Property

On the cheap

There have been many liquidations in the construction industry recently. As a result, it is lean, mean and hungry. John Cahill explains how this could be a good thing for school projects, but only in the short-term

In the last recession, when companies failed, there were no alternatives available: but there are now. You will never have a better time to build, because everything is much less expensive than it has been for a long time. It may be hard to believe, though, but many in the industry are suggesting that we are going to get inflation back into the sector and it might be serious. Therefore, the timing of your building project needs to be carefully thought through.

If you are letting contracts about now, for the next few months things should run fairly smoothly, but you need to remember how the contract process runs. You send out the tender documents and the main contractor, who is no more than a factor between you and the subcontractors, gets prices from all his mates, puts the tender together and then makes a decision on how much more he can squeeze those prices if he gets the job.

Calculated bet
In the current marketplace, the director of the company might even take a calculated gamble on cutting the price of the job so he can undercut his fellow tenderers and secure the work. He might, for example, believe that he can get another 5 per cent of the job back by making a few claims during the work, as the architects may make an error. He undercuts his calculated price by as much as 10 or 15 per cent: 10 per cent coming from his subcontractors and 5 per cent from you.

This is the tried and tested method of competitive tendering – scientific and brutal. In a flat market it works passably well. The architect calls it “design development”, you pay for it out of your contingencies and everybody puts it down to experience, because buildings never come in on budget, do they?

If we get inflation in the industry, subcontractors are not going to be able to cut their rates. Bricklayers, plasterers and the like become more expensive and work is more abundant. Many Poles have disappeared because their economy is picking up again and now the main contractor can’t get his calculated cut. This, as far as he is concerned, is a disaster because it means he’s going to lose 10 to 15 per cent, if not more, on the contract and no contractor ever does that.

How do you avoid these problems?
Firstly, you make sure that your design team has completed as many of the technical drawings and specifications as possible, preferably in excess of 90 per cent before you start onsite. If you can’t check that for yourself, get somebody to do it for you. Secondly, you make sure that you have a large contingency fund (12 per cent) to guard against when things go wrong.

If you believe in the design and build method, you are going to need to pay more attention to your employer’s requirements and specification, and go into it knowing that the end product will not be as good as under traditional procurement, because the contingency the contractor needs is going to be taken out on your building, not out of his bank account. Pay special attention to the quality of the documentation that you are using to tender and ensure that your people are hard-nosed construction managers.

Your best bet?
You could always consider finding a good contractor and negotiating. This way, he won’t have to take cuts on his subcontractors. Keep your contingencies and, if things get difficult, make sure you are ready to understand and help him with his problems. But the one thing you will get out of that method is undying loyalty, a much better building and the knowledge that your time and effort is not going to be swallowed up in an unpleasant adjudication matter years later.

John Cahill is managing director of Barnsley Hewett and Mallinson.

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