Are builders being squeezed too much on cost, asks Isabel Morton

OVER THE last few weeks I’ve heard a few builders complain about having to tender for jobs.

Given that building projects are few and far between these days, one might imagine that they should be grateful to be on a shortlist and have the opportunity to pitch for work. The trouble is, that the shortlist is now a long list as clients look for at least five (and often more) builders to tender for each job, however small.

And why not? After all, there was a time, not so long ago, when it was virtually impossible to extract a single sensible quotation from any builder, let alone the three usually recommended.

So, with the economic crash and the subsequent lack of cash, builders suddenly became available and more amenable. They returned your calls, provided you with a reasonable quotation and even turned up to do the job within a week or two of the proposed starting date.

But it now appears that we have gone from one extreme to the other. Private clients, in particular, are now wreaking revenge for all the years they spent at the mercy of their building contractors.

And, as clients now wield considerable power, they are requesting numerous tenders and putting extreme pressure on their builder to keep within unrealistically tight budgets.

The concern is that this ruthless approach is likely to backfire and the results will not be in anyone’s best interests, least of all the clients.

Problems start long before the construction projects get off the ground, as builders attempt to make a judgement call as to whether they are likely to secure the job in question, before going to the trouble of preparing their tender bids.

But even if they do tender and if they are awarded the job, it may not materialise as numerous private building projects are cancelled or put on hold due to lack of funds or a change of family circumstances. Equally, many public sector projects, which may have been in the pipeline for months or years, often fail to get the final green light.

And having already invested a lot of time, energy and cash in preparing for a project, a last minute job cancellation might be enough to put the builder out of business.

They have only one chance to get it right – having done their site inspections, pored over the architect’s drawings and gone through reams of specifications with a fine tooth-comb before employing the services of a good quantity surveyor to do a detailed itemised costing of the entire project.

If their quote is too high, they are unlikely to get the job, too low and they are going to put themselves under severe pressure.

Regardless of whether or not he secures the job, the builder doesn’t get paid for his time and trouble in preparing the tender, Clients then cherry-pick the best bits from each quotation they receive and demand that the builder they eventually choose adheres to the cheapest possible prices across the board.

One self-employed small builder complained that he could easily end up “being a very busy fool” doing nothing else except tender for work.

The effect on the public sector is even worse, according to the Construction Industry Federation (CIF), which reports that tender prices are down by 20 per cent and in many cases are 10-15 per cent below cost.

As building materials have not dropped significantly in price, it is labour costs which are taking an extreme hammering (forgive the pun). The evidence suggests that, at best, every project is charged at cost, as the volume of work is dropping and builders are undercutting each other in an effort to secure jobs.

With prices being driven down, the CIF is concerned about both the quality of the work and the safety standards, particularly with smaller building contractors who, because they don’t have to adhere to set rates of pay, can drop prices to unsustainably low levels.

Naturally, in an effort to claw back some profit, builders might be tempted to cut corners and drop standards.

The CIF recommends that a clear contract should be drawn up and adhered to by all parties and that clients should be aware that they have a “duty of care” to ensure that safety management systems are in place and that their contractor has more than the bare minimum insurance cover.

In an effort to ensure builders survive this recession both financially and physically and in an attempt at retaining standards in construction, perhaps it should be made illegal for builders to quote or charge below cost price.

Indeed, it may well be better for all concerned if clients carried out a more comprehensive check on the builder’s previous construction work, before selecting three suitable candidates, who would be paid to submit tender documents.

And perhaps clients should be reminded of what happens when you pay peanuts . . .