Don’t ignore the new Patten Designs’ value proposition for apartment developers + residential constructors in NSW.

It’s time to stop listening to traditional developer nay-sayers.

The same old themes that we need more concessions to make development feasibilities work are worn out. Its time that developers recalibrated their development procurement models. They are in effect kicking their own failure goals. There is a new class of residential development opportunity that can start to change the game. These offer at least 20-percent end to end cost savings that can be delivered faster, with higher quality and improved profits.

Recent NSW planning reforms have cleared the way for many new residential projects to be approved across the state. NSW Planning’s Pattern Designs for low and medium rise apartment explainer offers development clients and competent constructors a new approach to optimising development feasibilities by disrupting traditional procurement models. The need  to deliver more market entry housing and the need to challenge previous development models that are both inefficient and destroy value now intersect.

The explainer identifies opportunities for existing and new players prepared to challenge baked in development management, procurement and delivery practices, and lousy productivity that must become a thing of the past. The pattern designs are targeted at:

• residential developers,
• existing landowners,
• small building companies,
• co-investors,
• housing Agencies,
• community housing providers, and
• multi-generational households.

The pattern designs generate developments which typically enable 6 to 24 apartments to be fast tracked into construction. Developments of this scale are likely to have a more positive social license, be easier to market and be more attractive to purchasers.

The NSW pattern design schemes  enable developers (and investor groups) to commit to contract once land acquisition and a pattern design have been approved. The limitations will be unpacking the how to capture and lock in the value of end-to-end procurement and delivery benefits now on offer. A further step will be to reshape the traditional prequalification process to select measurably competent contractors. This does not imply a free kick for contractors. They will need to articulate the progressive value uplift achievement they are willing to commit to, if smarter engagement practices were adopted by their development clients. There is a lot at stake here.

The images below can be found in NSW Planning’s pattern design explainer.

Outdated planning and development procurement practices have been defined by stealth; progressive revelation and too many avoidable unknowns being factored as givens in their project commitment journey. These factors are the product of a lack of trust in constructors to perform competently and ethically, and for a fair price.

Typically, the starting price, before delays and counter bid gaming play out.

The construction industry continues to lament the time and cost of chasing new projects where they struggle to offer a competitive advantage to deliver more for less.

In NSW a new, more trustworthy residential constructor landscape has emerged while the planning reforms have occurred, and the pattern designs have taken shape. NSW has led a national development and construction reset to restore confidence in an industry better known for buildings with serious defects, developers being able to avoid accountability, while embedding huge inefficiencies like design re-work, wasted time and materials, delays and worse, creating barriers to smarter construction methods.

Most in the industry have given up on things changing. They just dig the same hole deeper while destroying profits and the futures of the next generation of constructors. Developers seem welded to procurement arrangements that push value adding engagement with quality constructors down the track so far that almost all value upside is lost. Most advisors to developers have little understanding of the construction process. Most of their efforts are spent justifying their roles. They know who they are.

Let’s look at the following by no means exhaustive areas where value is destroyed.

1. The cost of holding development sites from acquisition to completion. These costs include interest, rates and taxes, the cost of extended development approvals and most importantly achieving investment return certainty. Costs of these disruptions exceed construction cost escalation and contractor margins.
2. The cost of producing endless design schemes as the cat-and-mouse game with consent authorities, incremental design resolution and changes, dealing with market changes and attempting to lock in a viable construction contract. These fuel cost estimates based on the prior value destruction, plus some. These practices are used to justify unchallenged contingencies and bad practice.
3. Ultimate commitment to construction after price escalations are shopped with no strategic purpose other than it feels like the only justifiable option. These processes are not resolved by those who advocate the benefits of BIM, AI and MMC. These tools may be useful if their current application as system gaming could be set aside. Few if any of these advocates’ sign construction contracts.
4. A lack of investigation of options to reduce on-site construction time and to make these contract conditions. The historical construction procurement models lock is last day commitment with key suppliers and trade contractors. These practices enshrine work packaging, sequences and overheads whose continued acceptance; the industry can no longer afford.
5. The impact of all these practices drives up the cost of developer overhead and on-site workflow discontinuities that should and can now be mitigated.

My observations of these conditions lead to a view that by simple correction, the end-to-end cost of delivering new projects should be reduced by at least 20-percent. Typically, the feasibility gap. The cost of financing avoidable cost and delay is madness.

For co-investors, rental housing providers, multi-generational households and special interest groups, the NSW pattern designs enable a more wholesale way into smaller scale developments ranging from $4.5 to $18 million. The total returns on this class of projects can be extremely attractive over a +5-year hold period. Especially if outdated procurement, and avoidable costs and risk are mitigated.

Alas there will be little value uplift for existing players who attempt to adopt the NSW pattern design opportunity for small and medium sized apartment development, who choose business as usual. The patten designs are a paradigm in the planning system.

A similar paradigm on the delivery side is now fundamental to capturing the benefits on offer. While most developers and constructors are locked into a ‘what’s in it for me?’ culture, their interests are no longer served if ‘good for one, good for many’ changes are not widely embraced. The pre-tender and pre-qualification phase are the key.

There will be first movers. Don’t be left behind.

By David Chandler OAM

Construction Practitioner and Advisor

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