The Urban Developer
AdvertiseEventsWebinarsUrbanity
Industry Excellence
Urban Leader
Sign In
Membership
Latest
Menu
Location
Sector
Category
Content
Type
Newsletters
Urban Leader Awards Logos RGB White
NOMINATIONS CLOSE SEPTEMBER 12 RECOGNISING THE INDIVIDUALS BEHIND THE PROJECTS
NOMINATIONS CLOSING SEPTEMBER 12 URBAN LEADER AWARDS
LEARN MOREDETAILS
TheUrbanDeveloper
Follow
About
About Us
Membership
Awards
Events
Webinars
Listings
Resources
Terms & Conditions
Commenting Policy
Privacy Policy
Republishing Guidelines
Editorial Charter
Complaints Handling Policy
Contact
General Enquiries
Advertise
Contribution Enquiry
Project Submission
Membership Enquiry
Newsletter
Stay up to date and with the latest news, projects, deals and features.
Subscribe
ADVERTISEMENT
SHARE
print
Print
IndustrialStaff WriterWed 21 May 14

How can developers and builders both find value in tendering right now?

C

The market is chasing a flurry of activity and there is no doubt that currently, everyone is in a hurry. That hurry is driving a number of opportunities to create value, most of which are created through certainty and confidence. Tenders that go out with issues unresolved and present uncertainty to construction companies are being treated unfavourably. And no one wants an uncompetitive build at the moment.

Smart construction companies and developers are finding ways to grab value, and surprisingly, it can provide a win-win situation for both.

Developers are taking time during post tender negotiations to address risk and drive lower prices for construction. And it isn’t unfair.

Smart developers are increasingly using their post tender negotiations to their advantage. Lately we have worked with several developers; pulling apart their tender submission from an integrated design perspective to develop an understanding of how a contractor has priced risk into the project. By gaining this understanding, a developer can work with the contractor of their choice to clarify specific areas in the tender where the contractor is concerned about risk, and potentially negotiate a lower price for a trade.

 

Contractors are being placed in discomfort on projects with short timeframes until commencement, in hope they will drop their price. And it is working.

Developers are using the current economic environment to their advantage, knowing many construction companies do not have full books, and there is a race on to snap up the projects heading into construction.

Developers have been calling and receiving tenders, and not communicating back to tenderers for several weeks. In that time, a contractor can clarify their own risk of having priced too high and may decide to adjust their fee. Matter-of-factly, developers are using the discomfort in the current contractor market to drive down the price of construction. However, it is not without due grounds much of the time.

Creating that time also allows the contractor to better understand their risk. The limitations of a conventional tendering process often means that a contractor is receiving multiple sub contract pricing at very late notice without the time to assess the risk associated with that price. After the tender has been submitted, the contractor may be able to step back and assess the risk associated with their pool of chosen sub contractors and with time, and time in the market, may make alternative choices which result in a lower tender price to the development.

One major industrial company tendering a facility worth about $20M saw this happen, where in the two weeks their tender sat in limbo, all three respondents dropped their price by $1M or more.

 

Risk is being managed with price, as opposed to being avoided. But it can also be reversed to bring construction prices down.

Previously, we have found in a buoyant market that contractors have simply not bid on projects that contain significant risk. As the economy picks up in construction, I have no doubt we will see these times again. But for the time being, there is a growing appreciation of the need to manage risk with price. Contractors have become all too aware of the high cost of tendering, with contractors pricing in risk to poorly documented tenders that are likely to be re-tendered repeatedly. We see risk being as high as 10-15% on projects.

This occurred recently when a project was re-tendered twice over a six-month period. The first tender went out with DA documents which included unresolved designs, and average prices came back around $12.7M. The second round of tenders went out after detailed integrated design had been undertaken, resolving most of the critical issues on the project. The price came in at $11M. The price of risk was the differential.

D&C contractors respond well to risk being eliminated through refined and appropriate integrated design that resolves substantial cost and time risks from a contractor’s point of view.

In concert with this, we see subcontractors who are proactively managed by their contractors to reduce risk and increase certainty responding well with lower pricing. In a recent D&C tender we had steel sub-contractors taking 3-5% off their price when we are able to guarantee the quantities required.

It is interesting times in the construction market. The one thing that makes a difference is well understood, and clearly defined integrated design. With it prices can be managed, construction confidence built and value driven. Without it, higher prices are almost guaranteed.

 

Michael McVeigh is the founder and Managing Director of McVeigh Consultants, a multi-disciplinary engineering firm based in Brisbane. He has 25 years experience and technical expertise in industrial building design, structural and civil engineering and project management.

IndustrialAustraliaConstructionConstructionOpinion
AUTHOR
Staff Writer
"TheUrbanDeveloper.com is committed to delivering the latest news, reviews, opinions and insights into the best of urban development from Australia and around the world. "
More articles by this author
ADVERTISEMENT
TOP STORIES
Stockland bumps up its apartment pipeline in melbourne and sydney
Exclusive

Stockland Re-Enters Density in $5bn Apartment Play

Renee McKeown
4 Min
Woolloongabba Precinct Vulture St
Exclusive

Brisbane Developer in Cross River Rail Compensation Tussle

Clare Burnett
4 Min
The Mondrian Gold Coast hotel's food and beverage is driving profits
Exclusive

Touch, Taste, Theatre: What’s Driving Mondrian’s Success

Renee McKeown
6 Min
Fortis’ display suites are designed as brand environments first, with tactile details and curated design to build buyer confidence before project specifics.
Exclusive

Relevant or Redundant: Will Tech Kill Display Suites?

Vanessa Croll
7 Min
Exclusive

Missing Heart: Why The Gold Coast Needs a CBD

Phil Bartsch
7 Min
View All >
JQZ Parramatta EDM
Residential

JQZ Plots 10-Storey Addition to Parramatta ‘Auto Alley’ Plans

Clare Burnett
The Adelaide purpose built student accommodation market is about to increase by 1058 beds with the State Commission Assessment Panel supporting two towers in the making.
Student Housing

Highrise Approvals Add 1000-Plus PBSA Beds in Adelaide

Renee McKeown
Aerial view of Caboolture and Bruce highway to Brisbane with Bribie Island Road crossing, Queensland, Australia
Policy

Queensland’s $2bn Push Opens New Housing Front

Vanessa Croll
First projects named in a statewide plan to fast-track supply, including thousands of homes in a major growth region…
LATEST
JQZ Parramatta EDM
Residential

JQZ Plots 10-Storey Addition to Parramatta ‘Auto Alley’ Plans

Clare Burnett
3 Min
The Adelaide purpose built student accommodation market is about to increase by 1058 beds with the State Commission Assessment Panel supporting two towers in the making.
Student Housing

Highrise Approvals Add 1000-Plus PBSA Beds in Adelaide

Renee McKeown
3 Min
Aerial view of Caboolture and Bruce highway to Brisbane with Bribie Island Road crossing, Queensland, Australia
Policy

Queensland’s $2bn Push Opens New Housing Front

Vanessa Croll
2 Min
Stockland bumps up its apartment pipeline in melbourne and sydney
Exclusive

Stockland Re-Enters Density in $5bn Apartment Play

Renee McKeown
4 Min
View All >
ADVERTISEMENT
Article originally posted at: https://www.theurbandeveloper.com/articles/can-developers-builders-find-value-tendering-right-now