Making money or Losing money in Construction.

Why contractor loosing money when doing construction? There is few reason why contractor always mentioning that they are loosing money a particular project. If we wanted to list down all of the reason, it will be quite a number of it. However let we know some of the reason.

1. Poor Project Planning by contractor.

2. Lack of understanding or knowledge on the current market trend for resources.

3. Ignorant on the principal, "make thing right at the first attempt".

4. Fail to ascertained all necessary cost that is not reflected in the contract Bill of quantity or drawing.

5.Bidding a project for the sake of winning it without thinking and analysed the pricing that been inserted during bidding process.

6. Fail to examine each of single page of the tender document  when doing the estimation.

7. Fail to notice what is the term and condition stated in the tender document during tendering process.

First of all let we jump to the item no.6 and no.7. Item no.6 is related to item no.7. Why is this so? The reason is if the bidder do not read carefully the tender document, he will tend to lose the important information which is not clearly stated in the bill of quantity. This scenario  always happened in a Lump Sum Contract. For instant, Inside the contract there might be special condition of contract which form part of the contract. What written inside the special condition of contract is Contractor need to abide to local authority, authority body or government agency rules and regulation. Then we derive from this clause, Who are these local Authority? 

Now we go deeper. Local authority,  can be any authority that have direct involvement in your project. For example Department of Occupation Safety and Health(DOSH), Local Council, Construction Industry Board, Board of engineers, Labour Department, Board of contractor under government and National board of Environment. Each of this department or authority body have their own rules and regulation which contractor need to comply with. For instant DOSH. When you do a construction project, You must first registered your project with them. registration might be no cost implication but the set of rules that you need to follow will required you to provide enough safety equipment and precaution. As and example, You are required to hire a full time safety office. how much is the cost that you need to pay for the Safety Officer for the whole duration of the project? second, You must provide all necessary safety gear for all of your workers at site. How much will it cost? This two item will easily cost you thousands dollar per month and just if imagine if your project duration is one year. How much do you think the cost will be? I have seen lot contractor underestimate this item or ignorant to this rules. When the project awarded to them then only they start grumble that they did not priced for it. Who's mistake is this? Sometime inside the Bill of quantity it only mention as "Contractor to provide all necessary safety and heath personal,equipment and ect for the whole duration of project" or even it being lump into an item as preliminaries and General. Then when this happened in the Bill of Quantity contractor will just insert some Amount which is most of the time under estimated. At the end of the day this item alone had cost a huge some to contractor.

As for item 7. worse case scenario, the special condition of contract does not allow for any claim on lost and expense due to whatever reason and also it does not allow for any price fluctuation claim for construction material as per current market rate for the month particular month when the purchase are make. If the increase of material price is very marginal, most probably contractor still can absorb the the cost. But if it happened as the scenario during the year 2004 until 2007 where the price of steel and other construction material gone up substantially,  What will be the cost that contractor need to pay? most probably it will contribute to a huge losses to contractor. Hence it is very important that during tendering stage contractor need to know what is the basis and the content of the tender document.

For all contractor, be cautious with the term and condition in the tender document when you do your estimation. If you already gone through these scenario don't let it happened again and for those who have not come across this type of rule and regulation, let this article become and important information for you to minimised your will be loses.