How the Tender Process Fails Builders 14

By
Tuesday, May 31st, 2016
liked this article
Embed
Allegion – 300 x 250 (expire Feb 28)
advertisement
tender
FavoriteLoadingsave article

The tender process should be a respected process within the building industry that delivers a fair and equitable outcome to the participants of the process, but that’s far from reality.

Our industry has an obligation to rectify a circumstance that is out of control and wasting time and money.

When a builder is requested to provide a tender price for a project – generally from an architect – and agrees to do so, he is undertaking a significant commitment both from a time and monetary point of view, and that’s before even considering the mandatory liability that is forced on a registered builder.

A tender may take some three to six weeks to assemble and may consist of the builder having plans printed and or purchasing a Bill Of Quantities (BOQ) at a significant dollar cost and/or obtaining specific quotes from trades to assemble a trade breakdown to arrive at a final cost and then apply overheads, supervision, profit, and GST.

These processes involve many businesses who give their time and effort at  no cost on behalf of the builder who may or may not win the tender. However, there are sometimes ulterior agendas when it comes to tendering, as it could be a developer or an owner builder who is using the tender process to obtain a benefit when they should be paying for their own BOQ in the first instance.

To provide a clear understanding of the processes I speak of, I will relate to two factual cases that have impacted on builders and demonstrate it is not only the consumers that can lay claim to detriment within the building industry.

Scenario 1

Assume builder A has been requested to provide a tender price for a project and has been told he would be competing against four other similar builders and the closing date for the tender is some four weeks away.

Builder A gets to work and may elect to price the project himself by asking his trades to provide a price relating to their profession. When those prices are received, builder A will then assemble the cost components, add his contribution together with the margins and a GST component on the overall cost to arrive at a final figure, which he is to submit on the stated closing time and date.

The tender is provided by Builder A on the designated closing date only to be told the other builders have not had time to provide their tender by this date and have requested more time, which has been granted.

One would expect a tender with a closing date would be just that, but no, the architect stated that would be unfair on his client as he does not have a comparative price.

Secondly, the consumer has requested a trade breakdown to compare with the forthcoming tenders and is told if he is not prepared to provide this trade breakdown, he will jeopardise his chance of a successful outcome.

So we have the situation where the architect is privy to a builder’s tender price some two weeks before the other unprofessional builders got around to providing their prices.

Scenario 2

Builder B has been offered a tender project, again with a closing date, and is told he is competing with three other builders who are capable of delivering the project.

This builder has elected to obtain a Bill Of Quantities from a quantity surveyor at a considerable cost, which may be some thousands of dollars. However, such a process should position this builder with a competitive tender that would give him every opportunity for a successful outcome.

The tender is submitted on time, and after some two weeks the builder inquires as to the outcome. He is told the tender prices are too high and asked to provide a complete trade dollar breakdown and the names of his subcontractors so the client could target areas to reduce the cost to meet his/her budget. The architect suggests that by doing so, the builder will be in a strong position to achieve the build of the project.

Reluctantly, the builder provides the breakdown and some three weeks later he again he makes contact and is told the cost is too high to proceed and the project has been shelved.

This tender did eventually start as an owner builder project with the benefit of trade breakdowns and names of trades courtesy of the builders who thought they were pricing within the principles of the industry tender process.

The tender process is being compromised by operators in our industry who are using the process to obtain a financial benefit at an enormous cost to our industry and while most tenders are genuine and transparent there are those that will continue to exploit.

Builders enter into the tender process in good faith and rely on many of their subcontractors to arrive at a final cost, or they may elect to obtain the services of a quantity surveyor at a considerable cost, but either way the outcome comes at a considerable cost for the builder.

We suffer far too many injustices in the building industry and this is just an another impost the industry can do without. It’s up to those in a position to educate and adopt a stronger position on such conduct to the benefit of the wider industry.

Embed
FavoriteLoadingsave article

Comments

 characters available
*Please refer to our comment policy before submitting
Discussions
14
  1. Brent

    Great discussion and one that has been talked about for a long time. Builder's give away all that knowledge they have built up over the years for nothing! Why is it that our industry allows "Owner Builders" who do a two week course before they take on the responsibility of building a house that some unsuspecting purchaser buys and blames the "builder" this dilutes the builders credibility. I mean if a "News Agent" can build a house next week, why do you need a builder!
    A plumber has a call out price and everyone accepts that! Builders have to carry a lot of overheads if they are legitimate and often have to put their own house on the line to get the Insurance along with seven years responsibility warranty. Builders need to wake up and charge clients for their services.

  2. Tom Jones

    One can certainly understand how frustrating this must be for a lot of contractors out there. To go to the cost and trouble of preparing a proper and realistic tender and not get the job fairly is disappointing enough, but to do so because the client has changed his mind or because some part of the process has changed is downright shocking. In all reality, once the tender process has been commenced, the client should be committed to following through with the project. To commence a process and have all parties concerned go to the time and cost involved and then not to follow through would be disgraceful and wrong.

    • Shane

      Builders also have a lot to answer for when it comes to the tender process as well. Subcontractors like ourselves no longer supply builders with tender quotes, its an absolute waste of time. Gone are the days when a builder will only talk to companies that have put the time and effort into submitting a quote at tender. Now once they've won the job, they will put it back out in the market and shop it around to the cheapest bidder, so the companies that didn't supply a quote get a go at winning a live job. No all builders do this, but from my experience the majority do. I think it's about time the construction industry starts looking at ways to charge for tender submission,time is money and estimators don't work for free.

  3. John Tomes

    Lets turn the coin over , the builder calls quotes from the sub-trades to enable him to submit a competitive tender and with all the sub-trades help and investment in time and resources, wins the Tender , Instead of rewarding the sub-trades for there efforts and time , the builder then, closer to the specific requirement of the trades on site , re tenders the specific project component and continues to run a Dutch auction , That's injustice .

    • Shane

      Exactly John, we no longer submit tender quotes for this very reason. The industry needs to look at ways to charge for tender submission, time is money and estimators don't work for free.

  4. john

    Ive been in the game for nearly 30 years, high profile commercial and upper end resi. The process is costly, time consuming and draining. Too often indecisive clients use the builder as a 'free pricing service', when they should be paying for it either to the builder or a QS. Inexperienced architects pushing there own agenda and claim to fame, only add to the frustration. Considering what the industry contributes to National GDP, we are dinosaurs in how we operate. There are good builders and operators out there, been taken to the cleaners. The industry needs a well overdue overall, from governence down.
    Otherwise, a gr8 industry to be part of !!

    • David Maurer

      Brilliant words John for an up and coming builder in a great niche like myself. Always great to hear from people who've been there, done that! Putting in some great measures now to eliminate tyre kickers which should put me in good stead for the future. #1 is simply charging for quotes-the people not willing to come to the table..next! Thanks again and always happy to connect down the track. Cheers

  5. Tim

    Fully agree with John Tomes…..and in the process of the Dutch Auction, Australian Standards go out the window, the job is not fully costed, with the promise that variations will permit a lift in the contract price, and very rarely happens, all with the intention of obtaining the cheapest price possible with no regard to the sub-trades that helped win the tender in the first place.

  6. Trevor Rabey

    Tendering is a lottery. Agreeing to participate in it is a mistake, the first among many mistakes that a builder will make. The builder who wins the job knows for sure that he has made a mistake in his price, and digs in to try to gouge out a profit from variations. Bid low, get the contract, then ramp up the claims. That's how to do it.

  7. S Hays

    So what do you all suggest to improve this problem?

    • Phil Dwyer

      This is what we have trade associations for.

      Both HIA and MBA have a duty of care to service members for the betterment of the building industry.

    • John Tomes

      S HAYS : Try running a japanese way of tendering whereby you add up the total amount of all tenderer's then divide it by the number of tender's and the company that is the closest to the average number wins , The company that was the highest didn't want it and the company that was the lowest probably made a mistake , It would take away all the incentives to price projects at cost with the hope of profits coming from VO's , bending over the sub-trades or taking short cuts , None of the preceding issues are in the end users best interests

  8. Les Williams

    The client or his agent should be made to provide a Bill of Quantities from which all tenderers price the project. Clearly that allows any alterations to be easily evaluated as a +/- variation instead of the rubbish system served up now. It is not new – it is the way it used to be when we had a slightly more ethical industry. What occurs now is simply a reapportionment of risk by the client that will end up with the subcontractor. The tender process has been bastardised to suit contractors and clients. If we don't have a quantified base for the project at tender we get the problems that we have now. Consider also the totally unfair subcontracts designed by the legal fraternity for contractors that in some cases strip subcontractors of their rights conferred by legislation. It is the subcontractors affected the most by this system that is open to abuse and is abused. Lawyers have done to the construction industry what they have done to our parliaments.

    • Graham Morrow

      I agree with the above comments and note that it is the client (developer) who generally drives what may be short sighted decisions and also fails to give an adequate design brief and/or time to develop design.
      Bills of Quantities (BoQs) are now fairly rare on projects, as the client will usually want to go to tender early, before the designers have completed the design; the BoQ requires a substantially complete design which does not exist as design fees have been negotiated downwards.
      A client produced BoQ also would allow alleviate Scenario 2 issues. It is much easier for a builder to split the BoQ and drawings amongst trades and quicker for trades to price, rather than each subcontractor completing its own measurement take off of quantities. It also reduces the chance of a builder's pricing error, which is usually what makes a tenderer achieve the lowest tender price. [What has been missed or left out?]
      A further advantage of a BoQ is that the QS can price her/his own BoQ and very accurately predict the likely tender price, so the client will have advanced notice of any potential budget issues. As noted above, it creates a ready basis to value variations fairly and control variation costs.
      The risk for builders is exacerbated where the project is tendered as a 'design and construct' notwithstanding it is in reality not such a project, merely inappropriate risk allocation. I note that the Abrahamson concept of allocating risk fairly and on the party most able to bear that risk is not even contemplated any more by clients (developers) and that all risks are mechanically passed down the line to those who can least afford to bear them.
      Graham Morrow
      Barrister & Solicitor, Arbitrator and Adjudicator (and former QS)