avoid if they could. They want a roof over their head or a commercial operation, as efficiently as possible, so they can continue with their lives. As a builder you need to understand this fundamental fact.
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.
Typically, the first sign of trouble for the client is when the tenders arrive 50% to 100% above their budget. By this stage, huge amounts of money and time have already been spent by all involved, only to find that the project cannot proceed or is delayed while a new design is completed and tenders recalled.
This is a not a smart way to do business, and it’s a shame our industry allows this waste of resources to continue.
It’s time for us to wake up, move on and leave this mess to those who are only capable of getting work by offering a cheap price. Would these same clients get five prices from competing dentists for removing a tooth, and then negotiate with the cheapest quote to see if they could reduce the price further?
I very much doubt they would risk their personal safety in this manner. However, they are naively prepared to gamble on their biggest investment by taking a cheap construction quote.
There is a better way. More and more clients, builders and designers are working in project teams lead by the builder to deliver quality, fast-track buildings with certainty of budget and time frame from the outset, and there are significant advantages for all involved.
The designer and client get to work with a reputable builder who will survive long term. From day one, a strong working relationship is developed which enables the best construction solutions and accurate budget advice to be incorporated into the design, taking away the risk of drawings being produced that don’t match the client’s budget.
The client receives quality advice on budgets, along with good value engineering and economic building systems.
With larger projects the time frames can be significantly reduced by staged commencements while detailed design is being completed for later stages.
No matter the size of the project, there are always advantages in taking a team approach. The builder benefits from having certainty over upcoming projects, and also has reduced overheads because resources are not wasted chasing fruitless work.
The builder also gets paid a fair price for delivering a total solution from upfront advice to timely completion of the project.
The key to success in the building industry of today is to change your mindset from being a “price provider” to a “solution provider”. Take control of your destiny, and have a significantly more fulfilling, stable and financially rewarding career. Good luck.