Why the “tender system” doesn’t work with high end residential building?

The tender system is traditionally used by architects to get the lowest possible price for building your new home or renovation.  However, it does so whilst almost completely ignoring the other three important criteria for selecting the best builder for your project – reputation, experience and relationships.

It is human nature to want the lowest price for any significant purchase, but unfortunately, the cheapest quote may end up costing you a lot more money and stress in the long run.  If you have a complex legal problem or a life changing court case, would you shop around town for the cheapest lawyer?

It will take between one and two years to design and build a new house and the relationship you have with the builder is hugely important to the end result and your enjoyment and peace of mind during and after the build.

Yet, with the tender system for quoting and awarding building jobs, there is no contact between you and the builder and no chance of establishing any sort of personal relationship.

The competitive tender system ends up pulling you and the builder in different directions.  You want the best quality home and the most enjoyable experience, but the builder can only win the job by cutting their price to the bone.  The lowest quote has often left something out or missed a specific item that you are unaware of until it is too late, then you and the builder end up in a world of pain.

To keep a building quote as low as possible, a builder often needs to reduce or under quote the prime cost allowances or provisional sums and then tries to make up extra margin during the job by re-negotiating these allowances or by loading up any building variations.

Builders do not usually get paid for preparing a tender.  It takes three or four weeks and at least 30 to 40 hours of unpaid work to prepare and submit a tender and this is unheard of in any other profession.  To streamline this process and minimize their cost, the builder must estimate some of the pricing and use software programs to perform take offs and quantities, none of which is very accurate.

I agree that a builder’s pricing must be competitive and in line with other specialist builders.  So, I recommend and personally use a much better system called a negotiated tender.  This is a fully transparent system where you select a builder based on their reputation and experience and establish a close working relationship right from the start of the design process.  This way you, the builder and the architect can all work together as a team to ensure the best possible outcome and a thoroughly enjoyable experience along the way.


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