"There are no national firms, it's all mom and pops," LePatner says. About 90% of construction firms employ 10 people or less, when what the industry needs is national companies to cut down on inefficiencies and costs. He says the last major mom and pop was the garbage industry, which saw increased efficiency once Waste Management stepped in.
LePatner says, "The increase (in total dollar amount) in only 13 years has been phenomenal." He estimates the contracted construction industry accounts for 10% of GDP with a total of $1.23 trillion. In 1993 the industry totaled $480 billion.
The increased capital is not just a result of real estate's increasing value. "Surveys that have analyzed productivity show staggeringly that 40% to 60% of all dollars from the project never go into it." The money is funneled into inefficiency, poor coordination, and "folks just standing around."
LePatner cites the Washington, DC Capital Visitors Center as an example of what he is talking about. In 1999 the center was first announced and $100 million was budgeted. In 2002 the price went up to $265 million and today, LePatner says the cost is $600 million and counting. In New York, he says the World Trade Center Memorial is another example.
A contractor's monopoly on the project is another sign of the broken industry. According to LePatner, the contractor does very little for the project himself by subcontracting most of the work out to others. Plus, "Contractors control all information regarding costs," Lepatner says. So whatever the contractor says a certain thing will cost is essentially what the owner has to pay. And should the owner have a problem there is very little he can do since firing a contractor can bring all operations to a grinding halt. "The contractor has an effective monopoly."
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