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Justin Reginato, Ph.D.
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The Dangers of Low Profitability in the Construction Industry

1/21/2018

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Please read this article:

The Lessons of Carillion's Demise
Pay particular attention to this quote:

"...The structural problems in the U.K. market, though, go way beyond Carillion. The market is fragmented and highly competitive. Operating margins are estimated to be in the low single digits, about half those of France.
Competition is a double-edged sword. It's good if taxpayers get a better price from a diverse array of bids, but bad if overly aggressive bidding to secure contracts leads to delays in completing projects or even their failure. A March paper commissioned by the Business Services Association warned that only one in five of the largest public-service providers made a commercial return in five years. Focusing myopically on price can lead to unexpected long-term costs."

Sure this happened in the U.K. But if you think the same cannot happen in the U.S. with the issues we have with low bidding on public works projects that have chronic issues (read anything about the state of tunnel construction in the U.S. as Exhibit 1), then you are fooling yourself.

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