Accurate cost estimates are critical for your business’ profitability and locking in rates enables you to future proof your costs.
Being an estimator is one of the toughest jobs in the construction industry. It’s also one of the most important. Construction projects can be won or lost based on how accurate your estimates are and how well they stack up at the end of the project.
As The Urban Developer recently reported, insolvencies in the Construction Industry are being driven by cash flow issues and it’s predicted to be the key driver for insolvencies this year. Recent data from ASIC shows an increase in construction insolvencies up nearly 40% from Quarter 3 to Quarter 4 of last year.
For the past year, the Construction Industry has been under pressure from supply chain issues, price rises for building materials, labour shortages, and Government restrictions due to COVID-19.
Construction costs include all the expenses you generate when transforming a block of land into a finished building ready for occupancy. These costs include anything from building permits to labour, building materials, and machinery or equipment.
There are a few ways you can reduce costs to help your cash flow and stay afloat during these difficult times.
Many construction efficiency mistakes are made during the planning stage. If you didn’t do enough research on exact quantities of materials and then halfway through the build, you find out you need twice as much by tomorrow to stay on schedule, you’ll have serious budget issues.
Same if you’re relying on historic rates for sub-contractors in the current environment. There have been price increases for steel and timber every month since January 2020. Material price fluctuations directly affect the total cost of your project. If you’re tendering on January 2020 rates, you’ll be going backward in your budget!
By using current rates and actual costs you will improve the efficiency and accuracy of your cost estimates. Creating an accurate estimate takes practice, skill, and reliable data because every project will have different variables, which is why being an estimator is one of the toughest and most important roles in construction.
To come up with an accurate cost estimation you need a well-defined project. Often estimators are asked to estimate costs for elements the architect hasn’t even designed yet. It’s standard practice to create multiple estimates during the pre-design and design phases, these estimates become more and more accurate as the level of definition increases.
Avoid Additional Costs for Rectification
Compliance and rectification issues often get missed in cost estimates, but they can be significant costs. Often these errors are made in the planning and design stages. If you don’t allow for the minimal clearances that BCA specifies then you’ll need to rectify the issues before you’re able to obtain an Occupation Certificate (OC) for the project. Without an OC you won’t be able to hand over your project which will result in having to pay Liquidated Damages if there are any delays to the project completion and handover.
It’s important to accurately estimate a project because often you’ll only have one chance at a tender and the best deal will win the contract. Overestimating and underestimating could both have adverse effects on your bottom line. Overestimating could result in the client paying more which could mean you lose the tender in the first place. Underestimating could mean you lose out on being profitable for the project or you could lose confidence from your client. Being too cheap isn’t always a good perception.
There are a lot of projects in the market right now, and lots of very competitive tendering on thin margins. Cheaper is not always better though. The cheaper your project is the more pressure you have on quality and compliance. Also, suppliers who tender with margins that are too low aren’t profitable and could lead to insolvencies mid-way through your project which in turn creates supply, and therefore price issues for you.
You may have a current price at the time of tendering but with the changing supply and demand within the market and the price rises could derail your accuracy of the project costs. Working closely with your suppliers is critical, they know from their suppliers if there are more price increases on the way. When you’re getting close to winning a tender reach out to them to confirm the price. You also may find it beneficial to lock in your contracts early, even if your project doesn’t commence on-site for 6 months, if you lock in the rates early you could avoid more price rises for some building materials.
Cut Labour Costs
Labour costs are probably the most difficult to provide an estimate and is also likely the most expensive of all your project costs. By opting for modular construction or offsite construction you can reduce the number of people needed on-site during construction. If more of the building elements are made offsite it helps to reduce some of the costs that are more ambiguous which will result in a more accurate cost estimation. Modular construction will also reduce waste costs and safety issues. Usually, it will also reduce rectification costs because most offsite construction materials are show drawn so they’re more accurate and less likely to need rectifying to comply with BCA.
Everyone understands that time is money, so a faster construction program will also help to make your project more cost-efficient. All the elements of a construction project including labour, hire rates for machinery and skip bins, etc. will be reduced if your project is completed faster. Modular construction is much faster to install than traditional construction methods because it’s already been manufactured offsite. A faster installation process and quicker construction program help you finish the project sooner and get the return on investment back sooner too.
How can FTI Group help make your project more cost-efficient?
FTI Group specialises in prefabricated formwork products which are much faster to install and offer faster floor cycles for your projects.
FTI are able to lock in the rates for Fast Tread® stairs and BlueDeck Composite™ metal decking for the duration of your project. They can lock the rates from the time you sign the contract which shields you from the fluctuating costs of building materials.
The FTI in-house design team are qualified engineers and are looking at building structures every day. The FTI design team often highlight potential compliance issues during the design stage which will save you having compliance issues later in the build.