One of the challenges facing the property industry is the capacity of contractors to take on more work than they are already committed to under contracts. This is due to constraints on available skilled labour and uncertainty around cost increases by suppliers and subcontractors.
In line with previous construction industry long-term trends, increased demand for construction work generally translates into lower profitability outcomes for contractors even though construction prices are rising. These pressures in the construction market were highlighted in a report from the Australian Contractors Association in July 2023 ‘All Risk No Reward’, which noted that building firms are entering administration at more than twice the rate of other industries and claiming many large builders are now meeting the technical definition of insolvency.
5 Tips from RCP on how to secure a contractor in the current market.
1) Understand where your project sits in the market.
The construction market in South Australia is undergoing significant change marked by rising interest rates, cost pressures, labour shortages and increased government focus on infrastructure.
This increased demand has filtered down to medium-smaller building contractors as they look to fill the workload of other contractors.
Contractors are continually reassessing their ability to take on new work based on the availability and financial stability of their suppliers and subcontractors while also reviewing their own available resources to adequately manage their delivery risks.
2) Early engagement is important.
Early engagement with contractors is now key to successfully planning for the delivery of projects. It is important to understand their appetite for taking on new projects well before going to market for their services.
3) Make your project desirable to contractors.
Are your construction contracts fit-for-purpose in the present market environment?
– Is a traditional lump sum the right approach for the current cost climate?
– Would you consider offering a negotiated contract?
Contractors are generally looking for projects which either have well advanced design (if not fully documented) to provide greater cost certainty and reduced timeframes for locking in their suppliers and subcontractors. Alternatively, they are looking for early engagement under a contract where the final construction price is not fixed until a later date.
4) Make your project more attractive to bid.
Contractors are in the position to pick and choose their projects and will have target projects they are chasing. They are also being offered more work to price than they can handle.
Make your project more attractive to bid with a shortlist of no more than four tenderers. You can have a reserve bench, but no one wants to think their time is being wasted or being used as a price check.
5) Seek assistance from a PM consultant who knows the market.
Working with clients and contractors daily, and for many years, our team has an excellent understanding of the SA contractor market, and builders’ capacity and appetite (or aversion) to specific sectors and risk.
RCP can provide you with in-depth information and a tailored approach to engaging a suitable contractor for your next project.
Contact us to arrange a coffee and a chat to find out how.