How Does the Tier System Work?
A tier system exists within many industries and is a way to rate the size, quality, accreditation, etc.
The building industry deals with banks and developers who rate businesses, plus we have our own Building Tier System that is based on turnover. The challenge is both the Systems have a Tier 1, 2 & 3 and there are some similarities at the top levels, In a broad-brush description, the business tier deals with who is financing the project and the building Tier system deals with how much turn over the building company smashes out over a year turnover on an average. The turn over of a building company (Building Tier) has a direct reflection on the amount of staff and capabilities and size.
In Australia – from a building perspective, we often have dealings with banks and financial institutions plus we deal with recruiters and other building industry people. I think the confusion is created as two systems can get blurred sometimes depending on who you are talking to. It has always struck me as interesting as the definitions are similar but most people you talk to seem to merge the description of both systems.
But if you remember that banks and big developers use a “Business Systems” and recruiters and the general building industry use the “Building Tier System”.
THE BANKING TIER SYSTEM
The banking system rates business on capital and the business’ reliance on lending organizations, or under a corporate umbrella. This has changed a lot in recent years as most businesses have some type of dependency on banks.
The Tier 1 Business is a corporate giant that has little to no requirement for banks in the fact they use their own capital.
Tier 2 is a layer below, however, has some dependency on banks or an umbrella company, these Tier 2 businesses can often be owned by a Tier 1 company.
Then the Tier 3 companies are the smaller businesses that basically depend on financial institutions to trade. The line in the sand for Tier 3 Business is around a turnover less than $1 million dollars.
So when you look at the Building Tier System the biggest difference will be with Tier 2 & 3.
THE BUILDING TIER SYSTEM
The Building Tier System is similar but different, as it only looks at the capability of the building company and generally looks at turn over.
Tier 1 Builders
Tier 1 is building companies with a turn over greater than $500 million to the multi-billions.
In Australia’s landscape, these are the giants of the industry. Tier 1 companies basically generate the work for themselves including the full development – using their own money. – Major infrastructure and development.
In recent years there has been a lot of movement of who owns what, amalgamations, etc so it would be fair to say the landscape is changing. The companies that play in the tier 1 genre would include but not limited to: Theiss, Lend Lease, John Holland, Multiplex (Owned by Brookfield), Watpac, Hutchinson Builders, ProBuild, Hansen Yunken, etc.
These companies control most of the major commercial projects such as large infrastructure and institutions like roads, highways, railways, universities, shopping centres, high rises etc. These companies handle the full process from conception to completion and then they may sell the projects or hold as an asset portfolio.
Tier 2 Builders
Tier 2 is building companies with a turn over greater than $100 Million to Less than $500 Million.
Tier 2 is obviously one step down as a mid tier building company but still an exceptional big operator.
These companies tend more to the commercial rather than residential projects. These companies normally operate in education, retail, and industrial sectors.
The trouble in separating Tier 2 and 3 gets a little harder. Examples of Tier 2 & Large Tier 3 companies included but not limited to the following: Adco Constructions, AW Edwards, BMD Group, Buildcorp Australia, Built, Cockram, Downer Group , FDC Construction & Fit out; Grocon, Growth Build, ICON Construction Australia, Lipmans, McMahon, Paynter Dixon, Patterson Building Group, Pelicano, Renascent, Richard Crookes Constructions, Schapelle, Shape Australia, Taylor Construction Group, etc. (Sorry If I missed anyone).
Tier 3 Builders
Tier 3 – Is everything less than $100 million.
A Tier 3 builder is a traditional client/builder relationship which basically means every other builder in the industry regardless of commercial or residential nature of the business. These companies don’t like labels and tend to step up regularly. However, the majority of the Tier 3 builders are more exposed to economic fluctuations, government policy, and outside influence.
However, it should be said that there is an entire subsection in Tier 3 which include the following:
- Turn over <$5M;
- Turn over >$5m to $50M
- and Turn Over >$50M <$100M.
These companies are the little family business’ all over Australia that compete and punch often way above their weight class. Often The pipeline of work could be quite diverse and you could also work in different genres to keep the cash flow coming through the doors. Often the Tier 2 and 3 Building Company has a banking organisation partner that helps control the cash flow of day to day business, This is probably why the tier system on face value gets blurred as well.
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