Business MattersContractor

Negotiated contracts vs tenders- a business coach’s perspective

Canterbury-based Dave Sewell is one of only two Gazelles International business performance coaches in New Zealand.

AS A TRADESPERSON in an unprecedented build environment, there are multiple challenges. Competing with companies buying contracts does not help.

I have been working with numerous clients, helping them move away from tenders and into negotiated contracts. This allows them to have greater control over the work, often deliver greater quality and it removes a whole heap of uncertainties.

Christchurch-based Simon Construction director Izaac Simon knows firsthand that working under a negotiated contract removes a lot of risk for both the builder and the client.

“When you go in with a tender, you have to account for all the unknowns, so you factor them in, then you have to consider escalation, the availabilities of subbies who often bump their prices up due to demand, thus the price is front-loaded to deal with situations you don’t even know if you will have to manage.”

Izaac says when pricing a negotiated contract, you don’t need to cater for all contingencies, so the client is not having to pay big premiums for unknowns.

“You get paid for what you do and then deal with each unforeseen issue as it comes up via a variation.”

I have seen many projects stall in the pricing stage because no one holds the all-powerful crystal ball. I advise clients to use and strengthen their trade relationships. If a builder can get involved in a project right from the beginning, they can have input into pre-construction planning, which can return savings. Then throughout the negotiated contact, any issues can be dealt with in a factual way, in good faith and ensuring the best outcomes are achieved for everyone.

Most importantly, the builder needs to know each sub trade will do its part of the job properly and on time. A negotiated contract is harder to manage but, in many cases, it is the superior business model in this current climate.

With many companies buying contracts, those wanting a future that extends well beyond the rebuild, then it is working relationships, trust and integrity in the marketplace now that will help that happen. With negotiated contracts, there is 100 percent clarity and communication.

Izaac says with the level of complex jobs post quakes, like a technically difficult, heritage rebuild or renovation on unpredictable land, pricing via a tender is immensely difficult.

“A contract is a good way to proceed, so then as things come up, you negotiate the best variation and then proceed. We work with people who trust us and we are transparent in our pricing and are committed to finding the best solutions.”

He says it does mean he is capping his margin up front, but he also knows he is not going to lose out if a project blows apart because of a few uncontrollable surprises.

When you have a trusted team of sub trades and suppliers around you, then you can enter more easily into negotiated contracts, knowing each party will provide their best price (not necessarily the lowest) and will deliver quality work when they say they will.

The key piece of advice in all this, is know your numbers. You must know what your margins are; you must learn from back costing; and effective, transparent working records are mandatory.

You also need to know what future work is in the pipeline, make sure you do not over commit and that your supporting trades are in that same position. Communication and trust form the basis of a good negotiated contract and it’s from this platform of stability that a trades business will thrive well past the current building boom.

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