News
Price Estimation – Not Even Nostradamus Was Right 100% of the Time
As the Civil Project Partners Construction Materials Shopping Basket shows, price fluctuations in key materials are a clear pain point for the entire sector, as we deliver critical infrastructure to support Australia’s long-term economic growth and societal well-being. Projects priced and scheduled, often run the risk of a cost blowout if a core material’s price changes, and that’s before we examine the challenges of rising labour costs and an exceptionally competitive marketplace. So, with pipelines of work around Australia in the billions of dollars and a laser focus from the media on costs and price blowouts, often linked to a poor understanding of the sector’s operations, Civil Project Partner’s Ryan O’Neill shares his thoughts on what can be done to alleviate cost and schedule challenges.
“It’s a long-standing challenge for the industry,” said Ryan. “For a project, we may be planning, pricing and scheduling the project years before it may become a reality. A good example would be the redevelopment of the Gabba for the 2032 Olympic Games. The project is being priced almost a decade before it will be a reality for the people of Queensland, so it can only ever be a best-guess estimate based on the current market conditions and the long-term economic trends we believe will be a factor in the future. It’s kind of like trying to predict what a newborn baby will be like on their 10th birthday, you’ll have a good idea based on the information you have, but you’ll never be totally accurate because who knows what the decade ahead will bring.”
“For example, five years ago, not many people would have predicted COVID-19 or the global impacts it would have on materials, people, economies and our way of life. Then throw in a localised conflict that has global ramifications on everything from food supply to energy availability and not even Nostradamus could keep up. However, there are ways we can alleviate the challenges to give certainty to clients, contractors, the supply
chain and the public.”
Ryan’s key recommendations to ensure we can plan, procure and price projects are split across two key areas; Planning and Construction.
“We are an industry that thrives on certainty, and there are two key points I stress to our clients and partners. Firstly, establish a clear and transparent pipeline of major projects that enables the industry to have confidence in its investment in people, materials, technologies and capability and, at all costs, avoid a boom and bust pipeline. It is better for the sector to have a smaller pipeline with projects funded and approved than a more speculative pipeline filled with projects that never progress beyond ‘thought bubble’ status.”
“Secondly, make decisions quickly and stick to them unless there are major changes in circumstance. We can all think of projects from across Australia where work has commenced, and suddenly, funding changes because of a political squabble, and millions of dollars have been wasted. If the project restarts, the data used to price and plan it is out of date, the project is already making a significant loss, and the costs expended may never be recovered.”
“When it comes to construction, my advice is to prepare to be flexible, be collaborative and don’t be afraid to adjust thinking on the way. Early contractor involvement is a good way to alleviate challenges. It builds trust, creates strong relationships and means that the client and the contractor have skin in the game, so if costs and circumstances change, it is in all parties’ interest to resolve it through collaboration rather than adversarial action.”
“In addition, look at what can be done to utilise pre-fabricated techniques to pre-order elements with long lead times to save on production costs and risk. This isn’t viable for all projects, but as pre-fabricated technologies improve, so does the opportunity to use them creatively.”
“Also consider accepting fit for purpose, not perfection. For example, on a remote project using quarry materials, the nearest pit may not meet the prescribed specification but it is fit for purpose. Using the material will not dramatically change the project’s final construction, but it will be more cost-effective than hauling materials across vast distances and also supports a local supplier.”
“Ultimately, pricing, planning, and scheduling is a science, but it’s a science mixed with economics, societal changes, new methodologies, emerging technologies and more, so the end result is based on a level of confidence at a moment in time. When circumstances change, using some of the methodologies outlined, there is a greater chance of being as close to the predicted result as possible,” said Ryan.
To learn more about how we can support your next project from tender to completion, contact us.