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Who absorbs material cost increases?

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1 hour ago, PeterW said:


Yes - it’s why cost plus contracts can be good. 

 

I'd say no. Nobody wants to share upside ever, for anyone doing estimating that's their assumed budget if they get a better price that is kept in their pocket. That's why things are normally fixed price. Also anyone on a cost plus contract is not incentivised to reduce costs whatsoever. 

 

1 hour ago, SteamyTea said:

I am sure that the large construction companies are not too bothered by the recent price volatility, they will concentrate their resources to the most viable projects and mothball the least profitable.

I'd disagree they are.  Everything is also programme driven, so if you need it now you need it regardless of the costs. A lot of major construction contracts run on cost plus contracts but they can be incentivised to reduce costs. You just can't price major construction projects.  

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10 hours ago, SteamyTea said:

It is fair to assume that builders have already put a mark up on materials, it is why they have trade accounts a merchants.

If they don't know what is happening in the industry regarding prices, they are not good business people, and are best avoided. 

May seem harsh, but if they come back and ask for more after agreeing a price, they don't know what they are doing. We have had a good 12 months to understand the affects of COVID-19 (clue is in the 19) and 5 years to plan for BREXIT.

 

If a quote seems low, there will be a reason, and not a good reason.

If it is high, it is more likely the builder knows what they are doing.

I don't agree at all.

1. Inflation. When tendering you have to guess what will happen in between 6 months and 2+ years,  or agree a formula.  Who's risk?

2. We, the industry have no control of covid or brexit, while those that do talk positively  but fail to prepare.

3.  An expert in competition with a non expert can be half the price or twice the price, due to this expertise.  How the client can tell is only by reference or trust. Choosing mid price, because it is mid price,  is often weak and wrong.

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Clients often want the contractor to take all the negative risks, then renegotiate when things turn out ok.

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14 hours ago, SteamyTea said:

It is the whole issue .... but my point is that professionals in the trades should have costed this in....

 

Then builders  ... should have ... been able to guess when the rises were to be due? 

 

To make a cooking analogy (dubious idea, but lets try)....  : the price of cooking oil goes up because of lack of supply. Because the supply issue  depends in part  on the availability of HGV drivers - and cooks know this, then cooks should put up their prices in anticipation..... ? Really?

 

Logical Fallacy: worth reading about.

 

 

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Posted (edited)
21 minutes ago, ToughButterCup said:

To make a cooking analogy (dubious idea, but lets try)....  : the price of cooking oil goes up because of lack of supply. Because the supply issue  depends in part  on the availability of HGV drivers - and cooks know this, then cooks should put up their prices in anticipation..... ? Really

We put up our prices before the headlines started (some of us remember the late 1970s).  We anticipated three things.  General price increases, increased footfall and lack of supply (we knew that as our suppliers warned us a year ago).  We also reduced our menu options and allowed for more flexibility.

So if a relatively small cafe (in the scheme of things, though it is large for the area) can cope, and we have coped (two all time record breaking weeks at both the places I work), then I fail to see how other professions cannot have done the same.

There is a difference between being proactive and reactive.

21 minutes ago, ToughButterCup said:

Logical Fallacy: worth reading about.

That seems to be my criticism of the building industry, along with being too reactive.  If one enters into a project during times of turmoil, then plan for the worse and hope for the best, and have access to cash at all times.

As Jack pointed out at the beginning, and Ferdinand restated, get the contract right at the start, not hope to change it halfway though.  If the builder is not willing to work on a firm price, then they are not the builder you want.  If you cannot afford the price, or the extended time to finish the project, then reassess the project.

I think the real problem is that there is too much emotional investment in our homes, this clouds judgement way too much and we expect the trades to have the same enthusiasm for the project.  Now that is a logical fallacy.

Edited by SteamyTea

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OK, one last try .... in your sector,  you anticipated the cost increases, and adjusted your prices accordingly. Excellent. Well done.

 

The fallacy to which I had hoped I was pointing is that price changes in one sector (yours for example) don't necessarily mean that changes should be made in another sector.  

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Posted (edited)
32 minutes ago, SteamyTea said:

I think the real problem is that there is too much emotional investment in our homes, this clouds judgement way too much and we expect the trades to have the same enthusiasm for the project.  Now that is a logical fallacy.

200%
 

 

32 minutes ago, SteamyTea said:

If the builder is not willing to work on a firm price, then they are not the builder you want.

Not necessarily. If the builder / contractor delivers a pragmatic agreement that means they can complete on good time, using quality products and retain time for a quality fit and finish, then they are definitely the right person afaic. 

32 minutes ago, SteamyTea said:

If you cannot afford the price, or the extended time to finish the project, then reassess the project.

If you cannot afford the price, then the journey ends there. Go get a QS and a reality check. 
By the time it comes to reassessing, the average client is balls-deep and past the point of no return. Often the man left standing becomes a punchbag, and the focus of the anxieties and frustrations that follow. Add to that, a diminishing profit margin ( at the expense of this thread ) and it’s game over for everyone. 
 

The point had been made, but I often think it’s the contractor that should properly protect themselves against the client at least in equal quantities. It’s usually the clients first and last significant project, but the contractors profession which they undertake full time. Who should be worried about who in that scenario?

Edited by Nickfromwales

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12 minutes ago, ToughButterCup said:

The fallacy to which I had hoped I was pointing is that price changes in one sector (yours for example) don't necessarily mean that changes should be made in another sector.  

They do, in a general sense.

If I sell a family a meal for £100, that is £100 less they have to spend on 'other things'.  Those other things may be the same thing I spend on, or may not.

We are currently awash with cash because of low interest rates, QE and the furlough scheme.  Inflation is, or more likely stagflation, is probably going to happen, what we are currently seeing may be the start of this, something that we have not seen for 2 decades.  My point is, both customers and supplier should be aware of this and not let it become a shock.  We want to avoid a dead cat bounce, which may be what is currently happening.

 

On Nick's point about customers being in too deep (for some reason I cannot quote).  How much of this is to do with the knowledge imbalance between the lay person (the customer) and the professional.  This is one area where we need to educate the general public to not trust a contractor to do as they say, at the price they agree upon.

We really need a new topic on this and point all new, hopeful, self builders to it.  May save them thousands.

As a friend of mine once said, 'don't do something if you are no good at it'.

 

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5 hours ago, SteamyTea said:

. . .  This is one area where we need to educate the general public to not trust a contractor to do as they say, at the price they agree upon.. .

 

We do often suggest folk do their Due Diligence....

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I spilt small increases but sadly I have watertight clauses now to cover bigger rises in costs. Travis Perkins called on a Thursday to say Mondays delivery of timber had gone up from £3.2k to £4K- “...but it’s ok if you don’t want it because we can place it elsewhere”.

 

I just can’t lose £800 like that- when you consider I’d probably costed that timber at £2900 during the pricing stage. 
 

things like osb are out of control.

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