Construction industry needs repair before stimulus can fix economy

03/13/2009 |

“We’ve already seen what can happen when the government pumps money into broken industries without properly monitoring how it’s used,” said Barry LePatner, author of Broken Buildings, Busted Budgets: How to Fix America’s Trillion-Dollar Construction Industry. “Billions of taxpayer dollars are wasted.”

Waste and inefficiency are two of the major problems with the current way the construction industry runs itself, which is why LePatner cautions that the federal government must “look before it leaps” in regard to spending on infrastructure projects. “When you give money to an industry that wastes upwards of $120 billion a year, and don’t take the steps necessary to ensure it’s used wisely, you are going to end up once again with no ROI,” LePatner warned.

Concerned that rampant cost overruns and missed project deadlines will cause the industry to “fritter away” the $48 billion allotted for infrastructure projects in President Obama’s stimulus package, LePatner has suggestions for five steps that must be taken before the infrastructure projects can go underway.

First on his list of suggestions is to create an “Infrastructure Czar” position. According to LePatner, it’s unlikely that the officials designated by the President on the Accountability and Transparency Board for the stimulus will have a real grasp on how the construction industry works and the inefficiencies and waste that lie within the industry. “The Czar should be a savvy construction expert who did not emanate from the construction industry but who is familiar with the low bid/change order process that consistently drives up costs on construction projects,” LePatner explained. This will help close the gap between the construction contractors and the policymakers trying to negotiate government contracts.

LePatner also suggests that fixed-price contracts should be mandatory. “Fixed price contracts on these projects are an absolute must,” said LePatner. “Without them, contractors will use change orders and delay claims to drive up the costs of these crucial infrastructure projects.” Likewise, stipulations should be created to avoid wasted labor costs. Because 50 percent of all labor costs of a project are due to situations such as late deliveries and poorly coordinated subcontractors, “contracts must require that skilled, experienced onsite construction representatives with in-depth knowledge, who can oversee not only quality but the true cost for the work, are retained for these projects,” LePatner said.

Further things that must be done before starting the stimulus-funded infrastructure projects include investing some of that money in advanced technologies. “Technology exists to anticipate bridge remediation years before rust, corrosion, and cracks appear,” LePatner said. “We need to fund states to purchase this equipment and train their inspectors to use it.” This will save the country millions of dollars in unnecessary remediation costs. Additionally, reforms must be enacted to help us avoid another Big Dig, which is the most expensive highway project ever. The budget for the project was set for $2 billion in 1985; recently it was revealed that the actual cost of the project will be $22 billion and will not be paid off until 2038. “As infrastructure projects proceed with only limited funding, our nation cannot afford to face [such great] cost overruns,” LePatner said. “The industry itself will have to be reformed before we can start making progress on repairing the nation’s infrastructure.

Overall, LePatner believes that the stakes are high when it comes to regulating the construction industry to prepare for the stimulus-funded infrastructure projects. “Our government must ensure that infrastructure project contracts are all undertaken with true fixed-price contracts that pass the risk for poor performance onto the contractors who fail to complete them on time and on budget,” LePatner said. “Our leaders’ credibility, not to mention our nation’s future safety and viability, depends on it.”

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