Challenging market conditions, soaring costs of labour materials and resourcing issues have prompted Port Macquarie-Hastings Council (PMHC) to change the way it does business with potential suppliers and contractors.
Current market conditions are having a big impact on Council's ability to procure qualified contractors in order to deliver much needed projects.
Adding to these procurement pressures is the high demand on contractors who are still completing projects which were halted or suspended during COVID-19 - and the ongoing repairs to assets which were damaged during multiple flood events in 2021 and 2022.
It means many contractors are not taking on new work as they focus on delivering a backlog of work.
Businesses are also concerned about risk exposure - due to price inflation, extended lead-in times, and disruption caused by material shortages. This is particularly the case in regards to steel and timber, as well as some electrical products.
Port Macquarie Hastings Council Group Manager, Procurement Inez Young says despite having more projects on offer and therefore more tenders to be awarded – less applications are being submitted.
"Uncertainty around the cost and supply of materials means contractors are more risk averse. Suppliers aren't offering the same guarantees and projects are harder to budget as the forecast around pricing is ambiguous."
"The impact this has on tenders is clear in the numbers. We have seen a huge increase in projects that are being quoted far above what they have cost in the past. Projects that would have been budgeted at $90k 12 months ago are being quoted at over 300k."
Coupled with internal challenges due to influenza, COVID and a pre-existing staff shortage - PMHC have had to adapt their tender process to ensure projects can still be delivered.
"It's about finding the balance between the risk for our business, what works for the contractors – and the best result for the community."
PMHC has made the following adjustments to their process to engage contractors:
- Exploring buying big ticket items independently, to take the burden off contractors
- Allowing quarterly price adjustments in new contracts, in circumstances which would usually be a fixed for the term of the contract, in order to reduce risk for the contractor
- Accepting requests to allow increases outside of CPI where the business can demonstrate genuine price escalation
- Undertaking more preferred contractor arrangements and less panel arrangements, to ensure efficiency
- Listening to the market and undertaking more in-depth consultation on quotes to understand where inflation has occurred and why
- Investigating insurance requirements to understand where flexibility can be implemented
- Accommodating requests to hold tender pricing for no more than 60 to 90 days rather than the 120 days which was council standard.
Group Managing Director of Eire Constructions Tadhg Kelliher says these changes by the Council have been welcomed by contractors.
"Natural disasters and COVID, combined with huge government investment in infrastructure have created a perfect storm for the construction industry. It's effecting our ability to get materials on the ground. These projects need to go ahead, so we are looking for alternative methods and products - which is cost prohibitive as they are more expensive."
"We are needing to build healthy contingencies into our quotes to allow for rising material costs and longer lead times. We also need to limit our tender validity period as suppliers will only hold the price for 30 days, as opposed to the standard 120 days."
"I know PMHC are working to protect contractors from cost increases - I definitely think it's the fairest way to go into the future. We can see Council is trying to be flexible and listen to the industry and we do appreciate this."
