Horizon Habitats
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   Newsletters - January 2016

January Newsletter 2016

Welcome to this edition of What’s on the Horizon.

David Moses Managing Director
Building professionals
Happy New Year and welcome to our first newsletter for 2016. We continue to receive lots of positive feedback about our newsletter, with a variety of people finding the topics and information useful, relevant and interesting to them. If you are one of the kind people who has replied to them recently, we thank you for your comments and feedback.

Our newsletter audience ranges from building professionals - our staff, architects, designers, suppliers, tradesmen and contractors - to past, current and future clients as well as professionals in the industry like real estate agents, building managers and investors. As such, we will continue to cover a broad range of topics each month, most of which are gleaned from real life situations, which most of you can relate to in some manner.

Recently, at a family BBQ, the topic of so called “risky” Cost-Plus contracts was being discussed. My cousin called me over and asked me to share my professional opinion on how they work. The way the conversation progressed made me sure that many people just don’t understand how a Cost-Plus contract in construction works, and too easily believe what their friends tell them.

As I said to her, a Cost-Plus contact is in no way more risky than any other. Rather, it simply prices the financial risk differently and because of the structure of the contract, tends to focus more on partnering and collaboration with the client.

At Horizon, when we work on a Cost-Plus basis, every major trade or item has a scope document prepared and is then competitively quoted - usually from three suppliers or contractors; we then reconcile the tenders, making sure that everything that should be included, is included and nothing that should be excluded is in there either. We then make a recommendation to our client on grounds of time, cost and quality.

Ultimately they are in control to choose the best option - making the transaction totally transparent. The Cost-Plus contract is the most flexible way to build, as the client only pays for what gets done, and it allows for a fast start with early trades locked in, even if later trades are not yet detailed..

Essentially it’s more about the client being in control over what gets built, by who, and for how much; and having the flexibility to change the scope at any time to increase or decrease the budget and scope of the project at face value. Throughout the project, the client has the ability to drive savings and these savings are passed on directly to the client.

A cost-plus contract is not for everyone, and there are four golden rules to remember:
  1. Start with a realistic budget, try to anticipate everything that will be required, and have a corresponding allowance against each item, preferably based on fixed quotes from reputable sub-contractors
  2. Make sure that no contract is entered into on your behalf without your approval
  3. Update the budget often - at least every fortnight
  4. Choose the builder you can trust implicitly

On the flip side, a Fixed Price contract often appears to be the safer option, assuming there is an allowance for small changes. If you know exactly what you want built, with all the details scoped up front, and are disciplined not to make many changes throughout the job, the Fixed Price contract can be prepared right down to the selection of the bathroom taps. Changes, or variations however, are much more tedious and can slow the process down and more likely, will cost more to execute. Further, under this contract, if the builder secures a cheaper contract for a budgeted item, 100% of that saving is theirs.

One thing to always remember when comparing these contacts, is that every builder has their own method for presenting prices for trades and supplies, so at tender stage it is extremely difficult to compare apples with apples when you are comparing one builder’s Fixed Price quote with another. Thus it is difficult to know with certainty what is included, and more importantly what is excluded, even though there is usually a specification to refer to.

So the moral to the story, do your homework, work out which cost structure suits you best, properly understand the pros and cons of different contract styles, what all the inclusions, exclusions, rates and charges are, set a realistic budget, talk to a variety of builders and most importantly choose the company you trust, the one that has the relevant experience, a sound business foundation, has clear, proactive communication skills and mostly - shares the same values as you do.

Perhaps many of the people commenting that Cost-Plus contracts are “risky” simply need to manage their risk better with the decision on who their builder is, rather than worrying so much about the type of contract they are entering into? The who is definitely more important than the what and the how in that instance.

Building wisdom
"Price is what you pay; value is what you get." - Warren Buffett

Everyone has a different idea of value. It's one of the most misused terms in marketing. We all understand price - it is simply a number. Trying the assess the value of something is another thing all together. The real essence of value revolves around the trade-off between the benefits you receive from a product or service and the price you pay for it. With building projects, there are many variables to consider over and above price. And it’s best to be wary of the lowest price quoted, particularly if it is significantly lower than the others. No one wants to engage a builder with second rate skills and shoddy workmanship like laying marble tiles on a damp wall - where’s the value in that?
Building technology

Drones are not just for film crews or paparazzi anymore, they are an exciting tool to showcase buildings especially when it is a penthouse apartment eight floors above a busy Sydney street. Click on the image below for a teaser trailer from our recently completed Potts Point refurbishment project in collaboration with Ron Keir Design and Pia Francesca Design. Drone footage by Alphaflight Aero.

Building creativity

Ever thought about installing an outdoor shower in the garden? There are so many different ideas that can be incorporated into an aesthetically pleasing design. It's a practical addition if you frequent the beach - perfect for washing off the salt and sand when you get home or use it to wash off before or after a dip in a backyard chlorinated pool. It's a good idea to add a second lower tap for rinsing sandy feet and to give dogs a wash.

Building teamwork

This month we meet John Laba Site Foreman, who was our Employee of the Year in 2012.

John, when did you join the team?
I joined the Horizon team six years ago.
What do you enjoy about working at HH?
We build some of the most prestigious houses in Sydney; and I love the camaraderie between all the tradesmen onsite.

What does a typical work day involve for you?
My typical day consists of joking, laughing, and oh yeah..... working.

What’s some of your favourite jobs at work and why?
I love being able to solve problems and help others. Oh, and I love a Friday BBQ.

Where's home?  
Home for me will always be in the woods of Canada.

Do you have a nickname?  
The guys probably call me a few names that I can't mention here.

Your favourite sporting teams and why?  
I don't follow much sport. I'd rather play than watch.

Do you have a favourite movie?  
It would have to be "Usual Suspects" with Kevin Spacey or a classic like "Tommy Boy".

What are your favourite activities to do outside of work? 
I like going to the beach, secretly flying stunt kites, and a bit of gym work and running.

Three famous people you love to invite to a BBQ at your place?
Arnold Schwarzenegger, Cameron Diaz and Karl Pilkington.

What was the best news you ever received?
The best news I got recently was that I was getting tax money back.

If you weren't in the building industry, where would we find you?
I would probably try to be a chef, but in reality end up working at McDonald's.
Sum up Horizon Habitats in a word?

Building expertise

Our new Manly Residence II is under construction in collaboration with Popov Bass Architects and Partridge Structural. The project is providing us with lots of exciting challenges, the latest having to lift a dozen 600kg Vitrocsa sliding window panels into place. The job required two cranes, local traffic control, and a lot of planning and patience. After modifying our scaffold to create a large opening, we used crane A to lift crane B inside the building. Crane A then lifted each pane of glass from the truck to crane B mid-air, and then crane B positioned them into place. At the end of a long day, with all the panels installed safely in place, we lifted crane B back out again. Well done to the entire team lead by Site Manager Roy Degiglio and Senior Project Manager Oren Cohen on a magnificent job.
Building relationships

"When we decided on Horizon to do our extensive renovation, it was for two main reasons. Firstly, based on recommendations, we were confident we’d be in good hands in terms of quality. Secondly, when we first met the team, we sensed we’d be able to have an open and positive communication, something critically important. Excellent workmanship aside, this communication was the key to our very successful renovation. Throughout the project, no matter the question or concern, we were listened to and responded to right away". R & G Vaucluse

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