Achieving maximum savings in Building projects sourcing

Achieving maximum savings in building projects sourcing

The construction process includes a number of components that don’t come cheap.

In theory, we can take a nine-storey block of 32, two & three bedroom apartments that is pretty common in the urban set-up and analyze the related costs in percentages:

Professional fees (architects, engineers, surveyors, etc ) –  10%

Building Labour (fundis) – 20%

Material costs (materials, transport) – 70%

Any developer wants to end up with the best designs and highest quality materials, at the lowest possible cost and hence have to explore all possible avenues to save on costs.

This cost concern often runs into the quality of work and materials used. The result is the most frustrating – rampant collapsing buildings, poor designs and lack of aesthetics (comes with failure to engage professional designers and architects), lack of customers or lower rate per square meter for rental properties), very expensive and frequent repair work, and many more. It beats logic to take a shortcut in the professional fees or the labour cost. This is because a compromise on these can be too costly and also because the two account for a smaller proportion of the cost, compared to the materials.

Some of the tactics to ensure that the developer gets maximum value for each buck spent on the lower supply chain – which is the highest cost component in the building project – include but are not limited to:

1. In-depth knowledge and constant research of sources of materials

While this could be quite a challenge for new players in this industry, there exist global sourcing companies in the field of building that are well informed on companies worldwide that supply quality and authentic materials at relatively low costs. In addition, global sourcing companies have the muscle to invest in continuous search for sources to always get higher quality at lower cost both locally and worldwide and hence they can always offer a better deal in sourcing.

2. Thorough awareness of materials in the market

While each client has very specific needs and varying taste, different types of the same material are available to meet these needs. The prices also vary with each type of the material and only well informed consultants are able to advise on these variances. Case in point – the cost of doors in the nine story block of 2 and 3br bedroom apartments mentioned above could be in the tune of 9,000,000 million shillings inclusive of the cost of the doors painting, architrave and frame. 450 such doors are required for such a project. The type of door used is the solid core flush door. For the same quality, aesthetics, security, and size, a client can get semi-solid flush doors for 6,750,000 shillings which comes complete with the architrave and lamination hence requires no paint. This means that in only the doors component a client was able to save 2,250,000 shillings. Replicate the same for all materials required to finish the project and your savings are super impressive! The only thing is to engage knowledgeable teams in case you are not in tune with materials available in the market and their quality. In this game, knowledge is definitely power.

3. Tactically working around and understanding tax laws that affect real estate industry

Taxation, especially in importation is usually a huge blow on anybody sourcing materials globally. An understanding on how to navigate through the taxation system of a country without breaking the law would be an Aaron’s rod.  This comes first with understand of the law. For example – all materials imported into Kenya for the purpose of building educational facilities or resorts that boost tourism were VAT exempt up until 2013.  Nobody informs you this when in the process of importing and only your knowledge can save you.  Assuming the building materials being shipped in for the purpose of building an institution of higher learning are worth 100 million, automatically 16 million goes to project savings. There are a number of tax laws, trade agreements and tax exemptions that a building project procurement consultant can work around to save some money. Evading tax is bad move and would not be advisable. Knowing tax laws and various trade agreements, would serve you better.

4. Efficient logistics – shipping and land transport

The cost of shipping or land transport is majorly influenced by the volume and weight of shipment and distance/routing. It is not advisable to do small shipments of materials and for land transport it is essential to utilize backhaul if the vehicles on transit are not hired. For starters it would be good to engage individuals or companies that do frequent shipping so as to take advantage of their agreements with the shipping line such as volume or frequency discounts.  In addition they are able to aggregate your order with those of other clients so as to do one large – often cheaper – shipment. A good routing system too can come in handy

5. Timing of Materials

Warehousing is a cost ignored by most material providers and even clients since it’s usually not a huge percentage of the total cost. However, it is important to seize every opportunity to reallocate finances to a value additional part of the building process.  This can be achieved through just-in-time delivery of materials that eliminates – though not completely- the need to store materials.

Another way in which timing of materials can influence the cost of the project would be delay. You have all your ‘fundis’ in place for a normal day at work and you realize that the tiles to be installed have not yet arrived at the site. The fact that you will pay the workers for reporting to work, but doing nothing, goes without saying.  Depending also on the agreements a contractor may have with the client, any cost that comes with the ultimate delay of project completion, such as rent refunds and compensation to tenants who would have wanted space in the building, may be footed by either the contractor or the client. Early purchase planning is very crucial. Outsourcing the function to a company or individual dealing solely with sourcing would also help in keeping all things on schedule. You can ride on their knowledge, skill and experience.