Where Are We Going Wrong with Tenders? 1

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Monday, March 23rd, 2015
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Suburbia is undergoing a dramatic change that is seeing every corner block and even pockets of homes being brokered by agents to sell as a collective large site to enable multiple apartments to be approved.

This is coupled with groups of shops in shopping strips suddenly having three or four levels placed on top to house apartments that are becoming smaller and smaller.

Developers are paying a premium for sites and the only way they can justify this premium is to reduce the size and fit as many apartments as possible on the site and take as many shortcuts as possible along the way. This can and does compromise compliance in many cases.

The size of a one-bedroom apartment some five to 10 years ago was around 60 square metres and a two-bedroom was generally around 85 square metres.

In today’s market, we don’t see the size advertised very often but many one-bedroom apartments are as small as 30 square metres, and two-bedrooms are often around 50 square metres.

Many developers today put pressure on all the components of the building process from the initial architect/draftsman design. They then try to bypass the components that are required to ensure the building’s compliance.

Nothing alters the fact that there are minimum standards that must be applied to achieve overall compliance. These standards are in place to ensure a safe building, but in some instances there does not appear to be any great desire to ensure the appropriate compliance requirements are met.

When plans for apartments finally reach the tendering process, they go out to selected builders to tender on, usually with a suggested price that meets the developer’s criteria for a viable/profitable project in his or her expectations.

If the first builders selected don’t meet the pricing expectations, then another round of builders is sourced in an endeavour to achieve the expectation. In many cases, the two lowest are selected and played off against one another.

This is a recipe for disaster as the builder learns at some point of the building process that he is building a project that cannot deliver a profit, and in many cases cannot be built for the contracted price.

In other cases, developers will find reason not to deliver the final payments which can see the builder financially compromised with the only option to commence legal proceedings. By this time, of course, the builder is already under financial stress through the non payment of the contractual obligations by the developer and often the builder will just walk away and the developer has achieved his intention.

So where are we going wrong?

Keep in mind that a washing machine mechanic requests a substantial call out fee up front just to look at your at your washer. Many computer repair people will charge a fee just to offer a quote on what appears to be the problem.

Yet in the building industry, builders are expected to quote and provide a fixed price on a project whether it’s a $100,000 build or a project worth $5 million. The latter can take up many hours of the builder’s time or, if he chooses to use a quantity surveyor, cost thousands of dollars that he cannot recover unless he wins the contract. Considering he is competing against multiple other building companies, the outcome becomes nothing short of a lottery.

This, along with many developers’ requests/demands for a complete breakdown of their tender in the form of a bill of quantities, should not apply as the developer should in the first instance obtain their own costings and not expect a builder to provide it for nothing.

So where are the trade associations that are supposed to represent the interests of builders in this important arena? It appears they are mute on this subject.

NSW is proactive in terms of builders needs and requirements as only this week they have announced that the maximum deposit for work over $20,000 will increase to 10 per cent, improving cash flow for the building project.

This is a sensible approach in this area and the same mindset should be applied to the tendering process, as far too many builders are being used and abused by the current arrangements.

If a tendering fee applied, we would see the developers apply a more considered approach to the process of selecting a builder to tender on their project. This would see an outcome that would be so much fairer, and may have the ability to deliver a better system for our industry.

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  1. Andrew

    It seems to be always about the Builder, what about the sub contractor who spends time quoting projects? Sub contractors very rarely get deposits from Builders and yet subbies are expected to be the bank for these Builders and then struggle to get paid up to 60 days after the project is completed.