Who made me the expert?
I don’t profess to be the most qualified person to discuss this topic, but I am not the least qualified either. But having practiced as a typical Architect before donning the role of a builder, I have come across my fair share of absconding contractors and defective works. I have paid my tuition fees a few times over despite being an Architect in this industry.
With experience culled from both sides (architect and builder), this is my personal commentary on the goings-on within the building industry – especially the private home segment.
This piece is not a criticism, nor representative, of any profession, trade or practice. At best, it is an insight into the problems of the trade and why so many people appear to have the same issues with their contractors.
I would like to bargain down to reach my ideal strike price to build my house, so ’squeezing’ the builder is a right approach.
To better understand the building trade, it’s important to go right to the basics – to the contractors themselves and who they really are.
You see, most general contractors are ‘hard’ people. They grew up in hard territory, and must struggle to survive in a very competitive industry. Many contractors lack paper qualifications, and join the industry out of necessity. With time, they pick up the tools of the trade and learn from this ‘school of hard knocks’.
The perception of easy money in building persists even today, despite the very different realities of doing business. The past few years have seen hundreds if not thousands of contractors going bust, from public listed companies right down to the small guy in Geylang.
I hear this a lot from my clients, and from those who are not in the know. “How difficult can it be to get a few foreign workers, pay them minimal wages, lay a couple of bricks, then slap on the plaster and paint, and charge hundreds of thousands of dollars …”
In this regard, the impression of many home-owners and contractors converge – that tens of thousands of dollars can be saved or made through hard bargaining and/or maybe short-changing somebody somewhere down the construction value chain.
Bargaining down to a final price, particularly to a much lower figure, is surely one of the most compelling reasons to be short-changed during construction. I would vouch my last dollar that what you will save is not worth the long-term headache that you could be in for. There is just too much room in construction to trim that much money, and if you are not prepared to pay for it, then I would strongly suggest you don’t build your dream house. Time and again, we have seen this most unfortunate cycle keep replaying itself through ’newbie’ house owners building their houses for the first time. It is simply not worth the savings.
Apparently, some people have forgotten to do their sums. And I would like to go through the mathematics of the various trades here.
A typical house-building project involves more than 25 skilled people from the different trades. Some skilled building trades, because of their specialised nature, are sub-contracted out because it is much more cost-efficient to work with a separate specialist company than an in-house tradesmen.
Each trade will have its own overheads and business costs – such as salaries, office space and equipment rentals, utilities, booking-keeping and other operational expenses. Like all businesses, each trade works hard to turn in a profit at the end of the day.
Take this trade and its profit margin, and multiply it by 25 other trades. Next, add the main contractor and his estimated 10% margin to the equation, and you realise how the numbers add up.
But wait, don’t be too quick to zoom in on the main contractor’s profit. Keep in mind that he assumes overall responsibility for the various trades and undertakes the risks as well. The main contractor must supervise and coordinate, take care of cashflow and workflow, and handle wide-ranging myriad tasks spanning legal requirements to approvals from the authorities.
The 10% margin is really the professional fee paid to the main contractor for risk-taking, and as a business return. By all counts, this is hard-earned fee quite distinct from pure profit (defined as earning loads of money from doing very little). Given Singapore’s limited domestic market and intense competition, the margin has to remain low, or you are out of the game!
The Asian mentality of bargaining is not applicable in every situation – and certainly not in building.
In building construction, many corners can be cut without the home-owner’s or architect’s knowledge. And it can start from the top – from procurement right down to the way the details are constructed. Some details can be done cheaply, others luxuriously. At the end of the day, you get what you pay for.
If you think your contractor is going to cut corners whether you bargain or not, then you may have started with the wrong guy. I suggest that you take two steps back, shortlist only the contractors you are comfortable with – that is, people you trust and feel confident about – before you sign on the dotted line.
Be prudent. You are building a home for yourself and your family. Not only is it a financial decision, it is also an important emotional investment.
A 10% discount could mean rusty window rivets in two years’ time, leaking bathroom ceilings in three, and more trouble in the years ahead.
When a home-owner bargains, it is a top-down activity. He sees only the total final figure and believes it is reasonable to lop off something…let’s say 10%.
The home-owner has overlooked one crucial fact. The total cost is actually the sum of all the costs tabulated from the various trades. It includes the cost of small items from stainless steel screws and nails to labour and materials, and everything else required to build a house.
So a demand like “I want a 10% discount without changing anything in the specifications of the house” is an unreasonable one. Where would the reduction come from?
The main contractor has to maintain his margin, as does every party working on the project. The discount can only be realised if something is trimmed along the way. As a former Consulting Architect, I would say that in construction, there are many different ways to cut corners in order to reduce quotes.
And even with the best specifications in materials and methodology, and full-time day-to-day supervision, there is still the matter of dealing with individuals – who can be less than efficient, less competent or simply less trustworthy. And unfortunately in construction, this risk is always present, though finding the right partner to build your house can minimise – but not eradicate – the risk.
We are talking about your once-in-a-lifetime dream house.
Like it or not, you have a vested interest to ensure that your contractor does not lose money but that he makes money out of you. Think about it: This fundamental shift in mindset could save you a lot of pain and anguish.
Sometimes, in a bid to get a bargain, people forget that building a house is very different from going to Bangkok and bargaining your way down to the last baht!
Building a home is not as simple as select-collect-pay-and-go when you purchase an item from a shop-vendor. You must have a vested interest and total confidence in how well your contractor handles the whole building process. After all, you are putting him in charge of the cashflow and workflow. More importantly, you trust that he will deliver a quality home according to your specifications.
It’s important to check him out. Is he knowledgeable about the necessary legal procedures? Is he familiar with construction and maintenance? How quickly does he revert on your queries and complaints? How competent is he?
I prefer to appoint an independent architect – he will protect my interests.
Wrong.
Some home-owners believe that appointing an independent architect is the best way to protect their interests against unscrupulous contractors and non performance right down to the last details. They cannot be more wrong – and need to re-read the architect’s terms of appointment very thoroughly & carefully.
The terms of appointment will indicate that the architect’s major inspection is to satisfy statutory compliance, which is the visible and relatively easy part. He will largely rely on the building specification and documents to ensure that your house is constructed accordingly. Typically, he will inspect the site once every fortnight, or if you are lucky, maybe even once a week.
If you think that appointing an architect will sufficiently protect your interests, then why are there so many abandoned projects – which have architects to oversee them? At the end of the day, he is not responsible for the conduct of the contractor nor his attitude or financial stability. Even the best of bonds and written guarantees will not ensure trouble-free building.
There is very little an architect can do if the contractor runs away, files for bankruptcy mid-way through the project, or does a bad job. You may call for the bond, if he has one, or you may sue the contractor. In reality most contractors have been paid more than the cost of the project, so he is in a winning financial position.
Comment
The stick or the carrot? History has favoured the stick, but I think the carrot works better.
Instead of bargaining down, why not dangle a carrot? We do this in the workplace all the time. Think about performance bonuses and incentive rewards – and how companies use various methods to motivate their staff. When the employees work harder, they boost the bottomline.
>Why not try the same motivational techniques with your contractor?
In an industry where there are many punitive clauses aimed at the builder – such as ‘If you don’t finish by this date, a penalty of $x per day will be imposed’ or ‘If you fail, we will seize your bond’ – is it any wonder that a contractor may choose to run once he realises that he cannot finish the project?
I am not making excuses for the contractor, but his fault may lie in his lack of business acumen than the desire to cheat. He could have sent in such a low tender for the project that he has no margin for error. So when the cost of materials go up, or one of his sub-contractors fails him, he is left with nothing to overcome the hurdle. Rather than lose more money on the project, he cuts his losses and flees. You may wish to think twice, or three times, before you try to squeeze your contractor on the final quote.
In building construction, using motivational techniques can work wonders as we are dealing with people at every level. Whilst I cannot vouch for everyone, my experience with my sub-contractors tells me that when motivated, they will work much harder and pay closer attention to the details – over and above what is required of them. And in construction, we all know it’s the little things which counts, and which makes a house well-built!
You have already made the decision to invest in a new, perhaps once-in-a-lifetime house. Don’t you want to motivate someone to build that house? Favour the carrot … you’ll see what wonders it’ll do for your dream-house.
