According to building price book experts Laxton’s, we’ve seen an average material price increase of more than 20% since August 2020. In some cases such as steel, prices have risen by up to 60%! With the current shortage of logistical drivers and a recent hit to the fuel market, is the worse still to come?
This surge in costs is affecting every area of the industry, from the multi-billion pound housing association to your local plumber. What is next for the construction industry?
Whilst we don’t know and can endlessly speculate, there is one thing for certain: there are certain practices that we can undertake to reduce costs spent and increase profit margins.
In this article, we’re going to delve into the pre-contracting phase and discover how companies can save money before a job has even begun.
How Can You Save Money Before Starting a Job with Construction Estimating Software?
For those who are new to construction, or need to brush up on their terminology:
“The ‘Pre-Contract’ phase in contract management is the preparation phase before a contract commences and includes different processes which need to be completed before winning a job. These processes include Bills of Quantities, Takeoff, Tendering, etc.”
The pre-contract phase is time-consuming as it requires a significant number of checkboxes to be ticked before even winning a job to work on, and you may not even win that job as you’re competing with other companies.
Therefore, if there was a way to increase your chances of winning a job, you would be able to increase profit margins, right? Well, let’s explore that theory by breaking down the pre-contract processes.
Takeoff
Takeoff, to summarise:
“The process of identifying the key areas of a construction project that can be priced and measured. This, in turn, allows you to produce bills of quantity”.
But how can the takeoff process cost companies so much money?
The takeoff process can be extremely complex as you can be pricing up large areas of construction, with the need to keep the costs as accurate as possible.
It’s not the takeoff process itself that is necessarily expensive, it’s the repercussions if it’s done inaccurately.
To break it down:
- The more accurate the costs, the higher chance of winning profitable work with a competitive bid you can be confident of.
- You have a lower chance of losing profit after you win the contract as materials and labour would not be underpriced on the bill of quantities. This means you won’t be paid less.
Therefore, accuracy is key during the takeoff phase. However, how can you ensure you produce accurate takeoffs efficiently?
Software, such as Eque2’s EValuate estimating software has an integrated on-screen takeoff tool allowing you to analyse drawings and specifications as accurately as possible.
Measurements are taken from your digital drawings and linking directly to your DIM sheet, which means bills of quantities can be automatically updated in real-time.
Using an accurate and reliable pricebook such as Laxton’s is a highly beneficial and efficient method of pricing up-to-date materials, saving you time and money.
In the last year alone, we’ve seen:
- A 70% increased in the price of softwood.
- A 60% increased in the price of steel.
- An average price increase of over 20% across all materials in the UK.
By using a pricebook, you will be able to set a benchmark of costs to make sure what you are quoting is accurate before you even begin.
Laxton’s Priced Libraries for both SMM and NRM rules of measurement are built into EValuate, so resource and item libraries, including their full build ups can be added to an estimate at the click of a button.
Bills of Quantities
What is a bill of quantity?
“A bill of quantity is a collection of work required to be carried out by the main contractor and is prepared by a consultant or quantity surveyor. The bill contains the quantity/ quality of work and materials that have been priced.”
You may be thinking “Sure, so you can mark up the prices to make a larger profit” or “Well, how is this reducing my profit margins?”
Firstly, marking up your costs will only make you less appealing to the client as you’re competing with other companies to win this job. And secondly, this process can take a long time. During this time, you could be working on other projects or other processes which you need to complete.
So, how do you decrease the time spent on bills of quantities?
Using software, such as Eque2’s EValuate Estimating software, can help you quickly create Bills of Quantities, allowing you to quickly price a job.
Companies who use or have used spreadsheets to manually create Bills of Quantities can understand that one human error can take hours if not days to rectify, causing a competitor to get ahead and perhaps win the job.
With EValuate, you can use templates or bills from a previous job to streamline the process and deliver accurate and well-priced Bills.
Subcontractors
It’s unlikely that a main contractor can undertake every kind of construction out there: If you can build a house, make the windows, plaster the walls, plumb the pipes, wire the electrics etc, then hats off to you!
However, as most companies usually specialise in one or a few key areas, it’s highly likely that they will reach out to subcontractors to take on different parts of a project.
Naturally, outsourcing to a subcontractor can cost more money. However, there are ways you can improve the process to make sure you’re keeping on budget and on schedule.
When speaking to subcontractors, dozens of documents and emails are likely to be sent back and forth for revisions and amendments.
The key to keeping on schedule and not letting your competitor get ahead is organisation. Issuing enquiries, drawings and revisions to subcontractors can be a very lengthy and complicated process if not handled correctly.
Software, such as Eque2’s EValuate, can nullify risks of human error during this phase, whilst providing you with a subcontractor enquiry portal. This collects and collates all communications between subcontractors, and organises your emails, documents and revisions in order.
Tenders adjudication
So, you’ve priced your materials and labour during takeoff, collected your prices from your subcontractors and added them to your bill of quantities. What’s next?
“Tender adjudication is turning your estimates into an actual tender bid, ready to be submitted to your client.”
So far we’ve covered how to save money. However, during this phase, we have the ability to increase profit margins.
How do we increase profit margins during the tender adjudication phase?
Now that we have our very accurate and punctual bills of quantity, we can now start thinking about how much leeway we have to increase our profit margins.
Using software, such as Eque2’s EValuate, allows you as the main contractor to benchmark and analyse your estimates using detailed reports. You can then set competitive margins and tender more successfully.
Construction Estimating Software – How can it save your margins?
As we go through each process individually, a recurring pattern emerges:
- Accuracy in your estimating and reports means that you can price jobs more effectively whilst monitoring costs, valuations and retentions in real-time when on the job, preventing you from going over budget and receiving payments on time.
- Efficiency in producing your bills of quantity and tenders gives you the edge above your competitors, displaying your reliability to the potential client, winning you more jobs
- Organisation of documents sent between contractors and clients means that nothing gets overlooked, encouraging better communication between internal and external teams.
At Eque2, we have developed EValuate, our construction-specific estimating solution which is designed to help you produce tenders on time, as accurately and professionally as possible. If you are a main contractor or a subcontractor, and would like to learn more about EValuate and how it can benefit your pre-contract processes, click here.