When supply exceeds demand, prices will fall. Contractors make profits when prices are falling and go bust when the market turns up...
A couple of
truisms:
When supply
exceeds demand, prices will fall
Contractors make
profits when prices are falling and go bust when the market turns up
I am sure that
both of these are true, problem is that everyone else knows it too.
The client knows
it, so they expect prices to be cut.
The Quantity
Surveyors know it, so do they factor them into their advice?
The contractor
knows it, so have contractors factored them into their bids? Do current tender
prices reflect the contractor's assumptions about how much lower his supply
chains' prices will be when the contract starts, rather than the prices that
the subcontractors have supplied now?
Demand is falling;
consultants, contractors, sub-contractors and suppliers are keen to secure
work. Experience in other recessions suggests that some will be overly keen and
get carried away.
Contractors can
only cut prices by cutting margins, passing on reduced costs from others,
improved efficiency, cutting corners or putting in sub-economic prices. And
this is true right down the supply chain.
The challenge is
how to agree a price that takes advantage of the first three without exposing
the client to the last two.
There is a risk
that resource costs will not fall as fast as the contractor expected or that
the upturn will begin before the contract ends.
So one other
truism: The Quantity Surveyor really earns his money when he advises a client
that a bid is too low. A loss-making contractor is no good for project delivery
and a bankrupt contractor is no good for anything.
About Joe
Joe has been responsible for setting up and developing the BCIS information databases for capital and running costs of buildings, including the BCIS Online service which provides online access to price information on over 16,000 projects.
Joe is also involved in development of the UK National Key Performance Indicators, the UK supplement to the ISO on Whole Life Costing, English Partnerships Carbon Challenge, and RICS eTendering.
