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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.

The time to review your contractor’s warranty is not when the project has been completed. Many home owners will not even ask about the warranty until the job is done. It is wise to ask your contractor to allow you to review his warranty before signing any contract. Many contractors include it as part of their original contractor’s agreement.

If you are like most people, you have little or no idea what should be included in the warranty. You just know that if it’s broke, you do not want to pay to have it fixed. The warranty should tell you exactly what “it” is and under what conditions you will have to pay to have it fixed.

Contents of the Contractor Warranty

Every warranty is different, which is why you must carefully review each one. They will differ for renovations versus building a new home. Obviously, a simple renovation will not require as complex a warranty as a newly built home. Any warranty should specifically express the work that has been done and the quality grade, if not the brand, of material that was used, or that the materials were provided by the homeowner in such cases.

The warranty should indicate:

• Workmanship that is covered
• Materials that are covered.
• Time period over coverage (although there is no set time period, many contractors warranty a two year period, however that may be much higher for a brand new home)
• The date the warranty begins
• Which party is responsible for permits
• That the homeowner will be held harmless from any and all liens that may arise from the project

What will the Warranty NOT Cover?

A large portion of the warranty will consist of what the warranty will NOT cover. Some of the items that you can expect not to be covered are:

• Loss or damage not reported by the homeowner within six month of discovery
• Damage because of defective design
• Damage caused by installation or materials provided by the homeowner
• Secondary loss or damage such as personal injury or damaged property
• Normal wear and tear
• Damage from normal shrinkage within building standards
• Damage from poor ventilation within the existing structure
• Damage caused by alterations performed by parties other than the contractor
• Damage caused or increased by a homeowner’s negligence or ignorance
• Damage caused by acts of God
• Anything that homeowner’s insurance would otherwise cover
• Anything caused by the soil conditions, assuming the land was obtained through a third party

Again, much of the warranty will indicate what will not be covered by the contractor. If you take the time to review the warranty along with the contract before you sign it, this will give you an opportunity to discuss and negotiate with the contractor. It will also give you an opportunity to seek the council of an attorney if you feel it is beyond your ability to decipher it. However, once you have signed you no longer have the ability to amend any portion of the contract or warranty.