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The Ripple Effect of Offsite Construction Components

August 1, 2017 0 Comments

As a standard practice, builders would apply margin to the total estimated cost of construction at the time of tender. This includes labour, materials, consultants, and other associated costs. The basis of builder margin is well understood in the construction industry and is often shown as a percentage and the corresponding value in the tender documents.

Bathroom PodHowever, offsite construction may affect this traditional method as the more the project is constructed offsite, the greater the chance of multi-layering builder margin problems may arise.

For instance, the manufacturer of a bathroom pod (a bathroom unit fully fitted and plumbed and delivered to the building site) will build around their margin. If the builder applies their margin on top of the margin of the bathroom pod price, this can lead to:

  1. The bathroom pod being subject to a double margin. This can be detrimental to the general cost and viability of the bathroom pod.
  2. Both the bathroom pod manufacturer and builder claiming entitlement to the margin that is attributed to the builder of the bathroom.

Other issues may also arise such as:

  1. The offsite manufacturer should be entitled to the builder margin attributable to producing the bathroom pod.
  2. The builder will retain coordination and installation roles, thus, a portion of margin commensurate is justified.
  3. The builder will assume the role of being the builder of record for the project and the first point of contact to call for defects or warranty claims.

To resolve these issues of multi-layering of margins and cost disadvantages, it may require a different approach that will unpack the builder’s margin into the components of work involved for an on-site build, adjust the work that is no longer involved, and recognition of any additional work that falls upon the builder because of the manufactured elements added to the project.

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