10 Nov 2020

Construction firms engaging in low-ball bidding to secure contracts

7:09 am on 10 November 2020

Struggling construction firms are reverting to low-ball bidding in an attempt to get contracts as the pandemic recedes, according to a new survey.

construction worker on construction site

Photo: 123rf.com

Business advisory firm BDO found most contractor margins are down between one and four percentage points, while more than half of subcontractors reported margin cuts by five to ten points.

One in 10 subcontractors reported their margins had fallen by more than 10 points.

The report also indicated two-thirds of respondents had projects delayed or cancelled because of the pandemic, with ongoing uncertainty about the future weighing heavily on the sector.

BDO construction sector advisory partner James MacQueen said the re-emergence of race-to-the-bottom bidding was a worrying sign for the industry.

"It creates an expectation amongst clients that prices are dropping, which means everyone is then competing on the same basis and it doesn't take too long for some in the industry [that] can't pay their bills anymore, collapse and [they are] at risk of taking more people with them."

MacQueen said firms needed to avoid indulging in low-ball bidding and there was also an onus on clients to leave enough of a margin for the builder to finish the job without risk of collapse.

The biggest concern for the sector in the wake of Covid-19 was the uncertainty of future work.

MacQueen said as a result firms did not have the confidence to go out and hire new staff, cut staff, invest or ride the disruption caused by Covid-19 out.

"However, by no means is it all doom and gloom for the sector. Due to the strong performance of the sector prior to Covid-19, most companies still have strong cash positions, with 85 percent of respondents able to pay their creditors within contractual timeframes."

Businesses had been improving their management systems but there was still room for improvement.

"A lot of the products out there have some pretty cool functions in terms of improving productivity through the better use of technology and that's through building information management (BIM) through to the project management systems."

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