Some building material costs have risen over 80% in the last 18 months. This increase can represent the difference between you making a healthy profit and no profit at all!
So, how do you protect your business from the rising cost of materials?
Understand your options
If you have a solicitor that has helped you with setting up your contracts in the past, now is the time to go back to them and have your standard contract reviewed and get advice on how you can protect yourself from any further prime costs increases.
If you are a member of the HIA or Master Builders QLD, please reach out to their legal teams and ask for assistance with your contracts, to ensure you are as protected as you can be.
Finally, if you are engaged in a domestic building contract and have a dispute around rising material costs, the QBCC has setup the Accelerated Builder / Consumer Dispute Framework, where you can get help mediating with your client. This can be used for any contract entered into after July 2021.
Deal with delays properly
As you are no doubt aware, the last 2 years of lockdowns have limited the number of workers on-site, seen entire teams of workers on quarantine, and generally caused delays in every aspect of building. Combine this with the weather events we have recently seen, and you can see why most builders and Tradies are suffering significant delays in their projects.
Despite the delays, builders and subcontractors must act reasonably and diligently to undertake the works, and notify the client proactively through an Extension of Time if they forsee being delayed.
Most contracts allow for delays and provide processes that should be followed for notifying relevant parties. Typically, the builder or subcontractor must give a Notice of Extension of Time, and a Notice of Delay. They should be presented within a reasonable timeframe. The key here is to be proactive, if you see a delay coming be up-front about it straight away.
Issue variations where you can
With a sharp increase in material costs, there may be some scope within the contract to issue a variation for the increase. This comes back to point 1, review your current contract with a solicitor and make sure to understand what avenues you have to issue variations on your project.
Use provisional sums
Use provisional sums or prime costs where appropriate. Unfortunately there are only limited scenarios where you can use these. The challenge here is that the bank (or financing institution) needs to accept your contract, and most of the time they are looking for absolute certainty in pricing to protect their own interests.
Join a buying group
Through the power of group buying, members are able to purchase materials at much more competitive rates. Prices in the market are based largely on volume, not loyalty.
Here are a few trade buying groups you can try:
Trade Alliance Group: #Tradies Buying Group | TAG (Trade Alliance Group)
Trade Alliance Group (TAG) is a buying group formed by Kev Crowther in 2000. As a registered builder Kev’s goal was to help other small builders and tradies purchase their building materials and other services at much more competitive prices than they could on their own.
Trade Builders Buying Group: Trade Builders Buying Group – Building the Trade – construction group buying queensland
One of Southeast Queensland’s largest buying groups for the construction industry, Trade Builders Buying Group has been operating since 2000.
Since 2000 they have grown in membership and supplier participation with over 1000 builder / contractor members and over 120 supplier arrangements.
Platinum Builders Buying Group: New Home Page – Builders Buying Group – Building Materials – Platinum Builders Group (platbuild.com.au)
The Platinum Builders Group combines the purchasing power of many independently owned builders in Australia and negotiates group deals with suppliers on behalf of our members.
A builders buying group is essentially an outsourced procurement department. They find the best suppliers, negotiate the most competitive prices and maintain the highest levels of service. Saving their members time and money by giving them the ability to purchase building supplies for less.
Asset Builders Buying Group: Buying Group — Asset Builders
Asset Builders works with 600 independent builders, across three states. They use this leverage to negotiate deals with over 170 suppliers. From footings to flashings and everything in between, they’ve got you covered. It’s not rocket science – their members expect three things:
Professional & Timely Service
Quality Products
The Right Price
They partner with quality suppliers who have the power to deliver on all three.
Use good quality software
To manage variations, provisional sums, and contract invoicing, it is definitely worthwhile investing in the right tradie software or construction software for your business. Software that can take from takeoff, through quoting, RFQs, tendering and invoicing/retentions can be a big time-saver, as well as helping you get all of your info in one place. This makes it easier to deal with rising material costs in the right way.
Summary
Above we have summarised some of the things you can do to protect yourself against rising costs and material delays. The key takeaway here is to review the contract you have in place or are using as a standard, and get very clear on what options you have inside that contract. Also consider engaging with a solicitor to see what you can do to strengthen your protection. Find and use a buying group if you’re not already, they get better prices and better service. Get good tradie software or construction software in place, and setup correctly.
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