Broken Buildings, Busted Budgets

That’s by Barry B. LePatner and the subtitle is How to Fix America’s Trillion-Dollar Construction Industry.

The key problem is that building or new construction owners become completely dependent on information provided by their contractors.  The contractors experience cost overruns and the commissioning owners have to suffer delays, cost increases, and the general feeling of having been screwed over.  Opportunism and recontracting are rampant.  According to the author, no institution successfully helps commissioning owners distinguish between good and bad contractors.  Ex post the construction industry is not competitive, even though it has a large number of firms ex ante.

According to LePatner, the answer is to move to truly fixed-rate contracts.  This means no more passing cost onto owners, real penalties for delays, and much more risk on the construction company itself.  That in turn requires larger and more integrated construction companies instead of today’s small proprietorships.

If this is such a good idea, why doesn’t the market provide such a solution already?  Surely there is enough capital to support large construction companies.  I don’t know, and for that reason I cannot evaluate the author’s central proposal in an informed manner.  Nonetheless this book is argued on a very serious level and I found it definitely a worthwhile and stimulating read.

A must for anyone interested in the economics of construction, and a possible read for others as well.