6 Tips for Builders to Avoid Under-Quoting
With recent rapid price rises, builders have experienced a surge in under-quoting often leading to losses on projects. Here’s what to do.
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Recent materials and labour price rises have seen thousands of Australian builders struggle to maintain profitability with their fixed price contracts.
Understandably, some have left the industry while those who’ve remained have adopted risk mitigation strategies to protect their profits, and livelihood.
Our research interviews with hundreds of builders revealed 6 steps they use to stay in the black:
- Cost Plus Contracts. This has been the ‘go to’ for many builders because it shifts the risk to the client. While it can work, it’s not without deficiencies. For example state by state limitations and a genuine fear from clients that their project could completely blow out.
2. Fixed Price Contracts with Many PS & PC’s. One way to combat clients’ cost increase fears is with PS & PC items. Most contracts contain a small number of these allowances. However, by educating your clients about costs, you can always add more PS & PC allowances. Cabinetry, framing, concreting, floors, plumbing, electrical, plastering, etc…the list just goes on. Include them as allowances so you can give your client the peace of mind in a fixed price contract but still protect yourself from price changes in big (and medium) ticket items.
3. Tap Into Industry Pricing. Many builders take 30 minutes to load plans and run a project through ProCalc to check what builders are charging and verify their estimate is not under-cooked. You can take a ProCalc free trial to see how this works
4. Add in Contingency Cost Escalation. While no one has a crystal ball, adding a cost escalation contingency of 5% made a difference for many builders interviewed. They added this on top of the usual profit, administration and risk margins.
5. Educate the Client & Become Their Trusted Expert. Several builders provide their clients with ongoing updates for market price changes. This might include clippings from articles or industry reports. This has the added benefit of building a relationship with clients as their trusted expert.
6. Keep Up to Date with Industry Trends– Free download the Construction Trend Update
You might also like:
- Watch the free Webinar: Work Smarter, Not Harder
- Book a Free ProCalc Trial
Richard Armstrong is a former registered builder who recently interviewed hundreds of experienced Australian builders to identify how they best manage clients, budgets and profitability.
