Attorney Barry LePatner

GlobeSt.com: One of your views is that the construction industry--even many of the big boys--are really little more than mom-and-pops. Explain.

LePatner: There are no big boys, and that's the crux of the analysis of the construction industry that we offer. When you look at industry-wide statistics on the size of construction firms in our country, there are probably several hundred--less than 900--firms nationwide that have even 1,000 employees.

GlobeSt.com: Nine hundred sounds like a lot to me.

LePatner: It depends on how you characterize them. Many of them are counting as employees workers who are seasonal or independent contractors. The problem here is that all of them, by other industry standards, are mom-and-pop shops. More important, 95% to 97% of all employees in the construction industry work for firms with five or fewer employees. As a result, the fragmentation migrates down from the construction managers to the general contractors, to the subcontractors, to the people who provide materials, and they are all fundamentally people who cannot afford to take on risk. And when you cannot afford to take on risk, you shed responsibility either contractually or by virtue of passing it on to someone else below or above you on the hierarchy.

GlobeSt.com: But these people are bonded, and they are contacted to complete their work. So why should an owner care?

LePatner: Between 40% and 60% of every dollar an owner spends does not go into a project. It goes for people standing around waiting for instruction, it goes for waiting for deliveries that are late or not coordinated, it goes into trades standing around until another trade is finished.

GlobeSt.com: And all at once I'm thinking labor unions.

LePatner: And you'd be very wrong. The labor unions by virtue of their training are more productive than non-union labor. The book has nothing to do with union vs. non-union. The inefficiencies there are infinitesimal compared to the other details I just provided.

GlobeSt.com: So, you've presented the problem. What do you have in the way of solutions?

LePatner: We do have a presentation of recommendations designed to save anyone 5% to 15% on their construction budget. First of all, when an owner goes to a contractor today, that owner has absolutely no cost information. It all resides with the contractor. There's an asymmetry of information. We recommend an independent cost estimator to provide a listing of line items, so if they are at variance with what the contractor sets out, you can negotiate a lower price.

It's also important to get control over the schedule. Typically several months are built into the process due to known inefficiencies. There are ways to incentivize the construction team--sometimes it's through bonuses or much more detailed oversight of manpower or hiring a very experienced owner's rep. On scheduling alone, if you have a $100-million construction project, you could save a million a month.

Also, the construction industry is the only industry that does not have a fixed-price contract. If you order a car with all the extras, you get a price and the car comes in three weeks later. The price doesn't change because steel went up. In the construction industry, the way the contract is structured leaves open all the contractor's uncertainties. The only time in the English language where the word "guarantee" does not mean its legal definition is in the term "guaranteed maximum price contract."

GlobeSt.com: So you've presented a series of fixes. But fixes demand a meeting of minds. How will that come about?

LePatner: Change is never going to come from within. If a major construction company decides to buy up all of it subcontractors and control the operation and its efficiencies in a way it doesn't control it now, could they get enough business to make it worthwhile to their bottom line? What will happen--as has happened in every other industry--is that venture capitalists will ask how much control they can get over the process if they invest, say, $2 billion. In fact that would get them close to owning a significant portion of the major contractors up and down the East coast.

Then, if they spend another $2 billion and stockpile materials--ala Wal-Mart or Costco where they buy at discounts that are never available on a project-by-project basis--the next time a state like New Jersey announces a $4-billion school project, the bids will be noticeably below every other mom-and-pop contractor, who has to build in the overhead for each of their subcontractors.

GlobeSt.com: You really see that as an option?

LePatner: Someone with deep pockets will see the huge advances that can be made and the profitability that can be there in this antiquated industry.