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Pros and Cons of Tendering for Residential Building

For any home owner the cost of renovating or building a new home is a significant purchase.  Naturally you need to ensure you are getting the best price possible, however, it is also critically important that you select a builder who will deliver a high quality project.

Clients and Architects regularly ask a quantity of builders to tender for any given project.  However, there are a lot of factors that clients need to consider before choosing who to appoint.

Tendering has little appeal for Builders, because it is a very time consuming and expensive process & regularly the lowest price is selected.  If a builder wins on a low price and then cannot or does not deliver the expected quality, the long term cost to the client will be massively higher financially and emotionally, putting you and your family under significant stress for an extended period of time.

1)      Cost of Tendering

If a tender is prepared thoroughly it will cost a Builder thousands of dollars put together.   This cost is made up of work contracted out to Quantity Surveyors and setting aside several days to organise plans, contact all relevant trades, detail the scope of work and send it out for pricing.  All quotes then need to be followed up and a tender document or tender pack prepared.

2)      Comparing Prices

If 4 builders tender on a project and 3 have similar prices and one is significantly less, warning bells should be ringing.  For one of four tenders to be much less than the others it suggests it was rushed, items were left out and/or they are not quoting to allow for all the subcontracted work to be delivered by high quality tradespeople.

3)      Price vs Value

Staring a building project is like starting a long term relationship.  You want to be sure you select someone that you can trust.  If you choose the wrong partner to save 200K on a large job, you may well find that it costs you 700K extra by the end of job or worst case that you spend all the money and do not get a good result.  If you have bad building work done, the cost to repair the work second time around will be much higher than having it done correctly the first time.   

4)      Asset Value

Building is an investment.  When you are building or renovating the cost to build should increase the value of your asset.  Cutting corners is likely to see the impact on your asset either reduced or minimised.  All clients have a budget and you need to choose a building partner who will respect your goals, work with you to deliver the project within the set budget and deliver the best possible quality possible within that framework.

5)      Reliability

Structural quality guarantees are set at 7 years by the government.  If you choose the wrong builder though, as demonstrated by many horror stories on TV, it can be very difficult, almost impossible to get them to help you when things go wrong.  For this reason it is critical to pick qualified, experienced builders.  You need to see the quality of the work, meet or speak with several former clients and know that they can be relied on to assist with any warranty work, if required, when required in the future.

A recommended alternative to Tendering

To avoid the pitfalls of tendering and choosing the wrong partner or a misleading price, there is another less known and very effective option. 

Do your research on the builders you are interested in; call past clients, visit past jobs, meet their team, find out their company history and check out their licences.  Select a great builder that you trust and would like to work with, one who you can be sure will deliver the result you want for your home. 

Set your budget with them (and your architect where appropriate) and work as a team to engineer the project costing so that you can be confident you are getting the look, quality and price that will work for you, delivered by a reputable, high quality building company. 

The value for you, your family and for your home asset will be well worth the time you spend researching and engaging the right building partner for your project.

Any time that you hire a quality contractor to build a home, or perform any other kind of renovation, you will be required to sign an agreement. Signing any kind of agreement can be intimidating, and the longer and more involved the contract is, the more stressful it may be to sign it. However, you do not have to allow the contractor to be control of every aspect of the agreement. It is called an agreement for a reason. That is because both parties should agree to the terms as an instrument of protection for every one involved.

The Contractor’s Version

In a perfect world, you would author your very own contract to meet your desires and remain within the boundaries of your comfort zone. However, it is standard operating procedure that your contractor will insist that you must sign his agreement. While using an agreement that was penned with the contractor’s good in mind may be necessary, that doesn’t mean that you can not alter that agreement. Do not just blindly sign the agreement that the builder hands you without thoroughly reviewing it. A good builder will not have a problem with you keeping the agreement for a short period of time for review.

Basically, you have a right to strike any clauses that you are uncomfortable with, for example, "The owner agrees to pay any increases in labor or material costs which may come into effect after signature of the agreement". You may also make additions, most likely in the manner of an addendum to the contract. Should you be unclear as to the meaning of any phrases or wording, use wisdom and consult with an attorney.

What should be covered by the Contractor’s Agreement?

While a contractor’s agreement may have clauses and phrases that you prefer to delete, there are items that you will want covered in the agreement. Let’s look at some of them:

1. The scope of work that will be handled by the contractor, with anything that is not covered by the general contractor agreement very specifically laid out. This will make up a good section of a contractor’s agreement.
2. The payment schedule should be detailed and explicitly express whether the monies will be paid to the contractor by the owner or the financing institute, and upon what conditions.
3. Any change orders that occur during the progress of the project, and exactly how they will be handled.
4. Security.
5. Ownership of material.
6. Denote what constitutes interference and how it will affect the contract.
7. Define what will lead to mediation, jurisdiction, and arbitration, and exactly how it will be resolved. This manner of grievance resolution is much less costly than ending up in court; however court should be a last resort.

While signing any kind of contract can be a daunting task, you should know what to expect and have some idea what is not acceptable to you. Don’t hesitate to pay a few dollars to have a lawyer review and advise you regarding the contents of your builder’s agreement. It could save you thousands, not to mention headaches, in the long run.

Australia, while being one of the drier regions on the planet, has coastal wet areas as well. Either of these climate types can do its damage to the construction of a home. Dry climates can reduce the soil’s ability to bear a load and cause shrinkage which will damage a home’s structure. The moist areas have their own downfalls including mold and termites. It is very important that the builder that you hire is very familiar with the area that you will be building your home.

How Familiar Is Your Builder With Your Build Site?

It is important to find out whether your builder has experience building in your area. While many builders are very good at what they do, the soil conditions can create very diverse conditions that a builder from out of the area will be unfamiliar with. Knowing how to build and understanding the existing site conditions can be very different. Find out how many homes the builder you are using has actually constructed in the vicinity that you are considering.

Assuming that the builder that you are using has built homes in your area, get a list of addresses and references and find out from his previous customers if they are satisfied with the work and any necessary follow up support that was needed. Contact home owners that have been in their homes for over five years, as well as ones that have been recent builds. This will give you a feel for whether or not any problems showed up down the road.

Steel Construction or Chemically Treated Timber?

These days, both steel and treated timber construction tends are receiving due consideration because of the specific characteristics of each. Steel because of its stability under most conditions. It has one of the highest ratios of weight to strength of all materials. It is much lighter than wood and it does not contract and expand like wood does. Steel will not warp and can not be eaten by termites. Steel also allows for more precision cuts than wood and is therefore squared and this provides additional stability. However, wood that is properly chemically treated to resist termites can provide high quality construction in dry areas as well. Wood is lower cost than steel and special stabilizing construction methods should be used. There are no visible differences that would make one method more visually appealing than another.

While this information is all important to know, it is imperative that you choose a builder that you have the utmost confidence in and rely on his expertise. If you choose an experienced builder, he will be able to guide you in the right direction and help you make wise decisions to be sure that your home will be sound for many years to come. He will be able to adequately convey the pros and cons of each type of building material. That’s why making an informed decision when you select your builder is one of the most important decisions you will make. It will affect every other aspect of the building process.