The American Construction Industry

Its Historical Evolution and Potential Future

Brian Bowen

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000418323
• Edition: 1
• Topic: Business
• Subtopic: Construction Industry
• Index: Business

The American Construction Industry meticulously chronicles the evolution of the construction industry from its roots in the medieval guild system to the high-tech jobsite of tomorrow. While celebrating more than two millennia of progress and innovation, this resource for students and professionals uncovers the ways of working that crossed the Atlantic with the earliest European settlers and will continue to define building trades in the United States today and in the years and decades to come. Full color illustrations bring the past to life and provide visual links to the present day.

1An Overview of the Construction Industry Today

DOI: 10.1201/9781003130000-1

Construction is an extraordinary endeavor. It is devoted to providing humankind with its shelter and infrastructure. It produces the great symbols of civilization which are witnesses to our history on earth. It tames nature to make our lives safer and more comfortable. However, despite such a noble disposition and despite being one of the largest and oldest employers in most economies, the industry is largely taken for granted. Such press as it does receive, is usually condescending, with words and phrases such as “dysfunctional”, “inefficient”, “resistant to change”, and the like, being used. It is perceived from the outside, as an industry firmly locked in the past.

Most industries are a reflection of the society and economy they serve. The construction industry, being largely a service industry, must respond to the vagaries that its clientele demands: they want it good, cheap and fast, where and when they need it and to a level of specificity they will decide. In order to deal with this client-driven environment, the industry has evolved an unusual economic structure. This chapter will explore the unique set of characteristics the industry has adopted and, after reviewing more details of its organization and methods of delivering its products, go on to an historical analysis of how this disposition has taken place over the centuries.

Is the Construction Industry Really an Industry?

Most economists would probably challenge this entitlement. Indeed here is Julian Lange claiming it to be more of a “sector” than an industry:

Construction … is often referred to as an industry but is more accurately described as a sector of the economy, such as manufacturing, transportation, or services. It is not a single activity, but a group of activities loosely related to one another by the nature of their products, technologies, and institutional settings.

(Lange, Julian and Daniel Quinn, eds., The Construction Industry. Lexington MA, Lexington Books, 1979)

Nonetheless Mr. Lange, in titling his book, recognized general usage and we will continue to reference it as an industry.

Some Statistics

First, the industry is huge. In 2020 it is estimated to surpass $1.3 trillion in the current value of construction put-in-place.¹ Although no one seems to agree on its contribution to the GNP, estimates vary from 5% to 8%.

The Bureau of Labor Statistics reported in 2019 that approximately 6 million people were employed in construction crafts and as labor and a further 2 million in supervisory and design positions. To this must be added all those in manufacturing and support professions (attorneys, accountants, etc.), that draw their livelihoods from construction activity. Conceivably the labor count may not include undocumented workers, whose ubiquitous presence on construction sites is very roughly estimated at 1 million, mostly in the residential sector.

While very large, the industry is heavily fragmented and this will be addressed later. However, it does have two major fault lines dividing the industry into three fairly distinct sectors:

• Residential Buildings
• Non-Residential Buildings
• Civil/infrastructure Construction

These tend to be discrete with little mobility of design and construction resources between them, although they do share certain classes of labor and the use of such basic materials as cement or wood or steel. Architects tend to be concentrated in the Non- Residential sector and contractors (general and trade) usually specialize in only one of them. Table 1.1 provides further definition of the composition of each sector.

Table 1.1 Composition of the three distinct industry sectors

Residential Buildings	Non-residential Buildings	Civil/Infrastructure
Single family housing	Transportation	Transportation
Multi-family housing	Industrial	Energy generation
	Administration	Utilities (power, gas, water, etc.)
	Commercial	Telecommunications
	Health, welfare and safety	Environmental/conservation
	Amusement and recreation	Resource development
	Educational, cultural and scientific
	Religious
	Military

Two important sub-sectors imbedded in this classification are, first, Alterations, Renovations & Repairs, and second, Heavy Industrial construction (petro-chem, manufacturing, etc.). The first of these expenditures is substantial and only tracked in the Residential sector where they represent roughly 33% of the total. The second is distributed under the Industrial and Civil sectors. The relative level of activity between the sectors varies of course over time. During the last 20 years for example, the investment in residential construction has witnessed a high of 57% of total construction put in place in 2005 to a low of 28% in 2009.

Of further statistical interest is the split between public- (21.4%) and private-funded (78.6%) construction, which is skewed due to the fact that virtually all residential construction in the US is put in place by the private sector. Looking at just the Non- residential and Civil sectors gives a different picture, with 48% public and 52% private. More detailed statistical data is available at Census.gov.

Industry Characteristics

Nineteen characteristics define the construction industry that make it very distinctive from other sectors of the economy. Many of these are being challenged now and this current activity will be addressed later.

1. Cyclical Demand

The industry is susceptible to extreme swings in economic activity. Sectors within the industry are well known for the tendency to over-build. A trend develops a need in, for example, hotels at a particular location. Developers are attracted to the opportunity and eventually build too many hotel rooms. Building of hotels draws to a halt and none are built for another five or ten years. Any contractor or designer specializing only in hotels suffers. This leads companies to diversify across many facility types and tends to inhibit the benefits that come from specialization.

2. Variable Places of Work

Unlike manufacturing processes of production, in which the final products are in motion while the instruments of production are stationary, in construction the relationship is reversed: the products become fixed while the ambulatory fixed capital and the hypermobile construction worker … are moved, or find their way, to new sites.

(Projecting Capitalism, Marc Linder (Westport CT, Greenwood Press, 1994), p. 3)

In other words, clients want their projects built where it makes sense for their own interests, not those of the designer or contractor. This is probably one of the most significant characteristics that separates the construction industry from all other producing sectors.

3. Semi-Industrialized Status

For the most part, construction remains a craft-based undertaking with much of the final product being assembled on site. Large sections of the industry are, however, highly industrialized, such as for window glass or wallboard production. Other elements rely increasingly on off-site prefabrication, which is a feature being used now by designers and contractors to improve productivity.

4. Low Capitalization

The capital investment needs of construction companies are limited to tools and equipment and for designers, IT and office equipment, all of which may be leased annually or project by project, making it an easy industry to enter from this aspect. Ultimately growing contracting companies will need to build up working capital in order to secure bonds, and design companies will have the same needs to finance their receivables (outstanding payments from clients).

The corollary of such easy entry is the speed with which companies fold when little capital is available to weather difficult markets or explore new ones. Bankruptcy levels in construction are probably one of the highest of any sector in the country, although no reliable statistics seem to be available.

5. Minimal Recourse to Financial Markets

It is surprising how few companies in design and construction choose to go public. Only 18 of the Standard and Poor's 500 companies in 2020 were in construction and of these, 11 were building product and equipment manufacturers and four were homebuilders. On the other hand, nearly 15% of the Forbes Top Private Companies (2019) are firms that draw their main revenues from design and construction. One has to assume therefore that most companies prefer to be privately financed, and perhaps Wall Street is wary of an industry that is so cyclical and loaded with risk.

6. Highly Fragmented

Everyone familiar with the industry is well aware of this phenomena – the numerical dominance of small entities. There are perhaps 850,000 businesses operating in the industry, and it is a reasonable assumption that two-thirds of these employ less than four people.

Each year the Engineering News Record tabulates the top US Contractors, Designers and Owners and includes, among other data, their volume of construction put-in-place (contractors), or revenues earned (designers), during the year. For 2019 the market share for the top companie...