Construction tender evaluation

So your project has finally completed the rigorous design & planning permit process and your architect has sent your Building Permit Documentation Package out to tender.

The only problem is you’ve received back three wildly differing tender responses from separate builders.

How can one builder’s tender offer come in at almost twice as much as the other builders? Which builder should you choose?

This article will outline the construction tender process so you can make a more informed decision.

 

Construction tender evaluation

Much of the variation in tender offers comes down to one factor: Sub-Contractors.

Sub-contractors are the many carpenters, plumbers, bricklayers, electricians, painters and other specialised trades that work together to make a building. As suggested by the name, sub-contractors are the tradespeople subordinate in law to the building contractor (the Builder). For the most part sub-contractors work on a “piece rate”, that is to say they quote to carry out the works and deliver as they see fit as long as it fulfils the contract.

The construction industry relies on the sub-contract system that works by supply and demand. A sub-contract bricklaying gang might work for say half a dozen builders, and the communication between the builders and the sub-contractors determines the scheduling.

Sub-contractors are rarely available “next week” but they are almost always available “next month”. If you want them next week, it’s probably going to cost more than getting them next month.

So planning and scheduling are important in getting the best outcome when scheduling sub-contractors.

When is a builder not a builder?

In selecting a builder, a client is actually engaging a collection of sub-contractors to complete the building works under the supervision and instruction of the head contractor (the builder). That contractor must warrant the work of each and every one of those sub-contractors.

Ideally a builder should get at least three quotes for each of the different sub-contractors for each project. These quotes will almost always vary wildly because of:

  1. A lack of understanding. In this case a sub-contractor is likely to overestimate for some part of the works they don’t understand or that is ambiguous.
  2. Demand. If a sub-contractor with machines and a gang of trades is otherwise sitting idle, they will work for less than when their book is full and their gang is busy.
  3. Opportunity. Most sub-contractors will consider shunting another job if their “I’m really busy but I’ll do it if they accept my outrageous quote” submission wins the job.

The builder will then factor all of these quotes for every subcontractor into his final construction tender offer for your job.

Conclusion

When evaluating construction tenders, there are three reasons why builders will provide wildly varying quotes:

  1. Lack of understanding
  2. Demand
  3. Opportunity

Of these three reasons, the last is outside of your control.

The moral of the story is to ensure your architect does all that they can to address the first two reasons:

  1. Lack of understanding. The more detail you can provide in your Building Permit Documentation Package, the less each subcontractor needs to guess (and thus overestimate), and
  2. Demand. The earlier your builder is involved in understanding your design, the more lead time he can give to his subcontractors so that they can schedule a full book of work.