The Year to be Resilient: 19 January 2024
Theme: PRODUCTIVITY — am I right or am I wrong?
I am posting this in response to Andrew Crosby‘s post: if a developer can’t make money, there is no work.
I’ve seen transparently through the entire process (idea to sale).
Coming from another industry has proven useful.
My next project has started and is feasible even in this market:
I am self-financing the build.
This eliminates finance compliance costs and the risk of penalties. It will save me approximately $100k for the 3-4 house project (at 7% internal cost).
Employing large contracts on labor only (plus an agreed profit payment) specifically excluding margins on materials.
Consider this illustration:
Major merchant quotes $500k for materials to the builder (they will have their margin plus sweeteners included for the customer).
The builder adds their 15% margin — now we have $575k.
The developer needs to show a profit so expects to add another 15% — now we have $661k.
A total of $161k in materials margin (excluding the merchant’s margin) — yeah, right!
Using a materials margin increment in a fragmented chain adds negative value.
It doesn’t motivate the team to value engineer, nor does it motivate to cost compare and drive material sourcing efficiency.
Agreeing to fix a margin then engineer for efficiency is a better approach.
Let us agree to an added 75k to the builder (this is their margin and we ‘fix’ it and pay it fortnightly to the builder).
The builder turns and works with the developer to optimize the materials costs. We could save this $75k. On my last project we saved $50k on a $400k materials bill (more than this when I found two QS errors worth $12k and $50k).
This means that the total $661k materials bill could actually be $575 k. The builder still gets their 75 . The total materials attributed cost (with the developers 15%) ends up being $85k less. This is of value.
How tosave $50k on a $380k merchant’s quote without too much effort?
Purchase selectively between suppliers — price matching. I paid 33% of the price of main merchant’s wall board joiners for Weathertex and got a best price match for the Weathertex itself.
Purchased doors directly from the door supplier (paid cash). I stood in their main office and they told me to go to a main merchant but I stood there and asked, ‘Why?’. With cash, they supplied me directly.
Adjusted some minor design aspects (that the builder came up with).
Purchased fixings from the importer at 50% of the price of buying from most main merchants (these options are available in Auckland).
What is it that I am missing? Yes, it is more work for me but I am reducing my risk and my sub-trades aren’t carrying material costs.
Reduce fragmentation. Work together.
