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How to reduce the construction cost

How to reduce the construction cost.
Construction Industry is an industry like the other field of business. It is all about trading for what each and every one wanted for. The client will want to have a product that is value for money and the consultant always wanted to be part of the business with a reasonable price for their render service. The builder which known as contractor which will offer how much they need to be pay for realising the quality product.
The first stage that the contractor needs to do is win this competition. Next is start building the product with the agree contract sum between the client and them. When start building the product the contractor will have to find a way on how they can maximize their profit. The term is to do some cost saving in their activity in order to increase their profit margin from what have been included in their original contract sum.
There is a numbers of process or technique that contractor need to applied if they wanted to increase their profit margin. The answer is cost reduction for the construction. How can this being done. Here are some techniques that can be use.

1. Shopping for the cheapest and quality material available in the market.
2. Mitigate the risk of increase in construction work by sublet certain portion of work especially labour. ( Lump sum cost for certain work which the increase of labour cost will be absorb by the subcontractor)
3. Method of construction ( eg. By machine or man power)
4. Building component (temporary or permanent work). Eg. Recyclable falsework & formwork, Factory fabricated building component such as floor slab.
5. Plan for the project and adhere strictly to the programme.
6. Complete the project at the shortest time frame which will save more in the plant, equipment & manpower cost.

Acquire own machinery, plant & equipment instead of renting. For the long run this strategy will significantly reduce the contractor construction cost. However beware of the maintenance cost.

How to Win Tenders: Win More Tenders by Qualifying (Part 2)

How to Win Tenders: Win More Tenders by Qualifying (Part 2)

How to Win Tenders: Win More Tenders by Qualifying (Part 1)

How to Win Tenders: Win More Tenders by Qualifying (Part 1)

WINNING A TENDER

HOW TO WIN A TENDER

Construction industry is always about winning a tender. There will be no business for contractor if they do not participate in any tender or quotation. However tender or quotation is only the first step for contractor to get their business running. The important point here is winning a quotation or tender.
How to win in a tender or quotation competition? Here we will discuss some of the most important point on how it shall be. Bellow are what really important for contractor to know and do.

1. Completeness of tender document.
   
   Make sure all instruction in the "INSTRUCTION TO TENDERER" being fulfilled such as all pages that need to be sign are already sign and all required supporting document being attached in. In other words completeness of the tender document.
   
    
2. Cash flow of the contractor.
   
   The cash flow normally being defines as how much the capital that a contractor have and ready to be utilised in the event that the contractor being award the project. Normally the available amount shall not less that by 5% of the tender sum. The capital can be combination of the cash in hand (Bank balance) and credit facilities (eg. Overdraft, project financing facilities from the bank, fixed deposit and ect.). How to know wether you have enough or not.
   
    
   Let say;
   Total tender sum = $ 100M.
   Construction period = 12 months
   Average prorated cash flow = $100/12mths = $8.34M
   
    
   Minimum Ready capital needed = $100M X 5% = $5.5M
   ( This minimum is because that in actual fact that normally in the first 3months the expenses for the project will be considerably low due to the reason that the first 3 months expenses could be only the preliminary expenses such as preparation for insurances, Bank guarantee, site office, and all office and accommodation required under the contract by client.)
   
    
   With reference to the above calculation contractor now can compare wether they have enough capital to win the project. For example:
   
    
   Available cash flow = bank balance + Fixed deposit + credit facilities.
   Say:            = $ 3M + $1M + $7M = $11M > $8.34M >$5.5M
   
    

• Contractor already passed the cash flow evaluation.

 

1. Construction period.
   In tendering contractor must never exceed the construction period required by client. One common mistake by contractor is never specified the duration they offered. This condition will cause them to be disqualified.

 

1. Contractor resources
   Resources can be categorised as follows:
   
   1. Plant and equipment.
   2. Machinery
   3. Man power
   All of the resources above must be as relevant as impossible to the nature of the project. For example in road construction, the plants that you will need are premix plant, soil test laboratory, Excavator, Dozer, Engineer, Site Supervisor, labour and ect.

 

1. Contractor current commitment.
   Contractor current commitment is define as current project that still progressing undertake by contractor. The more commitment the contractor have in hand the more slim chances that they have to win a tender. However, if the current commitments that they have are almost completed, there is a chance for them to win a tender. The only thing is that make sure that the current project report is ahead of schedule or on time. This is the factor that will contribute to the reputation of the contractor.

 

1. Previous Experience.
   Previous experience is defined as the project that had been completed by contractor. This Experience shall be as relevant as it be to the nature of tender that the contractor participating. The other factor to this is the size of the project. In this case the value of project is counted. Let say the tender price for this tender is $100M then the contractor experience must reach at least nearly $100M or more. With that, the client will be more comfortable to award the tender to the contractor who have completed the same nature of project and almost the same value or event more value from what he currently tendered for.

 

1. Tender Price.
   This tender price is the one that weighted most in the event that contractor already pas all the evaluation above. When it comes to this Factor there are a few item that will be considered. The Most important item is that the tender price shall not exceed the client budgeting price.
   The next issue is that it is in the range of what the market offer and the last but not least item is value of money.
   
    
   For instant if the client budget is $120M with the construction period of 12 months, the revenue collected when the project completed and in operation is $2M/mths.The recommended contractor have the following offer;
   
    

Tenderor no./Name	Offered tender price	Offered construction period	Ahead completion	Revenue
A	$100M	10 mths	2 Mths	$4M
B	$98M	12 mths	0mth	$0
C	110M	8 mths	4 Mths	$16M

 

Locking into the data above which one will be choose.

Lets do some analysis.

 

Take into account early completion :

Client will make extra 2M with contractor A after deduct $2M extra compare to contractor A and revenue of $4M in choosing Contractor C.

 

If I were the client, I will choose contractor C because after considering the expenses for this project do not exceed the project budget and in return, I will make extra $4M if I can operate this property earlier that planned.

 

This selection is what we called "Value for Money".

 
With the tips mentioned above contractor shall be able to secure another project under their cap.

A Project Planner

This a quoted from the following link.

PROJECT PLANNING IN CONSTRUCTION INDUSTRY

Project planning for Managers.
Project planning is an important ingredient to ensure the successfulness of a project. Top priority of every project that we undertake is to make money. This must be the first objective for every person that involve in the construction. However, in the process to achieve this goal, is importance to deliver the end product in the most economic way and with the best quality in accordance to the requirement and specification line out by the client and inline with the good engineering practice.
The solution to this is project planning. In this article we will discuss the basic information that must be consider in the project planning.
Two important rules that a project planner must adhere to is TIME and COST. With these two keywords a planner will be able to plan a project to achieve the company objective.
The definition of TIME in the contact of a project is the agreed time frame for a contractor to deliver a complete end product with the required specification without neglecting the rules and regulation by the authority and also the statutory requirement.
COST is the value of the contractor offer and being accepted by the client in order to deliver the end product. This cost in actual fact is already inclusive of the contractor profit margin. Therefore it is very important to a planner to know what the exact construction cost for the project is.
With the definition above you now have the idea on how to create a project plan.
Software, is another important tools that a planner. There are numbers of software or programme for a planner to plan a project. The most common and widely use software is primavera project planning, Microsoft project or even Microsoft excel (for a straight forward project that does not involve a complex lineout).
In scheduling various works that needed to complete a project, a planner need to know when to start, when to finished, what is the work involve, the sequence of work, what the plant and equipment involved and how many numbers of these needed. All of these then will enable a planner to do some calculation whether or not the line out given meet the construction cost that of the contractor. If not an adjustment must be make or a planner can also adjust their plan to gain more profitable margin.
Below are sample of the illustration on how exactly to plan a work. (Sample that being created with the Microsoft excels).

 
Example only:
Construction of the 7.2m(W) X 10.8m(H) X 200mm (thk) brick-wall complete with plastering and weather proof painting.
Step.1 : listing major item involve in construction.

1. Time frame to complete the work 8 weeks.
2. Agreed contract sum $10,000.00
3. Work Involve :
   1. Material Procurement
   2. Bricklaying
   3. Wall Plastering
   4. Installation of scaffoldings
   5. Wall painting.
4. Major Plant and equipment needed
   1. Cement & Sand mixer
   2. Scaffoldings
5. Manpower needed
   1. Bricklayer
   2. Plasterer
   3. Painter
   4. Scaffolding erector
   5. General workers
6. Construction material required.
   a). Ordinary Portland cement
   b). wash sand
   c). special cement powder for plastering
   d). Red brick
   f). Prime coat paint
   g). specified brand for weather bond paint.

 
step 2.: simple calculation on the quantity needed(for material).
Step 3: Simple calculation on the numbers of plant & equipment as well as manpower needed.
Step 4: list down the work involve in a correct sequence.
Step 5: incorporate all the quantity, cost and time required to delivered the project in whatever software you are using.
Step6 : Analysed if you meet the profit margin or if you want to increase the gross profit margin.

IMPORTANCE OF PROJECT PLANNING

Project planning is important ingredient in every construction work undertake by contractor. without a proper planning it is only by chances that a project can be run smoothly even though at the end of the day, the project will be delivered, but, with a very high price that contractor need to pay. The cost could be another capital loosing for doing a construction project. For some this is a very painful but valuable lesson that must not be forgotten. The moral of this will be "learn from the past experience".
Now a days, to be a competitive contractor it is not only that one need a good networking of supplier, strong cash flow, having numbers of skill workers , equipment, plant and machineries but proper project planning. With a proper construction planning, all of the resources usage can be optimised to deliver even higher profit margin without jeopardizing the quality of the end product. With a good construction practice and well planed project, contractor should be able to meet their contract requirement as well as their own objective that is making more money.

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