Construction & Property Development Articles
The difference between tier 1, 2, and 3 building companies
Every industry has a ‘classification’ or a ‘rating’ system. Sometimes these labels are official; other times they’re just unofficial ways to describe a company’s size and abilities. For example, small companies often call themselves ‘boutique’, while larger ones make their ‘significant’ size known. While these general labels are helpful, the construction industry has a very specific rating system. Building firms are classified as ‘tier 1’, ‘tier 2’, or ‘tier 3’, and since that doesn’t really give much information away, we thought we’d explain what those terms mean.
What’s the difference?
The tier system isn’t a difficult one to wrap your head around – it’s actually quite logical. Basically, Sydney builders are rated according to their capacity to take on certain projects. The size, resources, experience, and of course, money a company has determines the kind of projects they are able to take on, and therefore what ‘tier’ group they fall in to. In layman’s terms, tier 1 companies are the big guns, and the tier 3 ones are the more modest firms. Over time, companies can move up the tiers if they fit the criteria.
Now, let’s explore the different tiers a little more.
Tier 1 firms are the largest, wealthiest, and most experienced in the industry. This tier is so exclusive, in fact, that there are only 5 tier one contractors in the whole of Australia! Furthermore, all 5 are run under 2 parent companies. Here’s the breakdown:
- Leighton Holdings – has Leighton Contractors, Theiss, and John Holland under its umbrella
- Lend Lease Infrastructure – controls Boulderstone and Abigroup.
These Sydney commercial builders take on major commercial projects such as motorways, railways, hospitals, universities, office towers, shopping centres and the like. They have the expertise, resources, and finances to take on such large-scale projects. Tier one contracts are usually in the hundreds of millions and even billions price range.
Mid-tier companies are still key players in the construction industry. As the name suggests, they are somewhere in between tier 1 and 3. As a general rule, tier 2 companies are more likely to take on commercial (rather than residential) projects. Patterson Building Group is a tier 2 company, and we specialise in aged care, education, heritage, retail, and industrial projects.
Now that you know a little bit about the tier ratings, you can probably guess that tier 3 companies take on the smaller projects. There are a lot more of them around, and they have plenty of work to keep them busy. Tier 3 firms usually take on projects around the million-dollar range; sometimes a little more, sometimes a little less. The types of projects they take on are:
- Sizeable residential jobs, including rebuilding and refurbishing.
- Small-scale commercial work, such as building or refurbishing petrol stations, supermarkets, offices, and places like McDonalds.
These companies are essential to the industry, and they build up their portfolio with this type of work. They then have the opportunity to start moving up the tier ladder.