While economic forecasts are still pessimistic, private sector developers continue to have niche commercial projects and tenders received by developers in 2012 show a mixed picture. Some prices are increasing but others are coming in below budget as contractors compete for attractive business. Given the choice of contractors available, developers have the opportunity to select the best contractor, which is not always the one with the lowest quote.
All developers aim to deliver a commercial project at the right quality, on time and on budget. Accepting the lowest tender is not mandatory and can often result in a higher price for the completed product, delays in completion and lower build quality. A contractor quoting too low may not stay in business to complete the project. The best quote will balance cost, quality, time and risk.
Smart developers take a range of factors into consideration in selecting the best tender. The reputation of the contractor and their experience of similar development projects is important. Good sub-contractors and skilled consultants will be employed by reputable contractors. Experienced contractors will have the resources and know how to tender a realistic quote that can be delivered on time and on budget.
If the project involves innovative features it is essential that the developer employs capable contractors who can work with a specialised design team to deliver a quality product. The developer has to decide between a fixed price or hourly rates. The best tender will balance the risks of the developer and the contractor paying the price for unexpected labour costs. Liquidated damages proposals are a way to test the tender price. If the contractors are prepared to agree a fixed sum for any significant delays in completion, they will be confident that their tender is realistic.
Developers who think ahead will achieve the best tender price. Detailed designs available at the tender stage will reduce the risk of expensive variations after the building work commences. Specification of the quality of materials to be used and the standard of work required should be made clear on the invitation to tender so that quotes match the quality expected. Any specialist services required for the project should be identified and costed at the outset. This will facilitate fair comparisons of quotes received from competing contractors.
Clear specifications in tenders will help prevent disputes after the building works commence. The obligations in the contractors building contracts should be consistent with the duties in the professional appointments of the design team. All construction contract terms and conditions should be up to date and compliant with the new Construction Act rules, which have been in force since 2011.
Developers have a role to play in ensuring that the cost of the completed project matches the tender price. A successful developer will employ an effective project manager to supervise the project and pay stage payments when due. Frequent inspections should be instructed by the project manager to identify problems as soon as they arise. Regular site meetings with minutes prepared by the project manager and approved by the construction team will reduce any scope for misunderstandings and minimise the risk of disputes.
Given the number of organisations and trades involved in any commercial development project, it is inevitable that some disputes will arise. The impact of disputes on price can be minimised by clear lines of communication between all members of the construction team. An efficient project manager will address problems as soon as they arise and arrange for remedial works to be carried out at the earliest opportunity. Expert determination and arbitration are effective methods of dispute resolution for developers.
Developers who prepare detailed specifications for tenders and employ an effective construction team will obtain the best service from contractors. Good relationships with contractors and repeat business will result in the best tender price. Contractors will compromise on disputes if there is the possibility of future work. Accepting a realistic quote, employing a good project manager and making stage payments when due will help keep costs within budget. Developers who accept the best tender rather than the least expensive quote maximise the prospect of delivering projects on time and at a price that matches their budget.
About the author
Elizabeth McLaughlin is a construction law solicitor, specialising in the House Builder and Renewable Energy sectors. She provides pro-active practical advice on dispute resolution, drafting building contracts and compliance with legislation. On crisp Sunday mornings, Elizabeth can be found in bright attire mountain biking on Edinburgh’s cycle paths.
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