Leave the Stone Age, Part I: Pricing the Cost of Construction in the 21st Century
The irony of today’s $1 trillion design and construction industry is that, while many new projects are glass and steel, we are operating, essentially, in the Stone Age.
Technology is a prime example. Most industries have embraced technology as a means to becoming more efficient and transparent.
Meanwhile, the design/construction industry has no centralized marketplace—a searchable, industry-wide database—for the purpose of purchasing the thousands of products specified for each building project.
As things currently stand, during the design process, neither the owner nor any member of the design team has any idea how much any of the specific items designed will actually cost until the design drawings are sent to contractors, who then bid on the project. The contractors are setting the market on these products—because owners allow it, even though it destroys their budgets!
Why is there no true marketplace that forms the basis of pricing by contractors? Because their “marketplace” is composed of a handful of local “bidding” subcontractors and suppliers, who are joined by a general contractor or construction manager in a joint bid to win an award from an owner based on the design documents prepared by each architect and its engineers.
The purchase of products specified by the design team is denoted by a series of “mark-ups” at the distributor, subcontractor and construction manager levels. That’s a lot of constituents with self-serving financial agendas—none of which are designed to serve the owner.
As a result, pricing for nearly all of the nation’s construction projects is arbitrarily determined by the construction industry without any actual “pricing” information in the possession of owners.
How then can owners be expected to assess the value and price of a product—and negotiate accordingly—without a standardized frame of reference?
The design and construction fields have been characterized as the lowest users of technology of any industry in the nation. Over the past 40 or so years, productivity in the construction industry has fallen by over 20 percent, even as all other industries have seen major increases in productivity due to technology and management performance.
As a result of this technological stagnation, there has been little change—over hundreds of years—in the way designers design and contractors build. Resistance to change is a constant theme in these fields. The mostly small-firm mentality of the various players in the design/construction industry means that there is next to no identifiable research and development. And the information that does exist only emanates from product manufacturers—the only players of size, and therefore the ones wielding the most leverage.
The cost to owners, therefore, remains artificially inflated.
The process needs to change. And it will.
To find out how, come back for Part II of this column, where we’ll discuss a new platform that is poised to revolutionize the way information about construction products and pricing are disseminated.