The commercial construction sector has undergone many significant and dramatic changes over the past couple of decades. However, some facets of the industry have failed to keep up with the market trends that drive this dynamic sector.
One such area is procurement with more than 80 per cent of the consumers relying solely on the tender process to deliver the best value and quality in the creation of their property assets.
The phrase “what costs nothing is worth nothing” is well-known, so why do we kid ourselves that our second greatest asset outside our family and intellectual achievements can be delivered at zero cost? The promises of a bygone era when the local trade contractors (or subcontractors as we then knew them), engaged the local sign writer and advertised “free quotes” on the side of their van is no longer relevant in this day and age. Now we measure value not in actual monetary terms but in a variety of “deliverables.” Yes, yesterday we simply thought if we didn’t pay anything for something, it was good value, but in today’s market of transparency, regulation and compliance, our definition of value has been changed forever and can no longer be delivered without cost.
To date, we have concealed the ‘free cost of tendering’ within our overhead structure and in a market of compressed margins (and some would say of ‘ignorance’ in the cost of running a modern compliant construction company), we fail to deliver on our obligation of value, be it in accuracy of the bid, buildability, compliance, commercial awareness, quality, reduced risks, safety or timely delivery. The assessment of these key elements of a tender are essential to our professional obligations and can no longer be delivered for no cost in the bid. They need to be recognised in the contract to ensure and maintain the transparency demanded in representing true value in the construction project in 2015 and beyond.
Federal, State and Local Government authorities, institutional investors, developers, clients, occupants and consumers are paying a premium for undelivered value in the current procuring processes and the only way they can justify this premium is to introduce the two-staged tender and eliminate as many shortcuts as possible along the way. This can improve the value and will not compromise compliance in any cases.
In today’s tendering market, we may not see the value and input that a construction company must go to in order to win the coveted prize of a ‘contract to Hell,’ but to maintain the value of this intellectual property (be it the builder’s own, his trade contractors or his design consultants), construction and management expertise in addition to the professionalism, we need to improve our approach to procurement. There have been methods considered, but few actually trialed in order to deliver genuine value in the end product.
When bids are ultimately delivered, there is a competitive outcome sought from the current tendering process, be it via a selected (CSR approved/registered builders) or a public/open tender arrangement, (usually with the underlying objective to get the cheapest quote). The usual disclaimer stating that the lowest or any tender may not be accepted rarely cuts the mustard in the final award process. It is a well-accepted fact that the tender process can only deliver the start price and never the final price. Despite the known criticisms of the process, little or naught has been done to improve the system to ensure that all stakeholders are either provided with value or recognised for the value offered in the builder’s endeavour to deliver the necessary amount of value deemed appropriate in today’s era of compliance and professionalism.
The biggest conundrum one must scratch one’s head over, is that if Reserve Bank Governor Glenn Stevens and his entire tribe of economic advisors, and Federal Treasurer Joe Hockey cannot tell us what interest rates are tomorrow, how is it considered fair and or reasonable that we would ask a construction estimator (or quantity surveyor) to tell us what construction costs (comprising materials, labour, exchange rates and even sometimes finance costs) will be months or even years from any actual known data driving the ultimate tender bid?
This can be streamlined by adopting the two-stage tender process, in which the initial bid is based on only what the contractor can control (his intellectual property/experience, time, quality, preliminaries and then to a lesser degree performance). This can be delivered at a relatively early stage of the life of the project (shortly after the planning permit has been procured, and during the ‘marketing’ phase of the project).
The final contract or commercial consideration need not (and in fact should not) be a factor until the entire scope is known. The biggest single advantage of this process comes from the relationship that is then developed with the builder. The principal now has his builder on board under a process used overseas known as early contractor involvement (ECI) and has made a commitment to him to deliver the maximum amount of true value in all of the ‘things’ and sometimes more that impact on the final cost and ultimate value of the project.
The developer or property investor secures the biggest “win-win” in the experience as he can be 100 per cent comfortable with ‘his’ builder, he gains in the fact that he can secure the best skills committed to his project and can be quietly confident that any traditional adversarial approach acquired as a consequence of the tender process (as we know it, and become accustomed too) has been mitigated, that in itself demonstrates a significant gain in value.
The builder is rewarded with the opportunity of being able to plan his forward workload, retain his trained staff and return to the good old days when he could sleep at night.
At the end of the day, a project costs what it costs, and if that seems too much at the start and we feel we need to continue to rely on an erroneous bid to determine real value, then we are not valuing or protecting the stakeholders we purport to have their interests at heart.
This is not change for change’s sake, it is a tried and proven process, and if we think we are getting ‘something for nothing’ it will invariably be worth nothing!
So what’s stopping us?