It has been over a month since Premier Andrews announced stage 4 restrictions for Melbourne. While the state as a whole has had to adapt to unprecedented living conditions, the commercial construction industry has had to confront arguably it’s biggest disruption.
On site, progress has slowed as sites are forced to operate at 25% capacity. Off site, current market conditions and an uncertain outlook are continuing to effect tendering and procurement in the industry.
Now that the dust has settled on the initial announcement, we felt it was a good time to provide the industry with an update on what our data is showing us.
What we’re seeing:
Section 1: Tender numbers
Graph 1: National Tender numbers:
Graph 2: Tender numbers in Victoria:
[Note the blue bars represent stage 3 restrictions and the red represent stage 4]
- While Victoria implemented two additional stages of tighter lockdown restrictions, the number of tenders added to EstimateOne increased when compared to pre-lockdown times
- With Estimating being one of the few departments that can work remotely, this isn’t entirely surprising.
- However, the projects that are going out to tender now have likely been in the pipeline since the start of the year. While these numbers may paint a positive picture, the full effect of COVID-19 will likely be delayed until the full economic impact of the pandemic becomes clearer.
Graph 3: Average tender panel size
- Since the first raft of lockdown measures were introduced in April, tender panels in Victoria have consistently been more competitive when compared to the same time last year.
- Anecdotally we are hearing of builders tendering more, and tendering outside of their usual zone. A previous newsletter we sent out covered this topic [link]
Infographic 1: projects not moving past tender phase
- There has been a steady decline in projects being marked off as awarded since the reintroduction of stage 3 restrictions at the start of July.
- Anecdotally we are being told of an increasing number of projects not getting to the awarded contract stage. We can see this on our noticeboard with 60% of the tenders that closed in June are yet to have anyone on the tender panel mark it off as either won or lost.
- With uncertainty around the market and the potential of further lockdowns, it appears clients are hesitant to agree to a price and commit to spending capital.
What we’re hearing:
Initially, the new rules lead to widespread confusion:
- On the day the initial restrictions were announced, one subbie we spoke to spent three hours on hold to the COVID hotline for business enquiries, only to have his question remain unanswered. It took a further two weeks before his trade was classified as a specialist trade. As he awaited clarification he was effectively unable to conduct business.
- We also heard from a number of head contractors expressing their confusion around the ‘1 site per subbie’ and 25% capacity rules. It was a number of days before the ‘1 site per subbie’ rule was amended so that subbies in specialist trades were able to responsibly move across sites.
Tenders are up, but they aren’t progressing:
- Much like our data suggested, many of the builders we spoke to talked about a number of projects they’re tendering being delayed.
- One builder told us of a few government jobs that have yet to be awarded, speculating that they are nervous to pull the trigger in case further outbreaks / lockdowns delay progress mid-build.
- We have also heard of a site being told to stop mid build as the client wanted to shore up further finance through more pre-sales.
- In a previous newsletter [link], we discussed that while State Governments are fast-tracking projects through the planning phase, the reality is that practically none of these projects have commited finance due to uncertainty in the market. Without finance they won’t be progressing to the construction phase.
This lack of progress is driving market competitiveness.
- Despite a lack of guaranteed finance from early sales – one builder we spoke to believes that developers are pushing ahead trying to take advantage of what they perceive to be a desperate and competitive market. However, without this finance they are unable to pull the trigger and award a contract. This is likely a contributing factor to what we are seeing in our data.
- Head contractors have told us of a more competitive subcontractor market. One builder spoke of a 5% decrease in subcontractor pricing across the board.
- One of the subbies we spoke to told us he’s never quoted more projects, and he’s never quoted tighter margins. This is due to an increase in RFQ’s being received and a need to lock in a future pipeline of work.
- We are also hearing of builders tendering more – one builder told us that while they are winning a similar amount of contracts as they were pre-COVID, this is only a result of them doubling their tendering efforts.
As always, we appreciate the help we get from those who speak with us. If you are seeing anything or have a story to tell, please get in touch so we can help further inform the industry.