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BROKEN BUILDINGS, BUSTED BUDGETS

THE UNIVERSITY OF CHICAGO PRESS

Contents

List of Figures..........................................................................................viiiAcknowledgments..........................................................................................ixIntroduction.............................................................................................1ONE Overbudget and Overdue..............................................................................7TWO The Economic Context of Construction................................................................33THREE False Starts and Frustrated Beginnings: A History of the Industry.................................65FOUR Asymmetric Information: The Big Barrier to Change..................................................81FIVE Minor Blemishes: Unions, Workers, and Government...................................................111SIX Fixing the Construction Industry: Consolidation, Intermediaries, and Innovation.....................133SEVEN Practical Advice to Owners for Getting Started Now................................................169Notes....................................................................................................187Index....................................................................................................217

Chapter One

Every American lives in the long shadow cast by our nation's construction industry. While few of us recognize just how many dollars are spent annually on construction, each of us lives from infancy through old age in buildings designed and constructed by a coterie of architects, engineers, and contractors. All of their efforts are funded by monies generated by private or governmental financing.

Construction is an enormously important part of any economy, often accounting for approximately 5 percent of aggregate output (Gross Domestic Product) and employment. In the United States today, construction is a trillion dollar business that employs over 7 million Americans. According to a series of studies by McKinsey and Company, the U.S. construction industry is one of, if not the, most productive in the world. But before we congratulate ourselves we need to realize that the construction industries of most other countries are extremely inefficient. Most of the world's construction is done by small-scale builders using traditional materials and methods sometimes unchanged for centuries. Only about 5 percent of total construction is undertaken in a fully international, competitive market.

According to the latest census information, the United States population of 300 million will increase by over 70 million by the year 2030. Between 2000 and 2030, the number of Americans over the age of 65 will more than double. According to a recent study from the Brookings Institution by Arthur C. Nelson, population growth coupled with the continued movement of people to the south and west will result in 100 billion square feet of new homes. Commercial and industrial square footage will increase even more rapidly in the next twenty-five years. Other studies predict that America is poised to embark on a $25 trillion construction binge that will sweep every sector of the nation. Local school districts will expand; health and hospital will grow with our aging baby boomer population; and new offices, retail, and entertainment complexes will abound as never before. Nelson predicts that by 2030, almost 58 percent of our nation's total building stock, some 427 billion square feet, will have been built after 2000. The time for change in the construction industry could not be more urgent.

For home builders, the years since the early 1990s have been some of the most frenzied in U.S. history. Large-scale home builders, such as Toll Brothers and Pulte Homes, have "transformed the American home into a corporate product-probably the last item in our $11 trillion economy that has yet to be marketed and branded on a national scale to consumers." While the large home builders currently account for one out of four new homes in the United States, Wall Street analysts currently estimate that within ten years this ratio will change so that large home builders will be building half of all homes in the nation. This growth would be welcome were it not for the dismal performance that all too often marks how the nation's buildings are designed and constructed.

Yes, we build big in America, but caveat emptor. Very few of the corporations, institutions, governmental entities, or individual homeowners undertaking a construction project have a clue about the process they are about to embark upon.

To most educated, office-bound Americans, this world of construction is foreign territory. These men with the hardhats and big boots look a rough crowd: sweaty, swearing, with unfashionable views on matters like sexual harassment. Many construction workers, especially in the northeast, are unionized. Therefore, as the image has it, they spend most of the day standing around hardly working and then knocking off by 2:00 PM. About their bosses, called general contractors, hovers similar lore. At the turn of the twentieth century, muckrakers portrayed the contractor as "a burly, uncouth figure with an enormous cigar stuck in his pig-like mouth and his big paws handing out boodle to public officials." The cigar and swinish countenances are largely gone, but not the payments and roguish air.

That's the cynic's view, but we are also romantics. Remember when you were a child and the excitement when a new building started to go up in town, whether you lived in Metropolis or in Popperville? In Metropolis let's say it was a tall office building; in Popperville let's say it was the town hall as imagined in Virginia Lee Burton's 1939 classic children's tale of construction and civic virtue, Mike Mulligan and His Steam Shovel. The gee-whiz thrills of childhood go down through generations: the trip to the boarded-off construction site with viewing holes cut at various heights to accommodate children of all ages. There we glimpsed a world of burly men, big, steam-chugging machines, the beginnings of massive concrete footings and soaring steel frames. Strength, power, awe. What, we wondered, would it finally look like? How tall would it be? How soon would it be finished?

How to reconcile these two drastically different views of the construction industry? Both are true. We absolutely, positively need houses, malls, airports, park-like boulevards, and skyscrapers. We deeply desire beautiful, functional spaces for work and play. As it turns out, we desire them so much, so pressing is our need, we seem willing to pay far too much for them.

We live in an era when economic power has broadly and decisively shifted from suppliers to consumers. The availability of information on products and cost has exploded geometrically in recent years. Choices as to where a consumer can obtain products have multiplied. It is not nearly as easy as it once routinely was to get away with peddling expensive junk. Just ask GM and Chrysler, or if you could find them, RCA and Philco. Companies propose. Consumers dispose. Don't like something-no, make that anything-you took home from Wal-Mart or Target yesterday? Take it back...