More Stakeholders, Less Construction Productivity

Are There Too Many Cooks in the Construction Kitchen?

Is poor productivity the result of too many stakeholders per project?  The op-ed in the New York Times, “The Story Construction Tells About America’s Economy Is Disturbing” states that productivity in the construction industry began to decline in 1970 and hasn’t improved in fifty years.  

Why is construction productivity down over such a long period of time? Transient factors such as the recent inflationary surge, supply shortages and skilled labor shortages come and go quickly. But they cannot explain a decline over fifty years.

Bidding and estimating labor was mentioned in the NYTimes article as going from one estimate per bid to three on average. But why? No doubt it’s to improve overall accuracy and profits, and probably a response to poor productivity and competitiveness, not a cause.

Productivity is the rate of unit production (buildings, roads) divided by cost. So either project costs have steadily increased, or construction workers and methods are producing less, or some combination of both.

Stakeholders Direct and Ever More Indirect

Stakeholders can be either an entity with direct approval authority, or indirect, such as a representative of the public or other interest group.

Construction projects have always had at least three direct stakeholders: The property owner who arranges financing, the designer/architect and the building contractor. But they’ve also always had at least one indirect stakeholder: The local regional government where the construction takes place.

Fifty years ago, at least two more stakeholders were added: OSHA and the EPA. While these agencies were created for good reasons — worker safety and environmental health — they have imposed increasing compliance costs on construction projects.

In 1970, the same year cited in the construction productivity report, the Occupational Safety and Health Act (OSHA) was passed. This legislation was widely supported to reduce project injuries, illnesses and fatalities. But it also required additional costs: recordkeeping, reporting, inspections, audits, and investigation of incidents and accidents. Almost all these costs are borne by the building contractor.

The EPA also dates from the Nixon administration of the early 1970s. Environmental regulations have also grown over the decades as well, with many of the same costs, although these costs perhaps fall as much on the designer/architect as the building contractor.

The regulatory demands of federal programs have grown, but so have local government regulations modeled on the federal agencies. In the 1960s to ‘80s, town hall meetings didn’t draw large crowds including neighbors, politicians, lobbyists, and more to voice their opinions on new developments. Nor did the building process require so many experts, reports and analysis. 

And when governments themselves are project owners, they dictate not only design, but costs like:

• how (“made in the USA” materials),
• who (unions, small business set asides), and
• pay (prevailing wages).

Stakeholders Need Data not Paperwork

Indeed, construction projects have far more stakeholders and they all impose additional costs. Stakeholder consensus needs to be achieved before permits are granted, well before breaking ground, and during a building project as well.

Fifty years ago, new building was economic “progress” and seen as a public good. Now any new building project confronts both increased regulation and NIMBYism from the general public. The NYTimes article rightfully calls out the resulting huge increase in paperwork proving approvals and compliance.

Producing such paperwork is expensive, but also the time delaying building while the paperwork is digested by all stakeholders. More workers who are not actually building are needed to satisfy stakeholders, raising overhead costs, mostly at headquarters.

But compared to the number employed in the building trades and their costs, these HQ increases are marginal. My take, as a career tech executive, is that the construction industry often conflates a desire for data with a desire for paperwork. After all, no stakeholder wants to handle and process paper, it’s expensive for everyone. What they want is accurate, timely and actionable information they can trust, not paper.

Data Solutions for the Stakeholder Problem

Haven’t advanced data communications and processing transformed everything over the past fifty years? Financial services are at least as regulated as construction, yet their productivity has been the opposite of stagnant.

Data solutions to satisfy multiple stakeholder users take various forms:

• Collaboration tools such as Office 365, Google Workplace, Slack, etc.
• Building Information Management solutions that share project files
• Workflow applications that optimize data flows between stakeholders
• Integrations between workflow applications to encompass more stakeholders
• “Platforms” that encompass the needs of multiple stakeholders in one large application

Of course more stakeholders means higher costs and project management complexity. But other industries have managed to improve over the past fifty years by utilizing the massive increases in computing and communications power. Why not construction?