Chapter Excerpts from
Broken Buildings, Busted Budgets
Introduction
Chapter 1: Overbudget & Overdue
Chapter 2: The Economic Context of Construction
Chapter 3: False Starts and Frustrated Beginnings: A History of the Industry
Chapter 4: Asymmetric Information: The Big Barrier to Change
Chapter 5: Minor Blemishes: Unions, Workers, and Government
Chapter 6: Fixing the Construction Industry: Consolidation, Intermediaries, and Innovation
Chapter 7: Practical Advice to Owners: Getting Started Now Charts and Figures
Chapter 3: False Starts and Frustrated Beginnings: A History of the Industry
The housing construction industry since the early twentieth century is littered with good intentions and creative efforts that fell by the wayside. Builders of residential homes have frequently generated large-scale projects but have rarely proliferated beyond its local or regional economy. Today, even prominent home builders such as Pulte, Toll Brothers and Lennar operate in no more than 12-15 states each.
Fragmentation and the Origins of the Construction Manager
The 1970s witnessed for the first time projects overseen by construction managers using fast-track project delivery. By 1983, a third of large owners employed construction managers using the fast-track method. Harvard Business Review touted the change as the Next Big Thing. The use of the construction manager, however, is stymied by the fact that the CM has little incentive to keep projects on budget since its fee, based on a percentage of the cost of the work, increases as the cost of work rises….As one observer puts it, "Good construction management is great; bad construction management is awful." Especially in the early 1970s, construction managers had little or no formal education. They were former craftsmen turned foremen turned general foremen, learning their management skills, in the words of one study, "by trial and error, with many trials and lots of errors."
Exacerbating the problem in the early era of the CM was the thorny question of whether the construction manager was an agent of the owner or an independent contractor to the owner. The difference is critical to how the parties apportion risk for the project. As an agent, the construction manager bears little or no risk managing the project because it operates under the aegis of the owner, in effect serving as the equivalent of an owner's employee, even when signing subcontractor agreements on behalf of the owner. As an independent contractor, however, the construction manager is "at risk" and bears full responsibility for all the attendant problems that may be encountered during its management of the construction process, including responsibility for the subcontractors who it contracts with directly. However, there remains a real danger for the agent construction manager if it acts outside the scope of its agency. For example, by improperly handling trust funds due subcontractors, an agent can be deemed at risk to the owner and its subcontractors. In such an instance, the courts could rule that the construction manager is not immune from liability for such actions. By acting at risk, the agent has now opened itself up to liability, and now the owner has someone to sue. |
