Survive the crisis: five top tactics for developers

 I believe the economic slowdown is not a bad thing at all, but a golden opportunity for Dubai to start anew. In order to survive these tough market conditions, I’ve listed five essential strategies that developers must adopt.

1. Pick the right contracting strategy

We need to go back to traditional procurement methods that have proven to be the most effective and risk free. Why do we rush to tender before we complete the design? To compile a tender package, we should at least complete the design development and have enough construction details to issue the tender package.

We should forget about (most of) what we know, and start thinking out of the box – we’ve been saying this for a while but no one does it. There has to be a different route of procurement, such as alliance contracting, which makes the relationship between the contractor and the employer stronger as one entity. With alliance contracting we can form a procurement committee that consists of representatives from both parties and they should work together towards developing and achieving a realistic budget.

2. Re-negotiate all existing contracts

With the dramatic drop of raw materials costs, fuel costs, and labour costs, all the old contracts must be re-negotiated with the current market value in mind. The way we should do this is to make an alliance with contractors and the consultants and get them involved in each step in the re-evaluation process.

3. Design to a budget

Most of the international consultants that have designed projects in Dubai have let go of the budget factor. Do all buildings have to be iconic and will this really help the industry? Agreed, the competition is tough in Dubai and one would want to stand out from the crowd, but budgets have to be kept in mind. Previously, many architects focused on the fanciest and most sophisticated designs which required the most expensive materials rather than focusing on the functionality of the building.

When it comes to products, most developers often get in their own way, sticking only to products they know. Yes, it’s risky experimenting with products, but if you want to achieve great designs, you need to try new concepts. The leap doesn’t even have to be significant.

4. Implementing cutting edge technology on projects

When it comes to technology, many developers and contractors think it is all about scheduling and project management software. Their spend on these items is next to zero compared to their revenue or portfolio of projects. It is about time to enhance your capabilities by investing in technology.

In most construction projects, an architect builds a three-dimensional model and then creates two-dimensional drawings for the general contractor and the dozens of subcontractors who are typically involved in a big commercial or residential job. But the process isn’t an exact science.

Errors often result in thousands of dollars being spent on change orders as the design is adjusted in the field. Problems can include things like duct-work running into sprinkler-systems and sprinkler-systems running into staircases. Companies should turn to Building Image Modeling (BIM) to create three-dimensional, computer-image models that factor in all kinds of potential construction conflicts. And despite the badly-slumping construction industry, you should invest in the technology.

5. Spend Analysis

Simplified, spend analysis is the systematic review of historical purchase data. The output of a spend analysis is a summary of purchases by many variables, such as category, supplier, and/or business unit. The primary reason for conducting a spend analysis is to identify opportunities for cost savings. When you look at the output of a spend analysis, there are at least four opportunities to save on costs:

a) Today’s educated purchasing professionals can apply best practices (eg. strategic sourcing) so that their companies minimise cost. Purchase decisions cannot be left up to non-purchasing professionals. So, identifying areas where purchasing should be more involved in getting contracts is an excellent strategy for cost savings.

b) There must always be a significant Purchase Price Variance (PPV) for a high-spend item or category. PPV is the difference between the average price paid and a standard cost. When there is a large PPV, this indicates one of two things: either your standard cost is not valid or you are paying too much. In the latter case, you should consider taking some type of action, such as negotiating or sourcing, to ensure that you are paying a fair price.

c) There are large numbers of suppliers for the money spent in that category. Purchasing 101: the more you buy from a single supplier, the better discount you’ll qualify for. If you’re buying from too many suppliers, you’re not leveraging your volume and therefore not maximising your discounts.

d) There are rising prices over time. If you’re paying more year after year, you simply need to pay more attention to the purchases in that category.

Construction week

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