Construction Partnerships: The better way of doing business
These days it seems like builders are going into liquidation left, right and centre. To some extent, we can blame it on the shift in the industry pushed forward by the pandemic and overseas turmoil.
With a significant undersupply of trades and turbulent peaks and troughs in supply prices, there have been some major disruptions in the traditional, hard-dollar way of running development projects.
Right now, it’s riskier to get involved in a fixed-price contract procurement process because of how builders are pricing in the current market.
And rightly so, with no stability or guarantees at the moment – it can be hard to lock down a fixed price without at least one party coming out the loser.
But surely there has to be a way to mitigate the risk before it gets to this boiling point, right?! Well, there just might be.
It’s called Early Contractor Involvement (ECI) and it works by engaging transparency, trust and early intervention to build a more malleable way of running the industry.
By ECI, I don’t mean a design and construct process where consultants are novated. This already has inherent risks of reducing the scope and fixing prices too early.
What I mean is selecting a builder based on reputation, financial stability, experience and suitability for the specific project. In other words, all the things that matter.
The builder would be engaged as soon as development approval is received and the detailed design starts. They would become a part of the design team where they could review plans for cost-effectiveness and buildability with a keen eye and wealth of knowledge.
In partnership with the principal, the builder would then work up a construction cost on an open-book basis that considers all angles and potentially benefits all parties.
Before construction, like any other consultant, the builder would be engaged on a fee for their service – again taking away the risk of the hard dollar tender.
And then, just before construction starts, the contract would be locked in as a fixed price to satisfy principal debt funding requirements.
Even though there are still institutions and developers that back a hard dollar tender, the concept is clearly becoming outdated.
With so much turbulence, we have to adapt to survive in this industry.
So rather than getting back to the cutthroat ways of business, maybe it’s time we shift our focus to fostering working partnerships to create an opportunity for everyone to be a winner again.