With the construction industry continuing to face headwinds in a highly competitive environment, and with many of the largest construction companies in financial trouble, companies need to up their game in terms of pricing – both in order to get work but also to ensure that contracts are profitable. This is particularly true for the smaller construction companies, says Phumzile Ngcobo, Education and Training Manager at Master Builders Association (MBA) North.
“One could argue that tough times offer an opportunity for well-run, ambitious companies to steal a march on competitors, but the danger is always that they take on work on the wrong terms just to get the job,” she says. “Many of the junior construction companies lack the knowledge to price their quotes properly, and how to plan their cash flows over the course of the contract. Knowing how to do so is literally the difference between a profitable, stable company and one that is heading for business rescue itself.”
She says contractors must try to overcome these challenges. Members of the construction industry need the know-how to quote correctly and to ensure that the work they do is profitable.
Eric Ohemeng, who helps develop course material and facilitates courses MBA North, says that construction is a complex industry and it’s vital that anyone involved in it has a clear understanding how it works in order to ensure that he or she is able to realise a fair return. Ohemeng is a PhD student in Civil Engineering Science at the University of Johannesburg and has extensive experience in the industry.
“Everything begins with architectural plans. Contractors need to know how to read the plan in order to extract detailed information about the various activities with which they will be involved. They are then able to make the first, vital calculation relating the quantity of work they will need to execute during the contract period,” he says.
Thereafter, the contractor can use the measurements to begin the process of calculating costs, including labour, materials, plant and preliminaries like water or toilet facilities on site.
Armed with this kind of information, the contractor is now in a position to engage with the bill of quantities produced by the project’s quantity surveyor. Critically, it is now possible to collaborate with the quantity surveyor to refine the bill of quantities’ assumptions in line with the contractor’s own figures. For example, the quantity surveyor hired by the contractor may assume a bricklayer lays 450 bricks a day, whereas the contractor knows that his bricklayers lay 400. Without this collaborative effort, contractors can find themselves facing a built-in disadvantage.
“Another area that can be optimised by pricing correctly is finance. If a contractor understands both the costs and how the payments work, he is in a position to understand the impact of cash flow on profitability and is thus able to optimise how he finances the work – so many contractors end up paying for finance they don’t need or find themselves in a cash flow crunch during the project,” Ohemeng explains.
“This knowledge also empowers the contractor to take strategic decisions such as whether to employ more workers to complete an activity more quickly than envisaged in the bill of quantities in order to realise payments quicker if it makes financial sense to do so. This course has the potential to change the dynamics of the construction industry by empowering everybody in it.”
To help the industry overcome these challenges, the MBA North has developed a two-day course aimed at providing all members of the construction industry with the know-how to quote correctly, and to ensure that the work they do is profitable, she says.
Ngcobo says the Pricing for Profit course has been designed to be highly practical, providing attendees with the opportunity to use actual examples to put the theory into practice. For more information, contact MBA North at 011 805 6611.
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