Marriage, Not an Affair: Developers Rethink Builder Relationships

If you can’t be a builder, the next best thing is to have an excellent relationship with your builder. As insolvencies remain elevated and the industry braces for the latest construction price rises—quantity surveyors Slattery expects the conflict in the Middle East to add $50,000 to the price of a new home—how we build is increasingly under scrutiny. As a result, developers are starting to take a more holistic, “marriage not an affair” approach to builder relationships—a huge shift. One of these developers is specialist build-to-rent developer MODEL, who has recently signed an early contractor involvement (ECI) agreement with Tier 1 builder Multiplex for its first two projects at Abbotsford—including the 150-unit former Schweppes site redevelopment. Combined, they have a development value of $330 million. Trust was already in the room. MODEL founder and chief executive Rory Hunter says the partnership grew from existing relationships between his team and Multiplex. “I’ve said from the very beginning, we’re building a coalition of the willing. You’ve got to be working towards the same goals, and in the current market, managing risk and obtaining price certainty is the most important thing,” Hunter says. While it might not be everyone’s philosophy, more developers are taking up this relationship-focused mantle and seeing the financial benefit from it too. Building a coalition Multiplex and MODEL’s partnership comes after six months of collaboration before the ECI agreement was formalised. Hunter says the ECI approach “reflects a disciplined response to current market conditions” and that early alignment and delivery certainty are “critical” to managing cost volatility and protecting long-term asset value. “To continue the ‘marriage’ analogy, it takes time to get to know each other,” Hunter says. ECIs have traditionally been awarded on huge contracts and public or infrastructure contracts, but the case for ECI at all levels of development is growing. ▲ MODEL founder and chief executive Rory Hunter: We’re building a coalition of the willing. And this is especially so for more complex builds, such as MODEL’s Johnston Street plans, which would be Australia’s tallest timber residential building . “Historically, with the way building contracts were awarded, they come at the very end,” Hunter says. “And if you’re just building a box that’s been built a million times, then that’s fine. It’s effectively a commodity product. “But the sort of buildings that we’re designing and building have never been built before in Australia, and so you need to bring the builder in at the very beginning.” Multiplex regional managing director Ross Snowball says the ECI process had created the right conditions to optimise project delivery. ▲ A rendering of MODEL’s 240-home Johnston Street timber project. “ECI gives us the ability to properly influence outcomes early,” Snowball says. “We can test ideas, simplify systems and bring a more industrialised approach to delivery, using modularisation and a kit of parts mindset to drive efficiency, reduce waste and improve build quality.” Novus co-founder Jason Goldsworthy says the build-to-rent developer was founded on good relationships and a shallow pool of builders which are rolled through to each project. “And it is just critically important to have that sort of early involvement from them, drilling down into the nuts and bolts of the specific project risks and working through what is a fair and equitable risk profile for both the builder and for us. “We want a builder involved in progressing design documentation so that we’re continually designing to the budget.” For Goldsworthy, the results speak for themselves. “For our project in Melbourne, variations that you know that came up on that project that weren’t specifically developer-led were less than 1 per cent and that is because we had that involvement of the contractor,” he says. Open books, open relationships And it’s not just build-to-rent developers that are taking on the “marriage, not affair” philosophy. Sherpa Group chief executive Christie Leet said at The Urban Developer 's Brisbane Developer Outlook Lunch earlier this year that Sherpa has a long-term relationship with LPS Group in South-East Queensland. “We decided that building costs are building costs, so all we can do is react to that and we’ve decided to partner with a builder, we’ve made some vows and we’re completely transparent with each other,” he said. ▲ Novus co-founder Jason Goldsworthy: We want a builder involved in progressing design documentation. “You can only win by fingernails at the moment, and we don’t want an arm wrestle with our builders, that’s not got a place in our philosophy. “And I don’t think builders should wear the risk escalation either, I don’t think that’s right.” Covid, the Russia-Ukraine war and now the Iran conflict have forced developers to look at risk through a different lens. “From a builder’s perspective, they’re wearing real escalation risk in a fixed price contract,” Hunter says. “From a developer standpoint, the nightmare scenario is that your builder goes bankrupt, which has obviously happened. “So both parties need to be confident the project will be successful and that we’re managing risk sensibly.” ▲ Sherpa Group appointed LPS Group as its preferred construction partner. But a design and construct contract should be something that stays in a drawer and never comes out, Hunter says. “Too often, the developer/builder relationship is one that’s built on mistrust,” Hunter says. “But it should be about collaboration and problem solving as opposed to conflict and litigation. “If you’re aligned into partnership, you’re sharing risk and sharing the upsides, and you’re working together, then that starts from a place of trust.” Safe price over the cheapest price This also heralds a different approach to both builder and materials costs, where having a stable builder with the skills to deliver a specific project becomes more important than the cheapest tender bid. “That’s why we go with the T1 builder, because they can develop the depth of relationship and have that strength of balance sheet,” Hunter says. “When times are good, you might just go with the cheapest price, but when times are uncertain, you want to go with the safest price.” This is particularly the case for a more complex build like MODEL’s timber towers. “As a developer, you need to surround yourself with the best-in-class, and then that cascades down. “Tier 1 builders attract Tier 1 subbies, they’re going to have the right delivery team from the construction manager all the way down.” Whether the more collegiate approach to builders will become a standard, and even trickle further down the industry, is another question though. “We certainly wouldn’t go back, we see the value in it,” Hunter says. “But we’re also long-term business, we own these assets for multiple decades and we’ve got some really significant ambitions and have more projects coming through the pipeline. “The most important thing for us is that it’s not about the first project. That is a stepping stone to the next one and the next one, and having the right team around us is the key to achieving those ambitions.”

Marriage, Not an Affair: Developers Rethink Builder Relationships

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