During the last fortnight, we have seen further easing of restrictions as ‘normal’ life starts to return. The Government has outlined details of their construction stimulus policy with a heavily means-tested $25k handout to first home buyers and cashed up renovators. While pundits debate the wisdom of such a targeted stimulus package in the residential sector, we retain our focus on the fortunes of commercial construction.
This sendout will focus on how businesses are changing their tendering tactics. It follows on from a newsletter we sent out two weeks ago with data taken from a survey we conducted (you can read it here.)
What we’re seeing
Section 1: Likelihood of tendering projects outside preferred contract value range:
- More than two thirds of our respondents anticipate they will be tendering significantly outside their preferred range in the coming twelve months.
- The higher the preferred contract value range, the more likely the respondent is to anticipate tendering outside of that range.
- Builders are signalling an intent to follow the work: while it isn’t financially desirable for larger builders bid on projects with smaller contract values, it’s a sign that there are less projects available in their target contract range.
- Businesses who predict market conditions will deteriorate are the most likely to predict they’ll be tendering on jobs significantly outside their contract range.
- These respondents appear to be flagging pro-active changes in the way their business operates. They are signalling a need to be flexible in the face of worsening industry conditions – seeking an extra leg to stand on in a competitive market.
Section 2: Competitive tender panels:
- Like our data suggested in a previous newsletter (link), over three quarters of respondents feel that market competitiveness is increasing.
- Builders who prefer to work with $1 – $10m and $50 – $100m contracts are most likely to note an increase in competition.
- Below we show a graph showing how builders are increasing the number of projects they are tendering per month. It is likely that the increase of competitiveness in these value ranges is a result of builders upping their tender load in areas where the work currently is.
- This chart shows the change in the number of tenders per month by a given builder, comparing 2020 to 2019. It includes only those builders who tendered in both years (so doesn’t reflect the effect of new entrants or business closures).
- Builders in the majority of states have increased the amount of tenders they bid on per month. With the total number of projects tendered on EstimateOne returning to more normal levels, the increased competitiveness appears to be driven by the market.
What we’re hearing:
Businesses are starting to feel the pinch of competitive tender panels.
- A builder who tenders on contracts under $1m told us that he’s seen an increase in competition on government and residential tender panels. He also told us about an education job he recently tendered on where 30 builders showed up at the site inspection and 20 ended up on the tender panel.
- A survey respondent from Queensland also lamented the more competitive tender panels. They noted that some project panels were now in excess of 10 builders and predicted that the market will remain depressed for the foreseeable future.
- Several builders have told us that selective tender panels have increased from an average of 3-4 builders to 6-7.
More subbie prices are coming in as the fear of underpricing grows.
- One estimator from Queensland told us that he’s seen an increase in subbie quotes coming in – which for him is the canary in the coal mine for market competitiveness.
- Someone had also noted that residential builders are starting to pop up on comercial tender panels. On these jobs they bring their own residential subbies, who are able to quote the work for less.
- “The cost of building hasn’t decreased,” one survey respondent told us. In order to meet the price of the market and get on site, people are quoting much less. The respondent stipulated that the effects of under-pricing will come back to bite the industry in the next six months.
- One builder we spoke to also mentioned that he believes some clients are using the current market conditions to their advantage. He believes clients are looking to lock in lower prices now with no intention to proceed with the build in the near future.
Businesses are becoming much more flexible in order to adapt to the change.
- As a result of increased competitiveness, builders are starting to expand into different sectors in order to lock in any work.
- A builder from New South Wales told us that they’re “seeking any opportunity in any value range to keep people employed”.
- Builders have also let us know how they are diversifying the project sectors they are bidding on. Some builders who would only bid on private tenders have noted they are now bidding on public ones as well.
- Having to work from home is also a reality many builders faced. Some have noted how going forward this will be offered to staff permanently. Adopting new technologies such as zoom was important to ensure collaboration remained in place.