Can the Construction Business Remake Itself?
Barry LePatner, a Manhattan-based attorney who counts Frank Gehry and other big-name architects among his clients, sees a problem with the construction industry in the United States—clearly indicated by the title of his book Broken Buildings, Busted Budgets, published today by the University of Chicago Press. "This is the industry that time has forgotten," he says. "Mom-and-pop shops, composed of 20 people or less, make up 92 percent of the industry. They are hugely inefficient, and they have no money to spend on improving performance and technology."
The result, LePatner continues, is tremendous waste in a $1.2-trillion-a-year business—nearly half of labor expenses on a project, according to some studies, are squandered due to schedule conflicts and late deliveries. Problems arise because, unlike the automobile industry and others in which manufacturers benefit from economies of scale and accurate scheduling, construction managers are forced to coordinate dozens of smaller, unreliable subcontractors. LePatner also says that the construction industry suffers from "the winner's curse": Contractors bid so low that the profit margin erodes and the only way to reclaim it is by filing change orders. Unsurprisingly, construction leaders are troubled by his claims.
"The word that captures the feelings of our members is 'insulted,'" says Stephen Sandherr, chief executive of the Associated General Contractors of America (AGC). Few contractors abuse change orders to drive profits, he contends, and "to say that the construction industry has not embraced innovation or collaboration is naïve. Just look at the innovations in the past 20 years: design-build, construction management at-risk, and value engineering. Look at building information modeling (BIM), which embraces new technology and allows for enhanced collaboration between designers, contractors, and suppliers."
LePatner remains unimpressed by these advances—and as promising as BIM looks, he adds, few contractors have embraced it, let alone architects. Speaking of architects, what of their role? LePatner, an honorary AIA member, has some pointed words: "You've become so focused on design, you've lost the respect of contractors and clients. Your clients desperately need you to become more involved in pricing what you design, and as a check against contractors who take liberties with your designs in the field. You need to restore yourselves to the role of master builder."
RK Stewart, FAIA, president of the American Institute of Architects (AIA), is not sure that architects should reclaim the mantle of master builder, but he notes that greater collaboration between designers, contractors, and clients will create efficiencies. "In almost every project, there are some tense times as people seek to align expectations about cost, schedule, programming, and what they're trying to achieve. That's why you've seen growing interest in integrated delivery." This new model, Stewart explains, brings architects and contractors together early in the design process to coordinate accurate construction documents. The AIA has also been working with the AGC and the Construction Users Roundtable—which represents building owners—to redefine risk and reward.
LePatner welcomes such developments, but believes more systemic changes are needed. He recommends consolidation within the commercial construction industry, creating vertically integrated firms like Toll Brothers, Pulte, and other large residential builders. LePatner also contends that every contract should be a fixed-price agreement: "We live in a society of fixed prices."
Sandherr disagrees that such contracts are possible. Assembling an automobile is not the same thing as erecting a building, he notes, and plenty of transactions occur without fixed prices—such as purchasing the services of an attorney.
But LePatner hopes that the business will redefine itself. "If we save only 10 percent in the construction industry, we put back $120 billion a year into the economy."