Underquoting in the building industry – a common issue

The thought of building your dream home should not make you feel anxious, or fill your mind with images of Current Affairs cameramen and reporters chasing fraudulent builders. It’s sad, but unfortunately for a lot of people their biggest fear is whether they will get “ripped off” by builders.

In my 40 years experience as a Building Designer, a licensed Builder and now as General Manager of Bluegem Homes, I have seen many situations where both the client and/or the builder may have been “at fault”. Yes, there are builders out there who do take advantage of clients. We know that but thankfully, they are in the minority & they usually don’t last long in the industry before they move on.

In the majority of cases when things do invariably go wrong, the natural thing to do is to look for blame; … “My builder didn’t tell me I’d have to pay for this!!… He’s ripping me off!”.

From the builder’s side, you might hear; “The plans didn’t specify marble floor tiles, so how was I supposed to know the client wanted that level of finish??? Of course marble is going to cost more than ceramic tiles!”

Who is to blame for underquoting?

When you see and hear similar arguments from both sides time and time again, you then start to wonder whether it’s the building system we have inherited that could be at fault here.

A typical scenario goes as follows;

Mr & Mrs Smith want to build a house. They shop around to get plans drawn and they choose a local draftsman who works from home at night. He’s quick and he’s cheap! The plans are approved by Council so the owners start approaching builders to quote on their approved plans.

The builders look at the plans and realise there is very little detail describing finishes etc. As a result, when quoting on the work, the builders need to make quite a few assumptions and on occasions they need to guess what the owner’s expectations are. Generally, due to lack of available time, they will choose to “quote low” or “underquote” for the construction. Why??? They need to keep the quote low in order to give themselves a chance of winning the job. So, they may allow for smaller amounts of money (allowances) for their floor and wall finishes. Again, this is partly due to basic plans not detailing what the finishes are and lack of communication with the owners.

In using the previous example, the clients may have had high expectations of walking on a marble floor, but due to the lack of detail on the plans, the builders quote for a cheaper ceramic tiled floor. The clients still want the marble floor so the builders now charge the client an extra cost (variation) of say $20,000.

If the builders were to quote for an assumed higher level of finish prior to submitting their quote, they each run the risk of not only losing the tender to another builder who underquoted, but they also run the risk of wasting their time tendering as well. So, in my experience, the majority of builders (out of necessity) quote low in fear of losing the tender to another builder who underquoted.

Generally, the result of this tendering process is that the client ends up selecting a builder with the cheapest quote and the builder then commences the construction. What we then consistently see is a series of events that show up the current building system in NSW as being floored.

The clients are not experts in determining what should or shouldn’t be detailed in their documentation. Yes, there are basic, legal requirements for plans that are needed to obtain consent to build, but these requirements do not extend to specifying the client’s detailed expectations. Clients are not expected to understand what an electrical allowance of say $10,000 includes. Without this understanding, the construction can result in a variation (extra cost) by the builder due to the client asking for a finished product that exceeds what the builder has originally allowed for.

It may be a similar story for internal painting. The builder makes an allowance in his quote of say $25,000 for painting but after construction commences, the clients tell the builder they don’t want white walls in each room. They would actually like a different colour feature walls in all their rooms plus a higher grade paint. The builder calculates this “extra work” as a further $10,000. The client didn’t realise that the $25k wouldn’t meet their requirements and the builder didn’t know they wanted a higher level of finish so again, who/what is at fault here?

What the client sees is the final contract sum increasing on a regular basis (due to variations) to the point they have real concerns as to whether they can actually finish the project or not. Their expectations of the build were much higher than what the builder/s had anticipated and they now have to pay for variations that they can’t afford in order to have their expectations met. Invariably, their expectations compromised and they are disappointed in what is being delivered to them by the builder.

Do we blame the draftsman, owner, builder, council, the system or all of the above? Maybe each one has contributed to the problem but one thing is for certain, there are no winners in this scenario.

How to avoid or plan for the unexpected

Here at Bluegem Homes, I believe we have a relatively simple and practical process in place that will go a long way in avoiding these issues occurring. We believe that not only do our clients need to be protected against the practice of underquoting, but we as builders do also. As part of our essential standard service, we deliver an accurate set of documents, fully reflecting in detail the expectations of our client for not only their protection, but ours as well.

Let’s say as an example, our initial estimate to the client increased slightly which meant that the client’s budget also was exceeded slightly. Our inbuilt safety net gives our clients an opportunity to work with us to scale back the scope of works enough so that our final fixed construction price fits within their budget before contracts are signed. Our objective in this solution is to ensure we thoroughly understand what our client’s expectations are before contracts are signed. Our systems approach, which eliminates opportunities for underquoting and/or misunderstandings, forms part of our very own quality assurance program. This is a “win win” for both parties. The client will always know exactly what we will be building for them and what the cost will be for, right down to the colour of each wall, tile selections, tap selections and so on.

Part of our process includes the preparation of a Scope of Works which is a written document and is the result of detailed discussions with our client. This document along with the architectural plans, specifications, our free interior / exterior design package, external consultant’s plans etc. represent the client’s expectations and are clearly set out.

From the initial meeting with our client, our team, which is made up of estimators, builders and designers, work together to ensure that the Scope of Work fits within our client’s budget. Where we are unable to achieve this, we provide options for the client to assist them in making decisions as to what they can or can’t afford to include in the work.

Our systems approach ensures that after listening to our clients, their finished home has not only met their expectations, but exceeded them. We focus on giving our clients peace of mind by knowing that their quality home has been built on time and on budget – and without unscheduled appearances on Current Affairs!

If you have any questions please contact me direct: Jim Demetriou or call Bluegem Homes on (02) 9645 4340.