"Risks associated with home building"
Building entails multiple value chains of work. One value chain is made up of a main contractor, main sub-contractor, other trade sub-contractor, sub-sub trade sub-contractor, work team leader, and actual workers. Because control becomes diluted by the number and length of these value chains, the home-owner faces a higher risk of an inferior end product.
The modern business guru may dictate privatisation for cost efficiency and quality – that is, works should be sub-contracted. In fact, many main contractors in the house building segment don’t even have their own workers because everything – from supervisors to foreign workers and tradesmen – is sub-contracted out. This is a very lean, cost-effective, and short-term way to survive in a very small domestic market like Singapore. But for the home-owner, it is the highest type of risk profile you can possibly face.
The extended value chain in a sub-contracting position most often means that the lowest rung in the chain gets the smallest worm, at possibly the lowest price. When the specific work done by the sub-contractor is completed, quite often he will ask for full payment because that is the deal – low price, but 100 per cent payment upon completion. So if a problem does arise, he will demand additional money to fix it. More often than not, the main contractor will refuse to fork out the extra cash because he needs to protect his own margin. The result? – the home-owner gets stuck with poor finishing and even worse accountability.
In our experience in housing construction, sub-contracting is often the biggest reason for quality-related risks. This situation is often unavoidable because it is not practical for one building firm to be an expert in everything throughout the value chain. Aluminium works for example, require space, capital investment and technical knowledge; plumbing, electrical and tiling works require knowledge and skill for proper completion.
By selecting the correct builder, many of the risks associated with sub-contracting can be reduced.
If a company has a critical mass of projects, it can form dedicated work teams specialising in the full range of sub-trades. Each multi-skilled team is then trained to achieve the company’s benchmarked level of quality and consistency.
With in-house teams, should post-construction problems arise, the same team will be responsible for reviewing and rectifying them. Their individual knowledge and experience grow, there is accountability, and the home-owner is assured of a quality product.
A good construction company updates and documents its experiences and learnings from every project so that it is constantly evolving. This push to raise the bar on professionalism must come from the top, and usually comprises five steps:
Procurement as a point of control
Documentation for future reference
Inspection for verification
Testing for efficacy, and if despite all that is undertaken, and things still fail, then
Proper rectification as proof of responsibility.
Unfortunately, very few construction companies show such dedication these days. As an industry, there is little incentive to improve – competition is stiff, margins are down, and it is tempting to cut corners to boost earnings.
Unlike other industries such as transport, where over-competition is frowned upon by the authorities as it results in deteriorating quality, construction does not have such safe-guards for the public. Home-owners are often the losers if they choose the wrong builders.
Over the years, many ‘contact’ agents in search of ‘real’ builders have approached us. They include property agents, contractors, sweet talkers, estate/project managers and renovation contractors. In the private, landed property segment, some of these agents are seeking commissions of up to 40 per cent, though the average hovers around 10 per cent.
Are there such margins in home building? Yes, if you get unscrupulous builders, where an aluminium system can differ in price by 250 per cent! If price is a major criterion in your quest for a new home, we’d suggest you re-consider – because there are too many unknowns, especially those you cannot see or have no knowledge of. For example, how do you tell if the person you are liasing with is a real builder? He may speak the same lingo because he’s had years of practice…as a middleman, with no real or practical knowledge of what is needed to build a quality home.
At Meridian Homes®, we work directly with the home-owner/decision maker. By removing the invisible layer of intermediaries or sub-contractors, we are also drastically reducing the risk of problems. Additionally, you get industry-leading specifications, end product and decent workmanship.
