Broken Buildings, Busted Budgets: How to Fix America's Trillion-DollarConstruction Industry
By Barry B. LePatner, with Timothy Jacobson and Robert E. Wright
The University of Chicago Press
2007, 240 pages, $25.00
ISBN 9780226472676

Do not sign a blank check. Simple, sage advice that even seventh graders sitting glassy-eyed in personal finance class seem to grasp. While this nugget of wisdom seems to have made its way into most aspects of our modern lives, it seems to have missed one area that attorney Barry B. LePatner calls "the industry time forgot." Day after day, property owners around the country engage members of the construction industry in projects big and small. Between home improvements and massive infrastructure work, the difference is only one of scale. In either case the owner will frequently pay more and wait longer than the contract provided, only to receive a product that is not quite what the owner thought he or she was buying. In a certain sense, as the owner signs the construction contract, he or she is signing a blank check.

In Broken Buildings, Busted Budgets: How to Fix America's Trillion-Dollar Construction Industry, LePatner poses the question, "How could a nation as technologically advanced and business-oriented as [America] care so little about how it spends upwards of $1 trillion on construction each year?" Too often, construction projects of all shapes and sizes are burdened by unanticipated cost increases. "We have become almost immune to the fact that most construction in this nation will result in serious cost overruns and schedule delays."

Consider the following scene from the film Mr. Destiny ((c) 1990 Buena Vista Home Entertainment, Inc.), where homeowner Larry (James Belushi) hands over yet another check to his contractor:

Looking like a high-wire performer, Larry carefully balances his way across the wooden planks that span the muddy, unfinished gap between his front door and the street where his disinterested contractor is casually leaning against his pick-up truck, sipping coffee.

Larry writes the contractor another check, and the audience laughs despite the fact that to many the scene is autobiographical. Perhaps we laugh because if we did not laugh, we might cry. But in America's trillion-dollar construction industry, the amounts at stake have gotten too expensive to continue to laugh or shrug off such inefficiency.

The book focuses on arming the reader with the "most powerful weapon in any business arsenal_information." Rather than presenting the reader with an endless list of do's and don'ts, the reader is provided with an understanding of the construction industry, why it is so inefficient, and why it is likely to "bust [the] budget," whether the project involves a single family home, a road, a bridge, or a high-rise. In order to control the cost of a project, it is essential that the owner "understand the construction industry's history, its economic structure, and the incentives facing the major players."

The book is an easy and enjoyable read. It provides an interesting view of certain aspects of the history of the construction industry and comparisons of the U.S. construction industry with those of nations around the world. It is interesting to know that despite its shortcomings, the construction industry in the United States is not on the bottom floor when it comes to efficiency. To see how various countries stack up you will have to read the book. With this historical foundation in place the book then explores what it calls the "twin root problems," which include asymmetric information and lack of real intermediaries.

The author makes the argument that where there is an imbalance of information that favors the builder, and where the builder is not being held to a fixed cost, the builder has "every incentive to bid low on a project to get a job." The author explains:

Because the business is highly competitive at the bid stage, most firms (which are small to begin with and enjoy little financial safety net to absorb cost overruns) know that their low bid will not return an adequate profit. But after a contractor is awarded a contract, the situation changes radically. The contractor then becomes a monopolist, who will attempt to recoup through change orders the profits denied it by the bid process. This explains the pervasiveness of the mutable-cost contracts. Owners realize that, even with a seemingly straightforward fixed-price contract, once they are embroiled in construction, they have few good options but to pay up in order to keep the project moving ahead so as not to incur even greater delays and costs. The industry is caught in this unvirtuous cycle.

"If we don't learn from the mistakes of the past, we are doomed to repeat them." To that end, this book provides a condensed version of the history and present condition of the construction industry. In addition to describing the construction industry's problems and potential solutions, the book also provides numerous examples of projects that illustrate the points being made by the author. The book is interesting, entertaining, and thought provoking, and provides the reader with useful and empowering information. Before you begin your next project or write another check, time spent reading this book will be time well spent.