Much of Australia are heading to work this week riding a wave of positivity as lockdown laws begin to be wound back. Our tender noticeboard is also showing signs of positivity with tender volume levels reaching pre-COVID heights.
However on both fronts there is cause for caution. Just as health authorities prepare for a second spike in cases, our clients are telling us they’re preparing for an industry dip down the road.,
In this newsletter we take a look at competitiveness, and unpack how the lower volume of tenders since COVID-19 might be causing an increase in competition on the tenders that are now closing.
What we’re seeing
Section 1: Aggregate new tender volumes:
- Week 0 represents the first Federal Government response to the pandemic, so you have to look to week 3 for when the strictest lockdown policies began.
- Last week we saw the most tenders added to the noticeboard since the lockdown restrictions began.
- Tenders in the Government, Commercial and Education industries continue to be the strongest performers throughout the pandemic.
Section 2: Tender competitiveness:
While we are starting to see an uptick in tenders in the last couple of weeks – we are also now starting to get a picture of how the dip in tenders affected the market.
Throughout this time we saw an increase in the number of builders on each tender panel. We attribute this to a potential combination of a couple of things;
- There are less tenders on the market to quote on, and,
- Builders are looking to sure up their work pipeline ahead of an uncertain future.
- Here we are seeing a clear uptick in builders per tender for tenders that closed/are closing in April and May.
- By industry, we are seeing an increase in competitiveness is most noticeable in Commercial, Education and Fitout tenders.
- By showing a year on year comparison, we can see that a decrease in tenders being added to the noticeboard has led to a more competitive than average May.
5+ builders per tender:
- Traditionally, we’d see spikes in projects with 5+ builders towards the end of the year.
- However, currently we are seeing a big spike which defies usual April/May activity.
- Anecdotally we have been told of a school project being tendered in Queensland that has in excess of 20 builders on the tenders panel.
What we’re hearing:
Tough times ahead for tier ones:
- We’re hearing that the pipeline of future works suitable for tier one builders is starting to dry up. These pipelines were slowing prior to COVID-19 and the uncertain economic outlook is only making it harder to get these projects off the ground.
- Action taken by the government to fast track certain projects hasn’t been as helpful as hoped. Even with hastened approvals, the inability to secure sales/tenancy commitments is making it challenging to obtain finance
- We’ve also heard that some large corporates will be looking to make working from home arrangements permanent for a couple of days per week. If adopted at scale, this practice could reduce demand for larger commercial buildings
Subcontractors pencils are getting sharper:
- One client has told us they’ve seen drop in subcontractor prices upwards of 20%. This suggests that subbies are also desperate to secure a future pipeline of work.
- We’re hearing of some “particularly sharp pencils” in quotes that are being received. The AFR (link) last week shared an article where the winning tender came in at almost 30% below another bid.
There is good news coming for some:
- On Monday, Victorian Premier Andrews announced a $2.7 billion stimulus for the construction industry. The lion’s share of this stimulus will be distributed on education and social housing projects. Builders who work in this space or are able to adapt to these types of projects have the potential to do quite well.
- Projects that come from the Victorian School Building Authority also have a tender panel limit of 4 builders. Theoretically this should see an even spread of builders who are able to take advantage of the government stimulus.
- Although it has yet to be announced, other states (link) have hinted in the past that stimulating construction is a key part of their economic recovery plan.
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