When we aim for the top, why do we shoot to hit the lowest price? You’ll find something better, in the middle…
Infrastructure Australia sees the light…
‘Cost will no longer be the determining factor as to whether construction companies win public contracts to deliver major infrastructure projects. The recommended approach would necessitate a shift away from delivering infrastructure for the lowest cost, and lead to a greater focus on value for money.’ [NZBE Link]
Why median real estate prices?
Looking at median prices helps a buyer make an educated decision on where and when to buy a house. Rising median prices indicate a seller’s market, while falling median prices indicate a buyer’s market. Real estate professionals refer to the median price rather than the average price because it is less affected by outliers or properties that skew the perceived values in a particular housing market. [NZBE Link]
Q. Is the same true for tender prices?
Q. If we select the highest price to win a tender, can we afford it?
Q. If we select the lowest price, what are we going to get?
There will be an answer, let it be… John Ruskin (1819-1900)
“It's unwise to pay too much, but it's worse to pay too little. When you pay too much, you lose a little money - that's all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot - it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.” [NZBE Link]
New Zealand Building Economist
That ‘something better’ John Ruskin talks about, isn’t too much, or the lowest price, and you will find it somewhere in the middle. See you there.
Taking the Middle Road
How do we transition to the 'median tender price' that strikes a balance between value for money and sustainability? Precision pricing will narrow the spread of tender prices and bring you closer to the middle. Fully completed, coordinated detailed design specifications for a fully defined design brief and a common measure for every tenderer to base their price on, and a schedule of quantities. All completed prior to market pricing.
“Celebrating 50 years of New Zealand Building Economist 1972 to 2021”
By Matthew Ensoll
Life Member NZIQS. Reg.QS.
Editor New Zealand Building Economist.