The Lifetime Cost of Ownership

Attention Asset Owners & Developers – it is time to really consider the Lifetime Cost of Ownership of your project.

My budget is actually 25% less than your quote
We have no room to move, it’s all about price this time unfortunately
I know you quoted at tender stage, but our estimators got it wrong for this trade

Sounds familiar?

All too familiar for those of us serving the tiers 2 and 3 construction companies that could well be building your next asset.

It might seem obvious to point up, however the winning tenderer today is often the construction company that has made the biggest costing mistakes in their attempt to compete.

The fact that this is driving a culture of corner-cutting and product substitution with “equivalents” to recover margins or come back from losses, is something that doesn’t get a lot of air time.

In the case of most “cheaper equivalent” product and service providers, an AS/NZS standards compliance certificate is easily produced and never challenged even when the shortcomings are blindingly obvious.

The flipside to all this, is that the best product and service providers to the construction industry are often lightly passed off as overpriced.

The flow-on effects of under par materials or trades are not ultimately felt by the builder, who can use a 120+ page contract to transfer risk and manage errant contractors.

Once DLP is over, the subsequent product failures are worn by the Asset Owners – ultimately the same group that accepted the lowest bid in the first place.

And so the cycle completes a full turn, and the final result is back squarely on your plate. Workmanship and products that make up your asset may last two or three years, but can rapidly decline after that.

A solution?

Asset owners need to understand the cycle of events set out above and run a tendering process that focuses less on contract price, and more on sustainability and asset lifetime.

Consider running your tendering process with your ultimate end game in mind – what are the lifetime costs of ownership?

Collaborate more with the tenderers, and understand the knock on effects of a pressurized, ultra-competitive tendering process.  

An attractive price now very likely means hidden maintenance and replacement costs later on…we all know it.

We need YOU to lead the change and break the cycle.