Tender prices are set to rise by 30% over the next five years, making it harder than ever for smaller firms to compete with their larger competitors.

The only way is up

Small-medium construction firms face a problem:

  • Raw material costs – UP
  • Employment costs – UP
  • Subcontractor costs – UP
  • Project costs – UP

Bottom line = tender prices need to go up too.

 

“With the construction industry expected to recover at a faster rate going forward, it is anticipated that tender prices will continue to rise, rising in the order of 30% over the next five years against a backdrop of an increase in input costs of around 17%.”

Royal Institute of Chartered Surveyors, Building Cost Information report

 

Problems for clients too

Even where clients have agreed increased costs, many projects are still being put on hold:

  • Small-medium businesses are unable to source the skilled workers they need.
  • Price increases are outstripping budgets mid-project.

And as demand outstrips supply, tender prices continue to spiral upwards.

 

“22% of building contractors reported difficulties recruiting on-site trades in the last quarter of 2014.”

Construction Products Association research

“70% of building contractors reporting difficulties recruiting bricklayers increased from 41% in Q3 2014, representing a nine-year high.”

Construction Products Association research

 

Why large companies are winning

Although small-medium businesses costs are rising, client budgets are not. So the largest companies able to absorb price increases are also most likely to win new bids. Those who can spend more, will win more.

So how can small-medium businesses fight back?

 

Information visibility

Setting costs (and therefore cutting them) relies on having access to accurate data. small-medium businesses need to:

  • Use construction software to provide total project transparency.
  • Better manage subcontractor relationships to improve efficiency/cut costs.
  • More accurately estimate and manage resources for every stage of every project.

 

Employee retention

Finding new customers is expensive. So is finding new, skilled employees. Your business must:

  • Establish healthy working relationships with key, skilled employees.
  • Identify and on-board subcontractors to complement your own resources.
  • Use construction software to manage, maintain and strengthen relationships.

 

Learning from history

Previous projects contain a goldmine of information to assist with cutting the cost of future bids. Using construction software, your bid team will be able to identify:

  • Processes which have failed, or are subject to inefficiency, and which could be improved.
  • Suppliers and subcontractors who have failed to deliver.
  • Suppliers and contractors who have generated significant return on investment.

This knowledge allows for streamlined processes, lower costs and lower bids.

 

Takeaways:

In order to ready your business for the tough times ahead, you need to:

  • Improve access to project data, allowing you to be more flexible throughout.
  • Work hard to keep hold of skilled employees and subcontractors.
  • Use previous projects and experience to improve bid accuracy in future.

 

Don’t be caught out by rising costs – download our free eGuide now: Construction Cost Checklist: Assess your financial management of subcontractors

Construction Cost Checklist: Assess Your Financial Management of Subcontractors