As a Builder You can Avoid Cost Blow-outs and Lower Your Operational Costs Through the C2C System™ Program.
C2C Accredited Builders lower their operational costs, delivering an estimated 5% saving in business cost, whilst delivering their clients better outcomes in terms of price and effectiveness.
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The residential building industry is made up of a range of disconnected parties working under cumbersome, inefficient and ineffective procedures and systems. This leads to miscommunication, frustration and conflicts between parties; in particular between the licensed builder and their customers.
The industry is racked with problems such as:
- Time overruns;
- Cost blow outs;
- High variation loadings;
- End cost exceeding funding availability;
- A standard one size fits all contract method that simply doesn’t suit most projects.
These problems affect builders, designers, trades and suppliers, customers and financial institutions.
Of all the parties involved in a project, the party that carries the greatest risk for all is that of the builder.
The vast bulk of domestic construction carried out in Australia is undertaken by small to medium builders operating under tight margins and restrictive finance and asset commitment. Why? Traditional contracting methods require infrequent progress payments to be channelled through builders.
80-90% of the progress payments are related to project costs to other parties, being the trades and suppliers working for the builder. The builder has to manage large amounts of funds, requiring the builder to set aside secured assets to support this method, as well as carrying the cost of directly financing the project until progress payments are received.
The C2C System breaks down that requirement by integrating legislation-compliant ‘construction management’ contracting.
C2C System Accredited Builders move from a traditional lump sum contract with the above constraints into a fully legislation-compliant construction management contract. This enables direct payment to individual parties and removes the traditional builder as the funds conduit. It also creates a knock-on effect to trades and suppliers as they await payments from builders. This is a significant game changer for builders and the industry.
Lump sum contracts are now a thing of the past!
In addition, the industry’s Net Tangible Asset Legislation requires builders to set aside, solely for security purposes, high levels of assets based on a percentage of the total build costs. This creates further strains on builders and makes it virtually impossible for new builders to enter the industry.
Example of Financial Requirements Facing Builders
(Estimates prepared by BDO Accountants)
The C2C System resolves many of the above issues.
Under the C2C System Construction Management Contracts, legislation allows the value of assets to be held as security to be based on the C2C Certified Builders Professional Services Fee (construction management fee) rather than total project costs, thereby:
- freeing up very significant assets;
- improving cash flow;
- reducing risk exposure;
- reducing bank overdrafts;
- providing extra resources to fund new projects. Reducing the gearing of the business in turn enables assets to be used for business expansion or other projects.
Why are Builders becoming C2C Accredited and using the System?
Major cost advantages and productivity benefits Builders enjoy include:
- Greater chance of winning jobs based on Construction Management Contracts providing a Guaranteed Maximum Price (GMP) portion;
- Improved cash flow – the C2C contract is based on weekly cash flow to all parties by direct deposit;
- No account exposure – the payment chain is directly between the home owner and each service provider, with builder accounts avoided;
- Lower net tangible asset (NTA) requirement, resulting in lower asset tie up for the builder’s AATO (Allowable Annual Turnover) requirement. According to legislation, in the case of CM Contracts, the AATO is based on fees rather than the total project construction cost;
- Lower overdraft requirement, releasing further assets;
- Lower debt to equity ratio, with assets becoming available for business expansion or other projects;
- Tax benefits including payroll, GST, capital gains advantages;
- More secure profit – the fact that the set fee is paid regularly and is fixed gives builder the security that a standard contracting method struggles to deliver;
- Higher net profit turns the business into a professional service;
- BSA compliant contracting method – avoiding practice of builders desperate to improve their cash flow resorting to non-compliant “cost plus” contracts.
The From Concept2Completion way of doing business enables Accredited Builders to be professional service providers. The Builders use construction management contracting and pay for their network of C2C System Accredited Building Designers to carry out services they would normally have to undertake themselves. This approach has been proven to lift Builders net profit margin from a 3-5% to a 30% plus in some cases.
C2C Accredited Builders pay a small fee to C2C System Certified designer/architects(s) to carry out the services. For this fee, Certified Builders are delivered contracts from C2C System Certified Designers greatly reducing sales and marketing requirements. The builder then uses the C2C system Construction Management Contract and associated C2C methods built into the system, placing emphasis on skills of supervision and organisation.
This new role:
- enables builders to avoid acting as de-facto banks,
- reduces the cost of tendering,
- achieves higher contract conversions,
- increases profits,
- reduces risk, and most importantly…
- creates more satisfied home owners.
As a Certified Builders you will have 24/7 access to the entire C2C System. This allows you access to best practice systems and tools at no cost. Fees will only be paid on successful contract conversion (3.5% of total project cost). This fee is transparent to the Home Owner and is contained within the contract.
It makes complete sense.
The residential building industry is a conservative one, with many of the older builders unwilling to change or adopt new technologies or new work practices, despite tight margins and high risks. Are you one of them? Or do you represent the new generation of builders? Get certified today and transform the way you do business.
The C2C System incorporates a unique BSA compliant construction management (CM) contracting, delivering greater control over project costs. Software systems allow for the home owner’s budget to be incorporated from initial concept sketches through to final working drawings, then having the project built for a set fee. The C2C System provides considerable relief to builders by reducing their exposure to high levels of debt and dangerously low margins, as well as through increased client satisfaction.