Winning Construction Tenders in Australia

In its May 2023 forecast report, the Australian Construction Industry Report stated the construction industry in Australia is expected to contract by 2.6% in real terms this year, following a marginal annual growth of 0.6% in 2022.

Not exactly good news for 2023.

However, the industry does look stronger for 2024 – 2027, expecting to record an average annual growth of 3.1%, supported by the government’s continued focus on infrastructure development. The Albanese government released its federal budget for FY2022-23 in late October 2022.

The budget includes an allocation of AUD9.6 billion for vital infrastructure projects across the country, over the next four years, with over AUD120 billion allocated for transport infrastructure projects over the next 10 years. In another positive development, the Department of Industry, Science, Energy and Resources unveiled its ‘Resources and Energy Major Projects – 2022‘ report in December 2022.

But Clients – in particular, Government Clients – are concerned about the key industry challenges being faced by the construction sector. And you should be too – by addressing these challenges in your construction tender response!

3 key challenges for the Australian construction industry

To recognise your tender evaluators’ risks and issues, it is important to understand the major challenges in the construction industry. From here, your bid team can devise a strategic road map in your tender response to manage every challenge.

So, what are the key industry challenges to be aware of when bidding for construction industry tenders in 2023?

Elevated inflation –

Rising inflation leads to increased costs of labour, raw materials, and transportation, which directly affects construction project budgets and profitability. As construction companies grapple with higher expenses, they face challenges in maintaining project schedules and margins. Moreover, inflationary pressures can deter investment in new construction projects, causing a slowdown in industry growth.

To mitigate the impact of rising inflation, construction companies will need to carefully convey in their tenders how they will manage their costs, seek cost-saving measures, and negotiate contracts with suppliers and subcontractors to navigate the challenging economic environment.

Rising interest rates –

Rising interest rates are significantly impacting the construction industry in Australia. As interest rates increase, borrowing costs for construction companies rise, affecting their ability to secure financing for projects. The increased cost of borrowing can also affect the profitability of construction projects, as higher interest expenses cut into profit margins.

Construction companies will need to adapt, by re-evaluating their financial strategies, negotiate favourable loan terms, and carefully manage their budgets to navigate the impact of rising interest rates.

Soaring construction costs –

The increased costs of materials, labour, and equipment are putting immense pressure on project budgets, causing delays, and constraining profit margins for construction companies. This trend is driven by factors such as global supply chain disruptions, increased demand for construction materials, and rising wages in the industry.

To navigate this situation, construction companies will need to carefully manage costs, explore alternative materials, and seek innovative solutions to maintain profitability and deliver projects within budget.

These recent challenges have evolved how construction tender evaluators approach construction tender responses.

How do you win construction tenders in Australia?

1. Minimise your client’s construction risks

In construction industry tenders, here are the most common risks that you should thoroughly address in your tender responses:

Construction methodology risk: How has your company learnt from recent projects to minimise schedule delays and rectification work through continuously improved construction processes? How effective is your company’s mobilisation and transition process?

Construction solution risk: How has your company learnt from recent projects to continually minimise the risk of defective materials? How has your construction team worked with designers to ensure constructability issues are resolved before the designer signs off on the design? How has your construction team continuously improved how it performance-manages your company’s subcontractors?

Construction project risk: How does your company continuously improve its performance to schedule and budget? Is your company sufficiently insured against workforce shortages?

Company risk: How has your company taken accountability for distressed projects and used its own funds to fix the elements of the projects that were in your company’s control? How well funded is your company to take on the financial load of the proposed project throughout the project lifecycle?

Construction cultural risk: How similar is “the way we do construction around here” to how your client likes construction projects to be done?

2. Get the basics right

Your company still needs to fully address the basics of construction tenders.

A defendable (justifiable) price – is the first of the basics to get right. In your tender response, you’ll want to explain how your company’s pricing model reduces variations risk and increases your Client’s budget certainty.

Minimise your legal departures – If you submit a minimised number of legal departures on your Client’s proposed contract, this reduces your Client’s legal risk.

Every time your company proposes a legal departure, your Client has to re-evaluate its legal risk if it contracts with your company. If the overall risks of your proposal are more than the benefits of your pricing, this will be a significant disadvantage for your company in terms of winning the tender.

If you do need to include a legal departure from the tender – what should you do? Read our blog – What are your options when changing the tender terms and conditions?

Look at your SWEQD – Safety, Well-being (mental and physical), Environment, Quality and Diversity. You’ll want to include good, recent statistics on all these aspects that can be independently verified if your client’s evaluators require them.

Adding any awards, formal accreditations (for example, ISO accreditations) and client testimonials about SWEQD will generally improve the overall evaluation score of your tender response.

Get your Stakeholder Management right: most – if not all – construction projects significantly disrupt local precinct users, businesses and residents.

You’ll want to give relevant, recent examples of how you’ve both minimised disruption and maximised stakeholder engagement to ensure you maximised stakeholder satisfaction with the construction project.

Get your relationship risk right: how well do your client’s decision-makers know your company?

Your client’s decision-makers are usually not the tender evaluators (who are key recommenders). The decision-makers are those who are ultimately accountable for the success (ie. revenue and/ or profit; user satisfaction) of the construction project.

If your Client’s decision-makers don’t know your company’s executives, project directors, construction teams and so forth, then your relationship risk will be regarded by evaluators as higher.

3. Get the team right with your client

A regular focus for evaluators of construction tenders is working out if bidders are guaranteeing the people proposed for the construction team.

Bidders are naturally reticent to do this, but if your Client’s decision-makers like the people you are proposing for your construction team, they’ll want a guarantee from you that those people will be available.

This is understandable because the years of experience and formal credentials of the people in construction teams affect the level of construction risk: more experience (as long as it’s relevant) and more credentials (again, if relevant) mean less construction risk for your Client.

So, a key tip is to ensure your company’s presentation team to your Client’s evaluators will be available in your construction team if your company wins the contract.

Now, ‘being available’ doesn’t necessarily mean ‘for 100% of the project’. Some key personnel only need to be available for a particular phase of a construction project. And some key personnel will be available to provide advice to the construction team at any time during a construction project, but won’t necessarily have to be on-site.

Ensure that you’ve clearly explained this to your Client’s evaluators, both in the tender response document and the presentation that will follow (if your company is short-listed).

Read how our Tender Evaluation consultant helped an underdog win 7 out of 7 construction tenders on offer with a Queensland State Government.

Like any industry, winning more construction tenders needs a specific approach that addresses both the formally-stated requirements in your Client’s tender documents as well as the particular challenges and risks of the construction industry.

If you need help addressing these Client evaluator risks, ask our Tender Evaluation consultants to draft a strategy for your bid team to follow – it makes it so much easier upfront, to ensure you have covered all risks with a practical, strategic, evidence-based solution before you have put pen to paper!