Barry LePatner: 'Construction is a very dysfunctional industry'

Barry B. LePatner,Esq., Hon. AIA, is founder of LePatner & Associates LLP, a New York City law firm that represents owners, institutions, developers, and architects. Clients include Barnard College, Gehry Partners, Goldman Sachs, Millennium Partners, Starwood Lodging and Resorts, and WNET. He is the co-author of Structural and Foundation Failures (1982) and author of Broken Buildings, Busted Budgets (2007). A member of the New York City, New York State, and American Bar Associations, he holds a B.A. degree from Brooklyn College and a J.D. degree from Brooklyn Law School.

BD+C: Your new book centers on what you see as waste and fragmentation in the construction industry. Please explain.

Barry B. LePatner: In construction, there is no generic fixed price. When you buy a coffee at Starbucks, you deal with a fixed price. The construction industry has migrated from that, and it has cost the owner and contractor dearly. It's a very dysfunctional industry.

BD+C: But buildings still get built, don't they?

BLP: Yes, but it's due to the skills of the people in the industry, in an industry that is very flawed.

BD+C: What flaws are you talking about?

BLP: We have a fragmented industry: 7.6 million construction workers, 94% of them in firms of 20 or less. There are no truly national construction firms, operating in all the states. Unless you are able to operate at scale and achieve economies and efficiencies, you can't afford to do R&D and spend money on technology to improve efficiencies. Construction is the lowest spender on technology and R&D of all industries. Unless you spend money on technology, you get huge inefficiencies.

BD+C: What kinds of inefficiencies?

BLP: A meta-survey by the University of Pennsylvania showed that 49.2% of all labor costs on construction projects are wasted due to inefficiencies: laborers waiting for deliveries, going up and down hoists, waiting for other trades to move out of the way.

According to the Bureau of Labor Statistics, from 1964 to 2003, for all nonfarm industries, productivity per worker went up 125%. For the construction industry, the output went down over 20% per worker over that period. If we just achieved a 10% increase in efficiency, we could add $120 billion a year to the economy.

BD+C: What do you recommend?

BLP: There is no General Motors building major projects. Shopping centers, office towers—they're all being done by mom-and-pop companies. There's no efficiency in operations. Everybody is an independent contractor performing just their work and suffering from the vagaries and inefficiencies of others on the project. If one general contractor controlled everybody and was at risk, you'd have incentive to overcome that.

BD+C: What about design-build and other delivery models?

BLP: CM, fast-track, design-build—they're all a prescription for disaster. Take the Giants/Jets stadium going up in the Meadowlands. There was a design-build contract for $800 million in 2005; now it's $1.4 billion.

BD+C: Why do you think this is this happening?

BLP: Nobody takes risk. In the auto industry, Henry Ford took risk to build the River Rouge plant. By taking control of the disparate elements of manufacturing, he was able to make $100 million profit by 1908. The construction world is like what it was before innovation came along. It is impossible to believe that robots cannot do a lot of the work that construction workers do today on interior projects.

Competitive industries rely on good management, efficiencies in the production process, and technology to save money. We do not have any of those three elements in the construction industry.

BD+C: How do rising materials prices figure here?

BLP: When I deal with a contractor, and he says the price of steel is going to go up, I say, Order it right now! We'll store it, and our client isn't going to pay extra.

BD+C: What is the owner's role in all this?

BLP: We're on the back end of the business cycle, and you're going to see a tightening of the market. Businesses are not going to be willing to pay for increasing project costs, so the arguments in my book are going to resonate even more among owners.

BD+C: How about the designers?

BLP: Architects and engineers should only have risk when they don't do their jobs. If you need time to coordinate with the contractors, I'll pay you for it. It's all about the planning. If you don't do the planning up front, the rest of the project is a hodgepodge.