Tender vs Negotiated Tender
As builders in the Australian market, there's one recurring theme that keeps rearing its head in our conversations, and that's the tender process. It's akin to a race to the bottom, a mad dash where numbers are thrown around like confetti, and every party involved is crossing fingers, hoping all that time they invested in the tender results in actually getting the contract.
The reality can sometimes fall short, with tenders not proceeding through to a contract, clients just choosing the cheapest option and hours spent on a project that never comes to fruition.
For those new to the concept, the tender process traditionally involves getting multiple quotes for a project, often by an architect or a client. It's about cost comparisons and attempts to squeeze a project within a budget. We find ourselves questioning the validity of this approach, especially when the emphasis is typically on finding the lowest price rather than the best fit.
The Downfall of the Traditional Tender Process
Imagine you're planning your dream home. You've got architects in one corner, builders in another, and you're stuck in the middle, listening to figures that don't necessarily add up when translated into real-world application. More often than not, the focus veers towards cost-cutting rather than quality assurance. Our industry is rife with stories of builders who dive in with lowball estimates, only to realise later that they've underestimated the true cost, leading to issues like subpar work or, worse, project abandonment and insolvency. It's a systemic problem that reflects a need for reform in how we approach costing.
The Case for Negotiated Tender
Here's where the idea of negotiated tender comes into play, a process we fervently support. It's about bringing builders into the fold from the outset, involving them in discussions at a conceptual level. By engaging us early on, we're able to apply our expertise, offer realistic costings, and anticipate potential pitfalls. The value here is mutual: architects and clients benefit from our insights, and we ensure a streamlined process from start to finish.
Through negotiated tenders, we're able to build relationships from the ground up, navigating design complexities together and providing a pricing structure that's true to real-world implications. It's not just about numbers on paper; it's about trust, integrity, and ensuring all parties are aligned in vision and execution.
Building Relationships Between Builders and Architects
What's clear to us is that collaboration is key. As builders, we're not in the business of design—that's the architect's realm. Our role is about cost implications, logistics, and making the vision a reality. When we work hand-in-hand with architects, great things happen. They bring innovation, design flair, and creativity; we contribute with feasibility, efficiency, and cost management. This symbiotic relationship is crucial, and it needs to be nurtured for projects to thrive.
Architects need reliable data to make informed decisions, and interestingly, this is where builders can offer more than just a price tag. Bringing our insights from past projects combined with tools that measure performance and provide accurate cost projections, we contribute essential data that can ultimately save time and money.
Looking to the Future
As we continue to refine our processes, we remain hopeful about the direction our industry is heading. The ultimate goal is to better educate clients about the benefits of negotiated tenders and the immense value that collaboration between builders and architects can bring. Our focus remains on honest discussions, sharing knowledge, and ensuring that each party feels respected and valued.
In the end, achieving harmony between design aspirations and realistic execution defines successful construction. We're committed to that journey and look forward to sharing more insights as we continue to learn and grow with every project.
A heartfelt thank you goes out to Hip vs. Hype for hosting us at the Better Building Exchange. We get so excited about opportunities to engage in discussions that shape the future of our industry. Here’s to many more collaborations that push us all towards a better industry.
LINKS:
Thanks to Hip Vs Hype for having us
Connect with us on Instagram: @themindfulbuilderpod
Connect with Hamish:
Instagram: @sanctumhomes
Website: www.yoursanctum.com.au/
Connect with Matt:
Instagram: @carlandconstructions
Website: www.carlandconstructions.com/
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Matt: [00:00:00] Have you ever wondered what it means to build with intention? Well, I'm Matt, and with my co host Hamish, we are dedicated to pushing boundaries and building better homes. So we welcome you to join us on the Mindful Builder podcast, where we are committed to driving positive change in the building industry by surrounding you with experts in their field and being open about our lives as builders.
So join us on this mindful journey of construction by subscribing to the Mindful Builder podcast. Please note that all advice provided here is general in nature and may not apply to every individual situation. It is important to consider your unique circumstances and consult with relevant professionals or experts for tailored guidance.
Use this advice as a starting point for reflection and exploration and always trust industry professionals when making decisions.
Hamish: Today, um, we want to give a big shout out to Liam and the team at Hit Verse Hype because we're actually filming at the Better Building Exchange in Brunswick. And the team there have been really generous.
to let us use their space [00:01:00] to record these podcasts, but also for Sustainable Builders Alliance in the past as well. Oh, yeah, absolutely. Yeah, for sure. So this is this, this is the same space that we use to do all our live events. So big shout out to Alice and Liam, the team from Hip First Hype. Maddy, today the topic is tender or not to tender?
That is the question.
Matt: So tender, typical process where you would. The architect or designer goes to three people or a client goes to three people and they would then essentially Find the best price between the three and probably cost compare and somewhat try getting apples for apples like for like quote That is not the reality of how this works as well.
I think it's when it's with architects They are a lot better at getting apples for apples because it is as per plan when a client might just reach out That's when it can get a little bit confusing and then typically I would say more than 75 percent of the time, it's just who is the lowest price.
Hamish: I'm going to try and put my switch in the hat on for a second because I certainly don't want to come across it where pooh [00:02:00] poohing architects and designers for running a tender process because I guess I get it.
I understand intellectually the reason why they would do it. They obviously have their clients. best interests in mind, particularly in this current climate where prices have been a bit volatile or they have settled recently. I do understand why someone would go to tender, but I kind of feel like in our current market, I think if we want to start thinking about builders as professional outfits or professional business owners, then coalface of costing.
All the time, and I don't personally feel that the tender process really values
Matt: the builders in that process. No, and I know that we've had comments on that in the past, and I think we'll get to that in a second. I think then we've got like, what I refer to as a negotiated tender, I don't know what you'd call it.
Could we go to the ECI? Yeah, ECI, bring the builder in early. And [00:03:00] that is just working as a collaboration. So you're there from the start and you get the concept plans, your process out then, and then you work all the way along. And so you work as part of that team to get the project to site. I think it also feels that the builder is valued for their time.
Yeah. And then generally paid for their time. Yes. Insult on the project.
Hamish: Yep.
Matt: Uh, and it's something that I started doing in probably 2018. I would say, I don't know when you did your first. I would
Hamish: say Jesse. Glass got from G Lux kind of clued me into this whole paid thing and I reckon it would have been a similar time 2019 maybe and I think the first time I did it was about fifteen hundred bucks and I thought well, this is This is unreal.
I do see value though in Clients and architects talking to builders early on? Yes. More than one?
Matt: I would always suggest three. It should be treated like a tender where you find three builders and you find who you're going to work with the best. I, I personally always say to clients is like, I'm not for everyone.
You need to find the person you work best with. And that is, uh, it's a relationship with it. We're signing this off for 10 [00:04:00] years. We're part of your family. It's a marriage. Yeah, the prices are all going to be quite similar. We all, the good builders use a lot of the same trades or the same products. It can't differentiate too much.
So, and
Hamish: I think when you're at, when you're operating in the same space too. So say if you, me and Mark from MBH all went for the same project, I would argue that within KUI, you know, prices would all be the same, but we all operate a bit differently. You know, Mark, the Yoda of building, you know, he's quite methodical and quite measured in his approach to things.
You and I are quite Yeah, you're a bit younger. A bit. Well, let's, sorry, Mark. That's not age, Mark. He's not that much younger than me. He's old. I'm not that much younger than you. No, but do you know what I mean? I'm using that as an example. Like, I feel like it's all about getting that personal connection with that builder.
So, hey, getting that relationship is really important. Now I know our current process, and I think yours, and, you know, let's use Mark as an example. And we've spoken about that on previous podcasts about the whole of reconstruction. Yep. Our process now is quite [00:05:00] similar, where we'll do, I would say, like a reasonably high level estimate, where we'll do a little bit of work for a lower fee, and it's at that point where I feel that clients and architects should get two or three builders in, just to pressure test the design and budget.
Not just from what I'm saying, but maybe what you're saying and what someone else is saying and from that point You've actually had an opportunity to check with the builders Get their take on the project and any limitations or any advice around changes or anything like that And then you can all move forward confidently knowing that you're all kind of going in the wrong direction.
I do have a problem
Matt: at At that when you're interviewing three builders asking what the price is though, because I've been called out twice recently where on one project said, Hey, it's going to cost you 1. 3 million for this build. And they're like, that's a bit more than what we wanted to spend. I'm like, that's okay.
I'm just telling you what I think is going to cost because that's what you've asked me the question. And then what I'd later found out is that two other builders have said, Oh, 750 to 800. But [00:06:00] then they're like, Oh, why are you so much more expensive? And I haven't put a number against it. I'm just telling you what I think I miss out on the job.
The other two builders get a look in, they then do their running the numbers. And you know what? They ended up at the exact same number at what I said. Yeah, but I was the upfront and honest one. The other two just didn't know what they didn't know. And then all of a sudden I miss out on the project. So now you have this issue.
It's like, do the, and I've spoken about this and this sounds bad. You play the game and low ball it to get in. And then deal with the consequence later, or do you run the honest approach and potentially miss out on projects? Because at the moment, I would love another project starting, and one of those projects went to site at the number I set up was going to start at.
Actually, I would have been under.
Hamish: Yeah, I totally hear what you're saying. I mean, then I think at the end of the day, you and I both would approach honesty first, like, and that's what I go
Matt: back to is like, I can sleep at night.
Hamish: Yeah, exactly. Look, I'm not trying to, you know, sugarcoat anything or try and make us look all rosy and nice, but I personally feel that honesty straight up front.
That is the way to go. And [00:07:00] if someone is low balling to get in and telling you what you want to hear, what kind of relationship? I
Matt: just think, and that's when I have the complete trust in architects and they should be able to decipher through that. They should be able to go, why are you so much lower?
Yeah, yeah, that's a good point. And that, I would say like, we've got to get better at, Building architects are because we both believe that sometimes the way we talk comes across as if we don't but I That's where I really rely on the really good architects But hey, why these two so different to compare to Matt is Matt too expensive or are these guys lowballing it?
We need to do some more of them like investigating
Hamish: I would say that 95 percent of architects and designers that we deal with have honest conversations
Matt: I'd say a hundred percent. The bonds we bring into what we work with, we've already got that. We've able to, I think we're both very good at finding whether we're going to align or not.
Agree.
Hamish: I was having a conversation with someone this morning on the way here though, of an experience that they're having at the moment. I understand at the moment, [00:08:00] work is a bit thin across every facet of construction, from design all the way through to construction. And. A friend of mine said, the architect said to him, I'll maybe hold off telling the client your opinion on costs right now, because I don't think that.
Their budget is going to allow what I've drawn. Okay, and it kind of almost makes me feel that that's not the right way forward And again, I'm not saying that this is something that architects do at all. So, please, you know, don't assume that that's what I'm saying I think that there are still people from both sides builders and architects who want to just try and get a project into their Funnel and hope that on the other side the clients find more money
Matt: When we're asking for more money, these people are building with 1.
5 million dollars, and I always feel guilty being like, Can you get an extra 200, 000? Oh, yeah, that's a not a small amount of money.
Hamish: No, it's not. It's not. It's not. But I feel that's where honesty straight up, and if it means that you and I miss out on a project, and it does go to site for 1. 7 when we said it's gonna be [00:09:00] 1.
7, and they want us around 1. 5, then that's okay. I feel that that's okay.
Matt: Oh, yeah, I totally agree. I'm actually gonna poop who I'm building is here. Because I think what happens is at a moment is there's a lot of education out there for builders that you can go find very quickly how to run this pre construction process.
And so you do a two day course and all of a sudden you're now an expert in it. But what we've always spoken about is you don't know what you don't know. Now I think that that has also ruined it for builders because they've done this course and hey we're going to charge but we don't know a process to actually make this work.
And it comes back to hurt us where I've spoken to some architects who have been so burnt by the process and I totally wouldn't. be the same in their position, uh, they don't want to do this anymore because they're like, Oh, we've, we've engaged this builder and another one and they didn't get back to us.
The price they gave was half a million under budget and it just went to shit. And then I'm like, yeah, totally respect that you don't want to go down that process, but don't put the rest of us who actually have really solid foundational processes in that basket.
Hamish: Yep. No, I agree. And I think there's probably a [00:10:00] podcast episode.
in how we feel that, uh, you know, should be running it. And look, I'm all for builders getting paid for their time in pre construction. 100%, but I think that there needs to be value in the information that they're bringing to the table. You've got to be willing to give your
Matt: information. So that's what you're there to do.
So you can't be guarded of all your knowledge. You're there to consult and give the information. I'm going to say something that if you're consulting, you should also have a Private indemnity insurance to protect your, because you are, essentially you're consulting. You have it. You have to have it, um, because you're providing advice on the building.
So you, you want to indemnify yourself. Yeah, I need to protect myself. Like we're, the buildings we're working on aren't simple and there are things that we've, we might get wrong. So it's a small amount a year to cover ourselves. At least I know that I can sleep.
Hamish: I was just thinking as we were having a chat right now, there's two builders, you know, talking from one side.
of the table. Like, I know, I know we've talked about this before when we had Scott on, but [00:11:00] I actually think that would be a great opportunity, you know, in, in a really respectful way to bring in a couple of architects to hear their side of the story and get their thoughts on how we can run it better. I 100 percent think that the tender process is broken.
In the space that we operate in and I, and I 100 percent feel as more and more builders start to value their time and bring valuable information to the pre construction process, that if architects want to go to tender, that it's going to get really, really expensive for owners because Three builders are probably going to want to charge anywhere between 5, 000 to 10, 000 each to get a price.
Matt: You had a comment the other day where you, where I think someone said that, uh, why are you charging for your time? Now, I'll put it this way. As if, let's flick it on architects. And again, we've had, we've got ones we work with that are totally okay with us charging for our time. And we do not make money off this process.
I would say that if a project doesn't go to site, maybe lose [00:12:00] out on 20, 30 grand of our time. Yeah, it would be a very close to estimate.
Hamish: We've run some numbers and we feel that it costs us anywhere between 000
Matt: to cost a project. And your, at the end of the day, charging maximum you might be able to get out of is 10, 000 across a one and a half year consulting period.
Hamish: Yeah, so we're about that 12, 000 to 13, 000 at the higher end and it goes down to 9, 000 but yes. But the value that clients get from that, and I know it's me sitting on the builder side saying this, But as soon as the relationships become transactional, there's an expectation from both sides that there's deliverables.
And we're quite clear with what those deliverables are, and we're becoming more and more clear about what the expectations are in that precom process. Now, for us to give someone a ballpark, right now, with our current process, it costs 800. Yeah, okay. And I feel it's at that point there, where there should be three builders, all giving their opinion on cost.
And they all should be [00:13:00] charging in between 500 to 800 to give that opinion on cost. And then it's about the architect and the clients deciding who's going to be part of the team. I feel that that's a really fair way of doing it. I don't
Matt: disagree. I think you need all these tools out there that you can use.
You can look at past projects, you can grab your own data to come up with that. Um, I think it's really important that if you have someone and you're paying them, you've got them engaged, you can hold them to deadlines, you can hold, you can hold them accountable. If you're not paying anyone, how can you hold them accountable?
Because they've got other things that they're getting paid to do, which becomes more important. I would also argue, how can you then trust the data they're giving
Hamish: you? Yeah. Like if, if, if you're just getting spat out an estimate. with, you know, a whole bunch of different line items that they've probably just drawn from past experience and, you know, have they done the take offs correctly?
Have they done this correctly? Have they brought their trades into it? Like, I know that our process involves site visits for all our trades. So My trades are invested. You know, they know that [00:14:00] we're part of the solution to get this project to site and that they're the only one looking at that project. So they're invested.
They know that their time is not wasted. So there's
Matt: two issues I have with the tender. If it's not on the plans and the architect misses it, which they're going to miss things. That's normal. Like I, they can't get everything right. We're human, right? Yeah. Yeah. So. I'm not putting it in my estimate because that's not what is as per plan.
That's not what is quoted. Yeah. You will get a variation on site and most likely it's gonna hold up your project. There's also two. We will probably find a more efficient way of building something that's going to save your money. I would say that during just having a builder on board, we will get your money back with a cliff click of a finger.
Yeah. Once you have any discussion with an engineer. And then also when we talk about performance, so they asked an optimization. So within that conversation, like we had one recently where we designed all the steel beams out of the project. There's 30 grand savings that we've just saved you a ton of money, which in a tender process would have just been flicked out, stamped.
Hey, here's the engineering design to that build to that. Do [00:15:00] you think that there is more
Hamish: opportunity for builders operating in the high performance space to add more value? To that tender process. I'm gonna respectfully
Matt: say no. But can you see where I'm coming from though? Yeah. No, I, I totally agree because the tool of like, say for example, PHP can be used as a costing tool, but you need to know how to use it.
So if you're using it for the first time, no, definitely not. You need to have someone like Cameron who knows how to use it to have those conversations with you. I think you have to have done. Maybe one certified Passive House first to be able to understand that and the detail that needs to go into it.
So once you understand how it can be constructed, then you can understand the back end and how that all works. And I just did the, the Passive House training for designers and I'm going to be straight out. It was a complete waste of time because I'd already felt that I had that knowledge through working with Cameron so many times and we've built four of them.
That I felt that, hey, we kind of weren't learning anything new, where what we're there to do is not run the [00:16:00] PHPP numbers. Yeah. We're there to run, hey, if we're going to increase this amount of insulation to this, what's the cost against that? Yeah. We're not there to tell them what to include. But I feel like
Hamish: there's, you know, just say wall build ups or double glaze versus triple glaze.
Like right there, there could be 10 or 15 grand, like
Matt: right there. I've got one at the moment and it's, we're in Brunswick now, it's literally around the corner, where the Heating demand dropped by 0. 2 if we went triple glazed. And they might be chasing passive house certification. So they're gonna go, we need to get that triple glaze, where I'm like, do we need to go certified to get you no extra value in money for that extra cost?
Hamish: Or, alternatively, okay, well let's put double glazing in and that's a net result of 10, saving. Yep. Can we build up those numbers somewhere else? Yep, totally. Can we insulate the service cavity? And is that gonna get, yeah, so this is where I was kind of saying, like, I feel like in performance construction world, Managing thermal bridges, managing out steel, like insulating [00:17:00] cavities or not, 90 mils versus 140 frames.
Internal barriers versus no internal barriers, like there's easy grabs there. And it would be really interesting to get, say, Chris from PrimeBuild on to have a chat, because I know he runs his pre con really tightly and has been doing it for a while, to kind of get his understanding of the areas that he looks at.
Because it's not just, I will remove some joinery, or change the cladding. Like There are other things that I think a builder can bring to the table that is really valuable and can save that fee before it gets
Matt: to site. I think builders also need to understand they're not architects, they're not there to design.
100 percent And I think that is where the issue lies, that architects are damn good at designing, they're creative, they push boundaries, they want to push boundaries. And as builders we need to respect that and don't kick back. We need to go, hey, how can we actually get what you want? We'll discuss the buildability and structure, you give us the brief, let's now make this work together.
[00:18:00] Because I get bored doing the same thing all the time. So you're going to challenge me, but we've got to do it within a way that is going to make it work. So we might have to compromise it a little bit here and there, but we want to also make sure the architect is trying to get their design across there.
If we're
Hamish: asked our opinion on something, sure. But I don't think it's our role in design. You know, I have this conversation with some of my team in pre construction all the time. It's not our role to design this. It's our role to talk about implications on cost and performance, but it's not our role to
Matt: design.
We had one recently where there was bare stone cladding, and it was super expensive to install and the system behind it. The bare stone looks really well priced and the cladding itself. So everything behind the structure and system is super expensive. So we're like, we're trying to do value management.
So we will go to the client and keep the, we'll go to the architect and keep the client out of the conversation for a second and say, Hey, this is expensive. Are you open to changing this? These are just some other suggestions. Uh, but that might be something that might be non negotiable. So we're not going to touch on that.
So you do it, you can do it respectfully. And if [00:19:00] you're wanting to, if the architect he was, they would pretty much say, Hey, we need some value management options. Have a crack at it. So we're like, okay, these are the things we think but hey You've got to come back to us and be like, no we like or we don't like
Hamish: That's an interesting point about the clients that you've just brought up there and I think you know There are potential clients that are listening to this podcast There are going to be conversations that the builders and the design team and the thermal modelers and the engineer Those conversations are going to happen and you might not be sitting in the room.
Yeah, because it's almost Not worth your time to sit there because you're kind of going to be asking questions and catching up. So, you know, please don't think that we're excluding you from these conversations intentionally.
Matt: Well, maybe it is intentional, but it's not throwing anyone under the bus. Yeah.
And then being like, Hey, architect, that cladding is so expensive. How about we look at this? And the client's like, why did you pick an expensive cladding? The architect's just trying to do their job. Yeah. So we can't like, you've got to be respectful to them as well.
Hamish: 100%. What we need to understand here is this is a process.
Will you start out here? [00:20:00] And I'm, I'm drawing on my little, my, my book here. You start out here and you kind of go this way and that way and this way and that way. And then you end up over here and it might be slightly different from your original idea of what that structure is going to look like, but that is the process.
And it's got all that IP from every single person within that process, adding their information and their thoughts on the project. As long as every single person in that team is making that project king or queen. And everything that you're doing is for the project.
Matt: The project is a champion. Everyone needs to put their ego aside and yes.
The architect wants to design something awesome. Uh, yes, we want to build it in a way that we want to build it. Sometimes we've got to give up on that and that's okay. Yeah, the client's going to want best value for money, but it's about working together to get the ultimate result. And that's how you get the best projects.
It's how the projects run the most smoothest on site. I don't know if that's the greatest English. That's how there's a higher level of trust. There's how it's, the collaboration just makes life so easy. And [00:21:00] also I've got a note here that the thing is once you're on site. There's a, and there's an issue that arises because all the issues arise at the start of a project in demolition or in the, in the ground, you've already got that trust.
You've already got that report that you've developed. So when those issues come, you're like, Hey, this was, we spoke about this a lot earlier that this might be an issue and we've come across it. And it's now a problem. They're like, okay, cool. Thanks for being upfront and transparent compared to, to negotiate.
If it's a tender process, it's like the client it's like, is this really a thing where you're just trying to get me for extra? Like there's already that question. You haven't developed that complete form of trust yet.
Hamish: Yeah, I mean it's, you almost can like split it too. There's two phases of building. In fact, there's two parts of building.
There's the relationship building, and then there's the actual building of the home. And I feel if you miss the relationship building, then you are setting yourself up for problems. During construction.
Matt: Yeah, it's how things are going to go wrong and I just think we need to value each other's time and everyone knows their role.
All the architects we know and we work with have never said [00:22:00] anything like this but you had a few comments recently when we did a post about, um, working together as a team and the architects, and one or two architects kicked back and practically said that builders shouldn't be charging for their time, that that's what a waste of, like what a waste of client resources, blah, blah, blah.
Now I'm going to put it back on those architects that think that way. and say, what if we had a process of a client goes out to three architects and goes, Hey, design me all the concepts. And then when I'll pick, once you've done all your concepts and we can compare, we're going to now pick our architect we want to work with.
I guarantee no architect is going to go through that process. There's no difference from the builder process, spending their time, estimating it, and then coming up with a cost to then pick the builders I want to work with. Maybe, and I'm going to be
Hamish: completely naive here, but I would argue that getting a solid estimate together could take 50 to 100 hours.
More, way more, I reckon 80 to 150. But then I would argue for it, to get a sketch design together, and I'm happy to be called out here by designers and [00:23:00] architects, I would say that it would take less time to get a concept. together.
Matt: Yeah, I agree. And let's also not including the value management, but then you could ask, argue with the architect about this, the tweaking of the concept that it's probably the same amount of time in there.
It's also the cost where like we pay external people to help us get the estimate to make sure our numbers are correct. You work with an estimator. I work with estimator and quantity surveyor. And so there's an expense from our end to get people to run the numbers, to make sure we're running them correctly for the client and for the architect.
Hamish: Yeah, that's very, really interesting point because, you know, we. Like just talking on costs and maybe why we need to charge, like I have an internal estimator and I have someone working full time in pre construction, quite often we do sense check it to an external estimator. Current, right now we're looking at, at another estimating, or sorry, modelling tool, company and tool who can actually build the model in 3D, which gives us bill of quantities and a model that the team can use on site.
This is all encompassed in that price that we charge clients. So, [00:24:00] we're actually investing time and energy and money to make sure that we're costing it correctly so we can make money so we don't go bankrupt, and then we're getting a really great efficient construction process on site. What have you said before, the
Matt: best project is the client gets their home built correctly.
Yep. The architects get to see the design in their company and their projects profitable from their side. Yep. And the builder gets a project that is challenging, but also they get to walk away making a profit. That's the whole idea of running a business. That is the ultimate project and everyone is happy, but also everyone has to give up a little bit.
Hamish: Yep. A hundred percent. Look, and I guarantee that. All those architects and designers out there would much prefer to see their designs in real life rather than scrunched up and put in a bin in the corner. Because that's the reality of what's happening at the moment. I would love to know how many dreams have been scrunched up and thrown into the closet.
I've had three since November. So that's three within four months. Yep. So what's the solution? Like, I feel, and again, we would love to get, [00:25:00] um, an architect sitting here because we know that this is completely one sided right now. I think it's
Matt: also, let's go into the, the tender process because I can also understand why you would tender.
Oh, that's a good point. Because as a builder, like, I think that I had a good, uh, chat with a client that's also a, an architect and they do a lot of public housing systems and they're explaining that because it's for the government, There's no other way you can not do it, because it needs to be fair. You need a tender, so the government are getting the best of value for the project.
Because they're held accountable by the people. And I understand that to some extent, I still struggle to wrap my head around it, because I'm like, well what if you could work with someone, give it, get a, have an ultimate budget up front, and maybe you've got to work to that budget, and if it doesn't, if it goes over, the project doesn't go ahead.
Hamish: So My understanding in some of these government projects though, and correct me if I'm wrong, that there is a fee that is charged from the
Matt: tenders. You have to submit your tender of your fee of what it's going to cost, and then they practically pick the lowest fee and go, well [00:26:00] you're going to now Design it.
I'm pretty sure that's how it works. Alright, okay. So, you bid. You've got
Hamish: to bid for the job. It'd be great to have some clarity around that. If someone could sort of give us an idea and get somewhere. Yeah, look, I understand that. And I guess when you're talking about spending other people's, like, money.
When there's more parties involved, I understand in that respect. But we're talking 20, 30, 40 billion dollar projects. Yeah, yeah. They require more collaboration as well, don't they? And I also, well, I agree, but I also feel like there's less emotion attached in the end product. We're talking about dealing with people's homes.
Yeah. As you said before, like we're essentially married to them for 10 years. That's what we are, a 10 years marriage. 10 years marriage. And you know, at the end of the day, I want to be having fun conversations with my client, with them telling me how much they love the project, rather than say, Hey, my door doesn't work anymore or a window's leaking.
Yep.
Matt: 100%. And I think what we [00:27:00] also need to, before we keep poo pooing on the The tender process, the tender process is a race to the bottom. That's it's simply all of these it's builders, not knowing how to run their business, not knowing their overheads, not knowing what it costs because they're like, Oh, can we get this cheaper?
Can we get this cheaper? We don't really know how to estimate. So we can just put some random numbers against it and hope for the best. And then they win the tender, and all of a sudden, they've missed a lot of stuff. Because they're not paid for their time, because they didn't want to invest the time into understanding the plans and architectural details.
Hamish: Yeah, and also, you know, this is another thing that's come up recently too, because you've talked about profitability, markup, and margin, and stuff like that. You know, we often get asked by architects, even in the negotiated tender process, what's your builder's margin or profit? And I'm like, okay, well, which one is it?
Is it profit? Is it gross? Is it net? Is it markups? Is it? Yeah. So, so, so what are we looking at? Are we looking at when all is said and done and the project's finished, what are we trying to get? Yeah. Or what are we marking up? [00:28:00] Yeah. So a lot of different things. Now I will go on the record here and say that we mark up our projects.
Yeah. 25%. Yeah. Because I know my overheads. Yeah. And I know what net profit I want to go to.
Matt: And it's probably the same for every builder. So I'm going to have a complete guess at this. You haven't told me. You're probably going to want to run at about a 10 percent overhead and a 15 percent markup for the profit of the project.
It's pretty much more than I guess, because it's the same as mine. And, and the other
Hamish: thing that we need to, to, to understand too, is that where the gross numbers and the net numbers sit too. Yep. So that's the other thing. And again, we're probably straying just a little bit here. But we don't make 15 percent off a project either.
That was the other thing. No, no, no, no, no, no. This, this is, this is the, this is the thing where it really, you really need to understand what that then builds up. And I reckon that's probably Maybe even a conversation or another time where we've actually got some numbers that we're referring to and rather than just you know Spitting off things.
So I guess my comment to Architects out there is if you are going to ask the question be quite specific about what [00:29:00] information you're trying to understand Because me saying well, we put a 25 percent margin on it and then you sort of reverse engineer that and go Well, that's a huge number go. Well businesses need money to run Yep.
We have cars, we have employees, we have overheads, we have bookkeepers, we have estimators, we have all these kinds of things. Insurances. Insurance. There's some under insurances. Now, my markup is going to be a lot different to someone who is a bagged on builder markup. Because I'm obviously not on the tools.
However, Their carpentry rate is going to be higher. Their carpentry rate is going to be higher. Exactly. So you need to kind of look at everything on balance when you are using that as a key factor in deciding where you think that project is from a cost point of view. Yep, because I think that it can
Matt: be a little bit misleading.
And you're playing with fire if you're engaging someone that doesn't understand this. There is a high risk that you're going to either one, the project's not going to be profitable for them. So they're going to lose interest. So then they're going to be cutting corners to get it across the line. [00:30:00] Yeah. Or, and most likely in the current climate, they're just going to go bankrupt.
Yes. I think as an industry where we're talking about, we're going to organize an event later this year. As an industry, we're going to have a conversation with everyone and bring everyone into the room and understand how this process and how architects and builders can align. Cause I fear they're not on the same page.
Yeah, I think that is a huge issue because we both want the same results and we just need to work together.
Hamish: Do you know what would be even interesting, more interesting, is actually bringing clients into that and understanding what they want? Because do clients want a tender?
Matt: It comes down to education because if you speak to someone they don't know about and negotiate a tender, they're of course going to say, hey, I want a tender.
Hamish: Yeah.
Matt: I think the thing you, it needs to start with the education. Between builders and architects who then can educate the client because they, they don't know about construction or they've gone through and done in a certain way in a past time and that's how it worked for them and seemed to work well, but now we don't speak to the builder.
So once you start to dissect it from the client's perspective, did it actually [00:31:00] really work?
Hamish: Yeah, I mean, I feel we've had many successful negotiated tenders. And there's things we get wrong in the negotiated tenders. And I was also, I was also about to say, I've also had negotiated tenders which haven't gone well, you know, and We're always learning from this, we, you know, and I think the ones that haven't gone well is when, if we go back to that honesty thing, is when I haven't been honest, as honest as I probably should have been at the beginning, where maybe I've known that it might have gone over, but I was like, oh, well, let's just see where is it because your process, you didn't know your process that well, and you've refined it since I think so, and I also feel that the last couple of years have been quite tricky with, you know, fluctuations in prices where we gave a price You know, 12 months before that final price and then we've seen prices go up and then there's inflation at like three and a half percent.
And that's not a
Matt: great
Hamish: experience for clients, you know. I would love that if we gave an [00:32:00] estimate and that's what we'd then contract it on. And I feel, you know, the way that we're approaching it now, using the tools that are available to us, you know, our knowledge past projects and a new tool that we're starting to use, that we can give a pretty accurate estimate.
That should. Range of where the project should land, you know, we're also putting in other inputs to accommodate performance construction as well. I know you're using the same tool. Maybe we can talk about it at some other stage, but I actually feel that that's a really great way to pressure test it. And if I go back to what I think the perfect process is at that stage, get two or three builders running that process, spend the money, because if you spend the money, you know, you need a good data.
You know, you've got to pay for that information. It's at that point, pick one of the builders that you're comfortable with. Because I'd almost guarantee, if you, me and Mark all did that process, we'd be within 5 percent of each
Matt: other. Our roof is going to be the same, mechanical ventilation is going to be the same.
Uh, there's other trades [00:33:00] we use that are the same. Now, I'll say this though, as the negotiated tender, is in a builder's best interest. And I say that in a way because one, I think that we come in tighter on our numbers because we've kind of got the project, we've just now got to get it to site. So we're respectful and like, hey guys, come in tight because we really want to get this project to site.
But hold on. The other thing is it allows us to schedule in our projects for the future knowing we're blocking them out when projects are going to be. So you're now on There's a higher chance that your project is going to start, most likely when you want it to start, because we've been able to schedule in.
and control the cost.
Hamish: The other thing too, which I hopefully would give clients and architects a bit, bit of insurance assurance around this is we're almost hanging ahead on this number, which we haven't dove really, really deep into the design. There's no details. But we've had enough experience and we're relying on these industry tools and past projects to recognize that the reigns that we're giving you [00:34:00] is a good, realistic number.
Now we're going to try fucking hard to get in that band. Yep. Like 100 percent get in that band because if we're not, then our process is shit. There's
Matt: no point doing it. And the thing is you can't as architects, which is really challenging for them is they can't look at projects in three using and say, Hey, we built this for that.
This is what it's going to cost now. Unfortunately, that luxury has gone out of the window since COVID and that's really difficult on them because I think with architects is if they've got a budget say 800, 000 now they're going to give a pen and paper and go where do I start because 800, 000 gets you nothing these days.
Yep. And that's the reality. Well it doesn't get you as much as it did
Hamish: but also the other thing important thing to note with that point is that the architect's getting the contracted value. Yeah. Not the As built value, because as builders, we've got, well, we've priced it back here and then we've started here and then we've taken 12 months to build the project and then we'll do like a postmortem on the project and really understand what that project cost us.
So we actually [00:35:00] have that real cost of the project in real time in today's current market. Unfortunately, architects don't have that. And Chris Gilbert brings that up too. We're in the conversation that we've had that us as builders, if we could plug that data in somewhere. Then architects are winning, and
Matt: maybe that's the solution.
I think what is working isn't currently working. I think that we're all still finding our feet. I think that we have ours pretty well dialed in. But then I've completely flipped my process recently on its head too, because I'm like, well, we can improve on it again, 100%. And I think that's where a good builder will be able to understand the process, a good architect, but also be able to question us on our process with some very clear guided questions on how does your process work, how does it work.
I think the most important question an architect can ask is, how has your process failed in the past? So then they can start to understand what didn't go wrong so we can now give this project the best chance to go ahead. How have you learned from how you were doing things two years ago and what chances have you made now?
Let's test how transparent the builder is and go, oh no, all of our projects are fine and [00:36:00] dandy. Well the reality is I've had four or five projects in the last two years that haven't got to site because they didn't meet budget.
Hamish: Well, and I'll tell you what, I've also had projects that have gone to site where if I look at, you know, our projected profitability, it's 12 to 15 percent off where I'd wanted it to be.
Totally. So,
Matt: But I think we wrap that up. I think this is our first episode in person, so bear with us for a few episodes to see how we get it. All these will now be on YouTube as well. We're really keen to start spitting out some way better content. Um, we've got some awesome stuff in the pipelines around webinars and trying to bring out little, uh Handbook's got some ideas that we're going to really start to help build this industry up and not just make it a podcast, but make it a big collaboration between everyone, so.
Yep, and the good news is a lot of this information that we're talking about is going to be free. Yeah, we do need to fund this at some point, but that's where the sponsors come in. If you want to sponsor, reach out to us. Uh, we do have a few lined up that are keen to come on board, so. Awesome. Again, want to say
Hamish: a massive thank you to Hit First Hide.
[00:37:00] Yeah. For letting us film here.
Matt: Building better exchange.
Hamish: Better building and status
Matt: building exchange. See you, mate. Ciao.