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