Dealing with construction cost increases
Introduction:
Unfortunately this is a topic that is causing the construction industry a lot of headache with a large amount of Builders going into administration. It is about risk management and not over committing to projects onsite. We are in unprecedented times where the price of materials are increasing on a month to month basis and trade labour is becoming scarce. The construction on a whole is over stretched from estimators to contract administrators to project and site managers. I would like to focus this article around construction estimators and hopefully shed some light and tips on how to approach tenders and estimates to reduce the risk on your business or client.
Risk management tips for estimators:
It is good practice to work out the construction program first and determine when a certain trade/material is required onsite (timeline)
Factor in a price increase % on material, labour and/or subcontractor quotes
Maintain regular communication with your suppliers and subcontractors in regards to expected price increases
It is good practice to get any potential price increase in writing in case you need to refer back to this at a later stage. Ensure to maintain clear & precise communication especially when discussing potential price increases
Factors to consider when selecting a subcontractor at tender stage:
Consider the current work load of the subcontractor. Again it is good practice to get this in writing (eg. email). Sometimes the cheapest price is not the subcontractor that will effectively be doing the project for you. 2nd or 3rd placed subcontractors will need to be equally considered. The workload for estimators will increase but risk management starts here.
Each subcontractors price increase on materials will vary depending their relationship with their supplier. As an estimator you will need to have this conversation with each subcontractor when vetting and closing a tender
When communicating with subcontractors, it is important to mention when they will be required onsite so they can let you know what % or contingency to use based on when they are required onsite
Closing a tender:
A great deal needs to be taken when closing a tender and a risk management meeting with the relevant manager (Director, Construction Manager, Estimating Manager etc.) should take place
Estimators are to discuss any potential risks on subcontractors and price increases
Ensure the final decision is signed off by the relevant manager prior to closing a tender
Overall effective communication is required and proactive estimating.