Part One of the article (Check These Helpful Tips On How To Build Your House In Zimbabwe!) focused on construction professionals, materials as well as contractor pricing strategies.
Part Two of the article (Factors Affecting The Cost Of Building or Construction in Zimbabwe) seeks to interrogate in depth the contractor pricing strategies, procurement process as well as the legislative constraints in construction.
Contractor Pricing Strategies: The construction industry may choose to use one of the following four methods when coming up with a pricing strategy, as alluded to in the last article, the construction client should not simply accept the Bill of Quantities, but should discuss and find out how the final figure was reached.
The contractor’s pricing strategy has a direct effect on the cost of construction.
1. Cost Based: Cost estimate plus variable mark-up, is the most common of the six strategies, here the contractor comes up with the total amount of material and adds labour which normally is calculated as 35 percent of the total price of material. The mark up values vary from contractor to contractor taking into consideration market conditions. It is well within the construction client’s rights to engage the contractor regarding the mark-up value.
2. Market-Based: This relates to a construction firm’s perception of the “going price” of a project considering the general level of competition. However, in a saturated industry like this one, market distortions are rampant. This is by far the most unsteady pricing strategy to use considering the volatile economic climate, and an ever changing construction landscape.
This pricing strategy is suited for developed construction industries who are “open” enough to allow old and new entrants to openly price their products and participate without hiding.
For the construction client it is rather difficult to get a straight forward market based price.
3. Historical Price Based: Construction companies also employ historic pricing methods, where the contractor uses a bid price for a similar project and adjusts the pricing for effects of time, location, current economic conditions, and variations in material.
This strategy is quite reliable but needs a contractor or construction personnel that have an ear on the ground with regards to changing market conditions. If a contractor built a four-roomed house in January 2020 and gets another job in December 2020, historic pricing does apply of course taking into cognisance the changes in market conditions.
4. Sub-Contractors’ Bids Based: If a contractor can guarantee the quality and integrity of his sub-contractors, and the ability to adhere to schedule and stay within estimates, sub-contractor bids may constitute a huge proportion of the prime contractor’s bid price.
In this case, the contractor may treat these bids as a cost to him and upon which to base his mark-up. Hillebrandt emphasises that the more work a contractor sub-contracts to others the lower will be his risk and thus the lower the potential mark-up on the total value of the job.
1. Cost Based: Cost estimate plus variable mark-up, is the most common of the six strategies, here the contractor comes up with the total amount of material and adds labour which normally is calculated as 35 percent of the total price of material. The mark up values vary from contractor to contractor taking into consideration market conditions. It is well within the construction client’s rights to engage the contractor regarding the mark-up value.
2. Market-Based: This relates to a construction firm’s perception of the “going price” of a project considering the general level of competition. However, in a saturated industry like this one, market distortions are rampant. This is by far the most unsteady pricing strategy to use considering the volatile economic climate, and an ever changing construction landscape.
This pricing strategy is suited for developed construction industries who are “open” enough to allow old and new entrants to openly price their products and participate without hiding.
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| Factors Affecting The Cost Of Building or Construction in Zimbabwe |
3. Historical Price Based: Construction companies also employ historic pricing methods, where the contractor uses a bid price for a similar project and adjusts the pricing for effects of time, location, current economic conditions, and variations in material.
This strategy is quite reliable but needs a contractor or construction personnel that have an ear on the ground with regards to changing market conditions. If a contractor built a four-roomed house in January 2020 and gets another job in December 2020, historic pricing does apply of course taking into cognisance the changes in market conditions.
4. Sub-Contractors’ Bids Based: If a contractor can guarantee the quality and integrity of his sub-contractors, and the ability to adhere to schedule and stay within estimates, sub-contractor bids may constitute a huge proportion of the prime contractor’s bid price.
In this case, the contractor may treat these bids as a cost to him and upon which to base his mark-up. Hillebrandt emphasises that the more work a contractor sub-contracts to others the lower will be his risk and thus the lower the potential mark-up on the total value of the job.
The Method of Procurement: Hackett describes procurement as the process of obtaining goods and services from another for some consideration.
There are various means by which buildings may be procured depending on the client’s priorities, the three most common approaches are:
1. Traditional Procurement: This is where a client appoints consultants to produce the design, select the contractor and supervise the work through to completion. The contractor is usually selected on some basis of competition. The traditional procurement route prioritises quality aspects of the project and is also effective in delivering economic designs on most projects. The chief drawback of the approach is the extended project duration due to the need to complete the design prior to tender.
2. Design and Build Procurement: This is where the contractor provides the design and construction under one contract normally referred to as turnkey projects and many public private partnership developments are examples of this approach. Design and build offers the construction client competitively priced projects completed within rapid time frames by enabling the contractor to value manage the client’s requirements and overlap design and construction operations.
3. Management Procurement: This is where the contractor works alongside or within the design team providing a construction management service. The management contractor does not undertake either the design or the direct construction work. The physical construction is carried out by specialist sub-contractors (package contractors).
There are two main forms of this approach: Management Contracting where the contractor employs the sub-contractors and Construction Management where the sub-contractors are employed directly by the client and the project is managed by the construction manager – there is no actual “main” contractor.
Management procurement routes are associated with fast moving, complex construction projects. The early appointment of a manager within the design team allows the design and construction operations to be fast-tracked while also ensuring that the required quality standards are delivered.
1. Traditional Procurement: This is where a client appoints consultants to produce the design, select the contractor and supervise the work through to completion. The contractor is usually selected on some basis of competition. The traditional procurement route prioritises quality aspects of the project and is also effective in delivering economic designs on most projects. The chief drawback of the approach is the extended project duration due to the need to complete the design prior to tender.
2. Design and Build Procurement: This is where the contractor provides the design and construction under one contract normally referred to as turnkey projects and many public private partnership developments are examples of this approach. Design and build offers the construction client competitively priced projects completed within rapid time frames by enabling the contractor to value manage the client’s requirements and overlap design and construction operations.
3. Management Procurement: This is where the contractor works alongside or within the design team providing a construction management service. The management contractor does not undertake either the design or the direct construction work. The physical construction is carried out by specialist sub-contractors (package contractors).
There are two main forms of this approach: Management Contracting where the contractor employs the sub-contractors and Construction Management where the sub-contractors are employed directly by the client and the project is managed by the construction manager – there is no actual “main” contractor.
Management procurement routes are associated with fast moving, complex construction projects. The early appointment of a manager within the design team allows the design and construction operations to be fast-tracked while also ensuring that the required quality standards are delivered.
These projects, however, tend to be expensive.
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