“My budget is actually 25% less than your quote.”
“We have no room to move, it’s all about price this time unfortunately.”
“I know you quoted at tender stage, but our estimators got it wrong for this trade.”
These statements are all too familiar for suppliers serving tier 2 and 3 construction companies who could well be building your next asset.
That’s why asset owners and developers really need to consider the Lifetime Cost of Ownership of their projects.
Often, the winning tenderer today is the construction company that has made the biggest costing mistakes in their attempt to present competitive bids. This obviously drives a culture of corner-cutting and product substitution with ‘equivalents’ to recover margins or come back from losses – an aspect that is often ignored during project development.
In the case of most ‘cheaper equivalent’ product and service providers, an AS/NZS standards compliance certificate is easily produced and never challenged even when the shortcomings are blindingly obvious.
The flipside to all this is that the best product and service providers to the construction industry are often lightly passed off as overpriced.
The flow-on effects of under par materials or trades are not ultimately felt by the builder, who can use a 120+ page contract to transfer risk and manage errant contractors.
Once the defects liability period (DLP) is over, any subsequent product failure becomes the responsibility of the asset owners – ultimately the same group that accepted the lowest bid in the first place.
The solution lies with asset owners
Keeping the above cycle of events in mind, asset owners need to run a tendering process that focuses less on contract price, and more on sustainability and asset lifetime.
Consider running your tendering process with your ultimate endgame in mind – what are the lifetime costs of ownership?
Collaborate more with the tenderers, and understand the knock-on effects of a pressurised, ultra-competitive tendering process.
An attractive price now very likely means hidden maintenance and replacement costs later on… we all know it.
We need you – the asset owner – to lead the change and break the cycle.
