The constructive approach

The last few years can hardly be said to have been a bountiful period for general contractors working in the industrial and logistics construction sector. The market has been rather volatile, to say the least. It has either been too hot, as it was during the pandemic, when contractors struggled with rising material prices and labour shortages, or it’s been too cool - as it is now, as the number of orders falls off. Today, unlike during the post-pandemic boom, developers are having to watch every penny and this is hurting contractors’ earnings. In a sense, contractors and developers are both in the same economic boat, but the situation for contractors is far more difficult. The larger players, who have their own materials factories, construction teams and lease their own machinery, are especially having to contend with higher fixed costs. “Investors are being selective over new projects and are holding back on some of them; but when contractors are not building, they face considerable difficulties in balancing their costs, especially when it comes to HR, equipment and other running payments,” explains Bartosz Michalski, the technical development director for Central Europe at Segro. The industry has always had to work with small margins, but last year these were reduced to being merely symbolic and were only affordable for those contractors who had managed to build up a financial cushion in more prosperous times. “The prices offered for construction projects have decreased significantly since 2022, and this has led to a significant drop in the prices of most building materials as well as a reduction in general contractors’ margins,” admits Łukasz Kozerski, the chief operating officer of Harden Construction.

Financial stability

The natural conclusion from this might be that the current fierce competition between contractors has created the ideal situation for developers, who should now be able to benefit from favourable pricing when it comes to tenders. However, this is not entirely the case, as developers have learnt the lessons of previous years and are now more averse to squeezing general contractors into a price trap so that they can avoid contracting the kind of cowboys who are prepared to take on any commission whether or not it means incurring big losses. “Sometimes the bidding is simply too aggressive, as we can see from assessing the potential risk of having to deal with problems later on during the work,” points out Marcin Czerniewski, the development manager at Prologis.

The bankruptcy of the general contractor during the construction phase and its consequences are the stuff of every developer’s nightmare. “We are also concerned about the post-construction service, since the long-term security of the project is very important,” emphasises Bartosz Michalski of Segro. It should, therefore, come as no surprise that the first thing a developer checks when choosing a contractor is its financial standing. “It’s a huge risk for us if their standing is already in question due to other projects and them having other problems from the outset,” explains Bartosz Michalski. This is a view echoed by Marcin Czerniewski of Prologis: “The important thing is not for us to be happy with the outcome of a tender – if this then means arguing for months at construction meetings or even ending up in court,” he stresses.

For these reasons, the offers themselves need to be critically evaluated. Not only should the values of the different bids be compared, but the breakdown of the costs detailed by the contractors for particular aspects of work needs to be examined. “We look at every cost individually – and if a bid differs significantly from the others, then the alarm bells start ringing,” adds Marcin Czerniewski. It is rarely beneficial to neglect costing bids, so when doubts arise over the figures provided by general contractors, developers should naturally ask additional questions. “On more than one occasion we have given them the opportunity to revise their bids in the light of something that has been overlooked. If at the selection stage and during the contract signing we accept a bid that has not been fully costed out, it could also prove to be very damaging to us,” argues Bartosz Michalski.

Broadly confident

Confidence is crucial, not only for the general contractor but also for the subcontractors they employ. “It’s not only the logo on the flag of the building site that’s important. We also need to know who the subcontractors are going to be for a given task. We have to check whether this company has worked with them before and if has good relations with other construction companies,” insists Marcin Czerniewski. If a general contractor is working with subcontractors they know and with whom they have worked before on other projects, they are awarded higher marks in the eyes of the investor’s tender committee as well as additional marks if the investor has also had a positive previous experience of this subcontractor. The crucial factor is financial stability. If this is not in place, the same alarm bells go off. “If a subcontractor offers a price that’s unrealistically low, there must be something behind it and it would be better not to work with them. There’s too much risk that the company won’t be able to finish the work on schedule and won’t pay other subcontractors or suppliers. We don’t need this kind of problem,” argues Łukasz Kozerski. For Harden, relying on a diverse range of subcontractors is one way of mitigating this risk. “We don’t make ourselves dependent on one or two or even three subcontractors. Of course, having a large portfolio of potential partners requires a lot more work from us and larger construction teams, but this is how we limit the risk,” explains Paweł Fiuczek, the managing director of Harden Construction.

Flexibility expected

Keeping the ordering party happy is all-important for developers and they expect the same approach – putting themselves in their client’s shoes – from their subcontractors “It’s crucial to understand that changes to a project are inevitable during this process and can’t be avoided,” points out Marek Dobrzycki, the managing director of Panattoni Europe. This, however, could become an area of potential conflict, since a general contractor or subcontractor can demand higher pay for any extra work and it certainly requires changes to the schedule. Such demands, though often justified, are rarely well received by the developer or the final customer, so a general contractor who wants a long-term business relationship should not use changes to a project as a pretext to demand more pay for the work.

Elementary communication

Relations between a general contractor and a developer often involve the drinking of substantial amounts of coffee together as well as hours spent together in conference rooms and in the temporary freight containers on the building site. “The five parties who get together every week are the architect, the general contractor, the building supervisor, the tenant and the developer. A general contractor needs to know how to navigate such a situation,” explains Marcin Czerniewski. This is why general contractors cannot just be experts at laying concrete but also need to possess so-called ‘soft skills’. “They need not only to be able to talk to developers, but also to support them in their relations with tenants,” adds Marcin Czerniewski.

Any doubts need to be aired at the time when the specifications of the project have been established, because not formulating them precisely is only going to lead to misunderstandings on the building site. “We ask a lot of questions at the tender stage and this limits the risk for both us and the investor when the project is under construction. The more we know at the tender preparation stage, the better we are able to make all the calculations and choose the resources we need for a given project,” explains Paweł Fiuczek.

Deep technical expertise

A general contractor, above all, should bring its technical knowledge and experience to a project and thus guarantee high-quality work. But a contractor can also help in the choice of, for example, ESG solutions, or propose other approaches to value engineering. “We all know that investors work on a limited budget and that they are often unable to increase this for a given project. So, when costs rise due to changes in the project, optimal solutions need to be adopted that achieve the final price expected by the investor without compromising the quality,” says Paweł Fiuczek.

Experience is not only helpful here but also previous work with the developer. “A contractor who has built for us before and is given the opportunity to build for us again works twice as hard. They strive only to deliver a concrete project but also not to let us down in terms of the trust we have placed in them and to win further orders,” insists Bartosz Michalski.

Knowing the market well

The preparation of a bid by a general contractor is dependent not only on its knowledge of the current market but also on its ability to predict the trends. “The basis of a good valuation is good research, which involves literally every aspect of the work being thoroughly calculated. We do this using our own system. We know the subcontractor and the supplier markets well as well as the prices, and we keep up to date about this. This allows us to realistically calculate the level of a bid that it is too risky to go below,” explains Łukasz Kozerski. Such knowledge also comes from talking to many subcontractors and suppliers, who are often invited to put a value on a tender for an investor, “We try to involve subcontractors, designers and construction teams as early as the tender stage. As a result, we never encounter situations where there is no huge discrepancy between the bid that has been accepted by an investor and the budget, and so even the tightest of budgets will be enough for the work,” says Paweł Fiuczek.

Model punctuality

It is an unforgivable sin and the living nightmare of every developer when the development of a project is delayed. “We develop logistics facilities and everything has to be planned down to the day and the hour. For example, in the case of the automated machinery for a manufacturing centre, the conveyor belt deadlines are very tight, but we often have to wait a year for such machinery. If we fail to deliver the building on time, the assembly of the entire production line will also be delayed and then the next possible delivery time might be in half a year. So it’s not the case that when a building is late by ten days that the production is delayed by the same amount. It could, for example, be ten months,” explains Marek Dobrzycki. Every tiny delay hurts the image of the developer, even when it’s clearly the general contractor or one of its subcontractors that is at fault. “Clients come back to us because we deliver what was agreed on time,” adds Marek Dobrzycki. This pressure is passed on to the general contractor. “We prepare for the construction by planning the work and drawing up schedules for purchasing the construction materials and the services. During the construction phase we stick to the schedule, while all the time holding coordination meetings with the subcontractors and supervising the work,” reveals Sandra Wróblewska, the senior business development manager of Kajima Poland. However, there are almost always delays to subscale schedules when the general contractor tries to make up time to meet the agreed-upon stages or the final deadline. If it succeeds, no one will even remember these minor changes. “We minimise this risk by appointing enough personnel for each development and give them a specific scope of operations and responsibilities from the start of the project,” explains Sandra Wróblewska.

Karma is a …

It’s worth remembering that every sensible developer and subcontractor realises that the market goes up and down in a kind of sine wave, and so taking just advantage of the current state of the market can be strategically short-sighted. “Sometimes it’s a developer’s market and at others it’s a general contractor’s. So we should treat it all the time as a partnership, because the way we behave today will come back to us with our developments in the future,” concludes Marek Dobrzycki.