Building More With Less (Part II)
Drags on Productivity
The post-war housing boom proved what was possible.
With no red tape, construction firms can build efficiently at scale. But as our housing stock grew, so did the rules. New regulations from the 70s led to industry fragmentation in the decades that followed.
These forces – regulation and fragmentation – now drag on every phase of a project. To see how, we need to move from the abstract to the practical – from history to the job site, where it will become clear what is actionable.
Some problems are obvious, like drawing errors and missed updates. Here, point solutions can help patch the holes.
The deeper issues, though, are structural. They’re baked into how the industry works. These big problems require equally big ideas that do more than patch a leak. They require solutions that can mimic the benefits of vertical integration, even if true consolidation is off the table.
Part I provided an overview – a description of the problem and where it came from. Part II will explore the root causes of the productivity problem, and explain why and how they manifest in practice. Before diving in, let’s put it in perspective.
Construction vs. Other Projects
Think about how other industries build. Launching a new software product isn’t so different from building a house, at least on paper.
It starts with the vision – rough specs for the end product. In the tech world, that likely comes from the founder. The founder pulls together a cross-functional team: product, design, engineering, etc. The team and the leadership align on a budget, a plan, and a timeline. Then they execute.
Now imagine each team member works for a different company. They report to different bosses. Every feature requires approval from a local government employee. Instead of drawing from company cash, every sprint is funded by a bank that releases money only after signing off on the last sprint. All the while, the product (not the company) is being taxed as it's built.
This is the reality of construction. It's a web of competing interests, approvals and slow moving handoffs. Every delay adds to the project’s carrying costs. Every misstep ripples through the project, adding labor hours without a single square foot of output to show for it.
It all starts before a shovel hits dirt. Between ideation and execution, every project must contend with the local government and its constituents.
The Regulatory Hurdles
Local governments play a necessary role in construction. Building codes and inspections are there for a reason: to keep people safe. These tools of enforcement can be burdensome, but they are less to blame for the productivity problem than land-use regulation.
Land-use regulation includes things like zoning laws, density requirements, and height limits. These regulations dictate what you can build where. Navigating these requirements and securing legal approvals is known as the entitlement process.
This is the most time‑consuming and unpredictable step in pre‑construction, While it's not the only time where regulation gets in the way, breaking down entitlements alone will suffice in proving the point – regulation is a drag on productivity.
Obtaining Entitlements
In theory, land-use regulations serve as an administrative safeguard. In practice, the entitlement process has become an obstacle course.
At every step, developers face new uncertainty. With the possibility of redesigns, and legal reviews comes additional labor hours. Each step in the sequence adds costs that drag on productivity, before the project even starts.
To get a project approved, developers must run a gauntlet of planning departments, public bodies, and (most unpredictably) neighbors. Austin, where I live, is a perfect case study.
Here’s how it goes: when a project needs a zoning variance, the city notifies every property owner within 500 feet. Then it holds not one, but two public hearings - first at the Planning Commission, then at City Council. And without fail, the public seizes the opportunity to give in-person testimony.
One of my favorite examples: the Brodie Oaks redevelopment. When nearby residents complained about a potential view obstruction, the developers were forced to stage their cranes as a “test”, just so people could see the sightlines from a different neighborhood. It isn’t cheap to mobilize a crane just to prove a point.
Time Is Money
To put the regulatory drag in productivity terms: development teams spend months of time without adding a square foot of output. That’s lost labor productivity, plain and simple.
But there’s also a hit to capital productivity - which, in the bigger productivity picture, measures lower than labor productivity (see below).
Carrying costs like taxes, insurance and debt service, are capital costs and they accrue while the clock ticks. The longer a project takes, the higher the carrying costs, and the lower the capital productivity.
These carrying costs are material, too. A city-commissioned study in Austin found that site plan reviews regularly stretch beyond a year. For single-family projects, that adds $10,000 in monthly costs. For multifamily, over $546,000 per month..
Solving For Speed
Stepping back, it's worth revisiting the purpose of this series: first, to understand why and how productivity breaks down in construction; and second, to explore what kinds of solutions might actually move the needle.
Regulation drags on productivity not because of the rules themselves, but through the bureaucratic process wrapped around it. The goal, then, isn’t to eliminate regulation, it’s to speed it up. Policy reform is the clearest path forward. Better policy would help. Less policy would help even more.
From the private sector, it can feel like the only lever for change is lobbying, but there’s a growing opportunity to invest in tools that better connect development teams with local government staff. The gap is far from closed, but there are some promising opportunities in areas like these:
Tools that make zoning laws and building codes easier to access and interpret
Real-time collaboration during pre-construction, possibly supported by AI with a government reviewer in the loop
Regulation slows things down, but at least we have a scapegoat and a paper trail. The next set of issues is harder to pin down. Whilethe consequences are obvious, the root causes are buried in how the industry is structured.
Where regulation imposes friction from the outside, fragmentation erodes productivity from within.
Fragmentation Is Friction
With the rise of regulation came industry fragmentation.
It shows up in a thousand little ways on a jobsite. You see its fingerprints everywhere. Fragmentation not only leads to inefficiencies, it underpins the systemic problems that cause in these inefficiencies.
I could provide endless examples of the inefficiencies. But to understand the why and how, it's more useful to start with the bigger patterns – the systemic problems, and the most common symptoms. Then we can drill down into the concrete examples.
There are two systemic forces that drive inefficiency, and two most common symptoms. Understanding both makes it clear why the small fixes can only go so far, and where bigger, structural ideas are needed. It’s worth laying them out clearly before we go further.
Systemic Forces: These are the deep‑rooted conditions baked into how the industry operates.
Diffuse Accountability: The people swinging the hammers don’t answer to the GC, let alone the people funding the project.
Misaligned Incentives: Each subcontractor is wired to protect their own margin, not to optimize for the project’s overall productivity.
Common Symptoms: These are the visible symptoms that consistently drag on productivity.
Data Management: Errors, omissions, and revisions can slip through the cracks. The cost is measured in change orders, rework, and lost weeks.
Coordination Costs: Instead of orchestrating a team, you’re herding cats—dozens of firms, each with its own tools, timelines, and priorities.
Systemic Problems
These problems are deeply embedded bugs of the current system. Downstream, they lead to issues of data management and coordination costs – the symptoms where we can measure inefficiency.
The systemic problems can’t be removed completely. But certain innovations could move the needle on productivity – narrowing the accountability gaps and misaligned incentives that drag projects down.
Diffuse Accountability
Diffuse accountability in our context means that sometimes, errors don’t always have an owner. This can be a productivity killer. It means that in the field, errors can go unnoticed, only to resurface later as rework, and added coordination costs.
Before fragmentation, firms were able to internalize responsibility. In a firm like Levitt, finger-pointing might still happen, but the line of accountability was clear. Responsibility stayed in-house, which meant blame couldn’t be pushed onto another company. And when accountability is clear, problems tend to surface faster, before they spread.
Today, that clarity is gone. When the industry broke from a tightly integrated system into a web of contracts, firms saved on headcount, but started paying a hidden tax.
In our fragmented system, each party is responsible only for their scope. If an issue shows up between scopes, it becomes a liability to be shifted, not a problem to be solved. And if you can shift the blame, you can shift the cost (usually to the owner).
This space between scopes is where small errors can cascade into a stream of new coordination costs. One missed detail (a problem of data management) leads to rework. That rework creates downstream confusion. Now the project manager is pulled in to clean up the mess, burning time and resources (new coordination costs).
The problem of diffuse accountability overlaps with the incentive problem, but it's distinct. While accountability determines whether problems get caught in the first place, incentives can steer behavior at any point in the project.
Misaligned Incentives
In a fragmented system, everyone is working, but not necessarily toward the same goal. Misaligned incentives and information asymmetry go hand in hand: when priorities differ and communication is uneven, someone always loses.
In a vertically integrated firm, incentives can be shaped to keep every crew rowing in the same direction. But on today’s job sites, the owner may value efficiency, while contractors are focused on protecting their margin.
In a fragmented system, legal documents (a cost in themselves) are your best protection. But even common contract structures can misalign incentives:
Some contracts like a GMP (Guaranteed Maximum Price) essentially lock in a fixed-price. This might lead a contractor to minimize upfront costs or cut corners to protect their profit. In the field, this might result in quality issues or rework that the owner ultimately bears the cost of.
Conversely, a cost-plus contract can reduce the contractor’s incentive to work efficiently, since higher costs may simply be passed on to the owner.
The owner-GC-subcontract model is a textbook example of the principal–agent problem. The owner (principal) delegates to the general contractor (agent) but can’t perfectly monitor their decisions. The GC then optimizes for their own profit, not the owner’s outcome. The same is true for each subcontractor on the job. Multiply that dynamic across a job site, and you get a system riddled with moral hazard and information asymmetry.
When independent contractors work side by side, aligning incentives becomes nearly impossible. These misalignments shift behavior. They’re the difference between a subcontractor flagging an issue early or staying quiet, between a GC owning a risk or passing it on. These dynamics aren’t always accidental; they’re often baked into the contract itself.
Fixing The Foundation
These systemic problems aren’t something a SaaS tool can solve (at least not on its own). Without changing how the industry is structured, our best shot at reducing the costs of misaligned incentives and diffuse accountability is to mimic vertical integration: combine scopes, consolidate responsibility, and reduce the number of failure points.
Modular construction, mobile factories, prefab systems, robotics – these are the bold ideas that move us in that direction. They concentrate responsibility and shrink the space where incentives break down. But they come with risk: new technology, unproven models, and the chance of being too early.
Still, if we get it right, even partially, we can dull the impact of the symptoms that keep dragging productivity down.
Common Symptoms
The structural flaws in construction don’t always show up as dramatic failures. More often, they show up as friction. They show up as recurring problems that slow projects down and wear teams out.
Two types of issues surface again and again: data management and added coordination costs.
These issues are not caused by fragmentation alone, but they are symptoms of it. Fragmentation makes them hard to avoid, and harder to fix.
Data Management
In construction, “data” means everything: drawings, contracts, BIM models, submittals, schedules, and RFIs. Every trade depends on this information being accurate, and shared. A single drawing error or missed BIM update can trigger costly rework, delays, or change orders.
Going back to the golden-age yet again, if Levitt needed to change a plan, everyone—from framers to finishers—heard it from the same source. One source of truth, and a clear chain of accountability.
Today, that clarity is gone. Each firm owns its own slice of data and its own communication channels. It's nearly impossible to break down these data silos. As tightly as you might be able to integrate them, each party is an independent company.
Implementing a change might mean relaying the new information through layers of subcontractors and laborers, who all answer to different people. There’s no guarantee that the message lands the same way, or the change is implemented consistently.
Data errors and revisions are inevitable to some extent. But in a fragmented system, proactively catching them and communicating the changes (an accountability and incentive problem), and then implementing those changes (a coordination cost) is far more difficult.
As with the two systemic problems, data management and coordination are tightly intertwined. A data error might occur on its own, but it almost always triggers new coordination costs in its wake.
Coordination Costs:
On a job site, coordination means more than just managing information. It’s about keeping dozens of teams aligned on timing, budget, scope, and expectations. Every day, in real time.
These responsibilities fall to project managers, superintendents and foreman. In a perfect world, they guide the process. In the real world, they spend much of their time chasing information and putting out fires.
When all the trades operated under one roof, coordination was simpler. Transaction costs were virtually non-existent—no contracts to negotiate, no delays in payment. But the less visible coordination costs were lower too: no data silos, no competing timelines, and all communication stayed in-house.
Now, each firm manages its own systems, its own people, and its own priorities. Today, it takes more time and effort just to maintain the system. Project managers work hard to ensure that there is no information asymmetry. And when things go wrong, they spend even more time on communication, rescheduling trades, and updating budgets.
It’s no surprise that a recent survey found construction professionals spend 14 hours per week (35% of their time) on non-productive work like searching for information or resolving avoidable conflicts.
You can see it in the labor data too. Between 2005 and 2022, the share of management roles in construction grew 60%, outpacing the broader U.S. labor force. More overhead, more meetings, more tools… and still, productivity continues to fall.
Fragmentation creates coordination costs, and amplifies them. Every data error introduces friction: more emails, more meetings, more rescheduling. And the more friction there is, the more tempting it becomes to throw resources at the problem - extra tools, more personnel, added layers of oversight.
On one side, fragmentation causes coordination breakdowns. On the other, it compels teams to bulk up their coordination efforts just to keep projects on track. It’s a feedback loop: more complexity leads to more effort, which leads to more cost. Without necessarily improving the outcome.
Patching The Holes
Software makes our lives easier, until we find ourselves juggling more platforms than the spreadsheet tabs they were meant to replace.
Still, there’s no denying that tech has improved how we manage data and coordinate work. And with the rise of automation, these tools will only get better.
Without going too deep in this section, I think the real question isn’t if software helps, but where it helps. If they’re trying to solve a systemic problem with software, our time and resources may be better spent elsewhere.
On The Job Site
If accountability and incentives are the faulty foundation, fragmentation is the uneven bedrock beneath it. Data mismanagement and coordination costs are the cracks in the framing – visible and numerous, but ultimately symptoms of the structure below.
You don’t have to squint to see the impact. It shows up in schedule delays, budget overruns, rework, idle labor, and endless finger-pointing. These are the symptoms you can measure. The ones that quietly bleed time, and money out of a project.
In the next section, I’ll walk through a handful of real-world examples. These examples tie together the themes and patterns discussed in this section on fragmentation. They’re the tangible consequences of a system built around misaligned incentives and diffuse accountability. Then in Part III, we’ll turn to solutions – practical ideas that could move the industry forward, even within the constraints of the system we’ve inherited.
#1 - Design Conflicts:
The Situation: In the field, the framing crew hits a conflict between the structural layout and the duct routing shown in the MEP drawings. They notify their foreman, who passes it to the GC superintendent. The supt flags it for the project manager, who logs an RFI and sends it to the architect for clarification.
The Problem: This is data mismanagement. It’s resolved by new coordination costs, disguised as a process. The workflow exists, but it’s slow, and overly reliant on sequential handoffs. Each step adds time, and even a minor delay (say, the architect taking a few extra days to respond) can force the crew to pause work or move on to another area. The conflict may get resolved, but not without disruption.
The Costs: Idle labor, schedule disruptions, and possible resequencing of trades. If work continues based on assumptions, it risks rework. Even when the process works, it drains time from the superintendent, project manager, and architect. These are costs that rarely show up on paper but quietly erode productivity.
Accountability & Incentives: Aside from the initial error, no one did anything wrong. Everyone followed the workflow. But the incentive is to push the issue to the next party in the chain, not to proactively solve it. In a fragmented model, resolution is procedural, not collaborative. The system moves slowly not because people don’t care, but because no one is fully empowered (or incentivized) to move faster.
#2 - BIM Updates
The Situation: An architect revises a key detail in the BIM model. The GC updates their version but fails to push the update to every subcontractor. The drywall team, working from an old printout, builds to the outdated spec.
The Problem: This is a data management breakdown, compounded by coordination failure. The information pipeline ends with the GC, who fails to distribute it downstream. When the inspector flags the issue, work stops and blame starts flying.
The Costs: Rework, delay, and another round of inspections. Plus, time spent tracking down who had what version, and when.
Accountability & Incentives: Each party controls their own slice of information, but no one ensures system-wide accuracy. Subcontractors have no incentive to double-check for updates unless it directly impacts them. The GC might be responsible for downstream information gaps, but managing the updates is easier said than done.
#3 - Value Engineering Standoff
The Situation: A mechanical subcontractor knows a simpler, cheaper duct system would meet the spec. But proposing it doesn’t earn them more money, so they stay quiet.
The Problem: A misaligned incentive. Ideas that could save the owner money or time aren’t shared because the sub’s compensation is tied to execution, not optimization. Implementing the change might mean more of a headache than the reputational reward is worth.
The Costs: The project pays more for materials and labor than necessary. Worse, the opportunity to improve the system design is lost.
Accountability & Incentives: Nobody owns the system-wide value equation. Each party is incentivized to protect their margin, not the project's efficiency. Innovation stalls because there's no upside to speaking up.
#4 - Schedule Padding
The Situation: A subcontractor overstates how long they need to complete their scope. They want a buffer to avoid liquidated damages or look good by finishing “early.”
The Problem: This is a coordination issue masked as scheduling. The padded schedule throws off downstream trades and adds inefficiency to the critical path.
The Costs: Idle labor, higher general conditions, and a bloated project timeline. Other trades lose trust in the schedule and stop planning around it.
Accountability & Incentives: Subs are incentivized to protect their own risk exposure, not the project timeline. No one is accountable for the cost of time burned by other teams waiting around.
#5 - Change Order Gaming
The Situation: A contractor bids low to win the job, knowing they can make up margin through change orders later. They count on the fact that once construction is underway, the owner has little choice but to approve them.
The Problem: This is a coordination problem with incentive distortion. The bidding process rewards underpricing, not accuracy. Once work starts, the owner is locked in and loses leverage.
The Costs: The project runs over budget and possibly over time. Trust breaks down between owner and contractor. Future collaboration becomes harder.
Accountability & Incentives: The system encourages short-term wins over long-term alignment. There's no penalty for unrealistic bids, and plenty of upside in change orders. This behavior persists because it works.