BIMcrunch has become a platform for a plethora of elite industry names to become guest writers on the site and share their thoughts and opinions with the #GlobalBIMCrew. Today, Partner and 5D Quantity Surveyor at Mitchell Brandtman, David Mitchell returns to BIMcrunch.
Is it Time for Australian Contractors to Take on Extra Risk to Achieve a Better Margin?
Build Only Contracts continue to be the construction industry’s biggest deterrent to delivery of better and leaner buildings with greater certainty.
Owners expect that construction will cost more and take longer than promised because of design discrepancies and latent conditions. If this is true then there is an opportunity for builders to offer a higher price for a Warranted Lump Sum as an alternative to a hard dollar build only contract.
For builders this is a huge leap because they sit in a highly price competitive market and experience says – build only contracts are always decided on price.
Tradition dictates that resolution of design inconsistencies is not a reasonable risk for a builder to carry without novation of the designers but the establishment of BIM as a robust virtual design and construction (VDC) process means under-pricing of risk should be a thing of the past. Fast and reliable tools now exist for interrogation, validation and review of extensive design information. BIM provides the greatest level of certainty the industry has ever known and at all levels of design and construction. If adopted early and the entire supply chain is engaged it becomes the critical tool in managing risk and cost overruns during construction.
Yet, builders continue to offer the same marginalised product. As if it were an excuse – a recent Australian Construction Industry Forum (ACIF) framework document stated “Industry is but a servant of those who commission new assets or decide to refurbish existing ones. It will adopt new technology and systems when its clients demand them…”.
Warranted Lump Sum – Head Contractor Risk and Return
Just over a year ago, KPMG released its global survey on the construction industry and of the 165 senior executives personally interviewed for the survey, 77% reported underperforming projects due to delays, poor estimating processes and failed risk management as the key challenge for the sector.
We know that typically 83% of a contractor’s price is made up of the subcontracts. We also know that controlling time and cost will generate significant savings. Our goal as an industry must be to bring decisions forward and identify issues and clashes early in the process when the ability to change elements is high and the risk to the programme and to budgets is low.
BIM and the technology supporting every member in the supply chain have a direct impact on creating cost, design and time certainty. Poor risk estimation and management should be a thing of the past. Builders have a unique opportunity to take on known risk and push the project programme to ensure that visualisation technologies can create a virtual build and identify clashes and design changes much earlier and for much less than dealing with problems during construction where rework, delay and disruption explode costs.
From the development industry perspective this will generate significant project savings because a more certain industry means that the total funding required for any form of a development is reduced. Banks require a contingency for every development loan. A $100M apartment building typically requires an extra $8M in contingency and this translates into a need for an extra $1.6M – $2.4M in equity, depending on the risk profile, to make the project happen.
To continue reading the rest of this article, please visit the Mitchell Brandtman website by clicking here.
David Mitchell is a 5D Quantity Surveyor and Partner of Mitchell Brandtman. With 30 years of industry experience and a family background in construction consulting, David has a deep understanding of construction and development. David is passionate about people, open leadership, technology and the collective ability to create and shape opportunities for positive industry change through innovation. He is also Chair of Consult Australia’s BIM/IPD Steering Group and Board member for buildingSMART Australasia.