One Simple Trick for Fixing Construction
Better estimates will not fix a market built on hidden prices. Cost-plus contracts show how transparency can make construction more predictable, efficient, and profitable.
“A good estimate is the accurate summation of many small errors.”
An experienced estimator said this to me recently. I nodded. It sounded about right.
Then I thought about what it actually means.
If underestimating one scope is expected to cancel out overestimating another, the final price is not accurate because the estimate is good. It is accurate because enough bets happened to offset each other.
That is not a sober financial projection. It is a portfolio of small gambles.
Construction does not need one more estimating trick. It needs prices that are easier to see.
The simple trick is transparency
Price transparency makes markets more predictable. It also reduces waste.
For contractors, the clearest way to put that principle to work today is a well-run cost-plus contract.
Cost plus replaces a hidden risk premium with visible project costs and an explicit contractor fee. The owner can see what labor, material, equipment, and subcontracted work actually cost. The contractor does not have to guess at every future price, bury a contingency inside the bid, and hope the combined errors still leave a profit.
That does not make cost plus loose or uncontrolled. A serious cost-plus agreement defines:
- which costs are reimbursable;
- how the contractor's fee is calculated;
- what belongs in contingency and who can approve its use;
- how often the control estimate is updated;
- what records accompany each payment application;
- how savings, credits, rebates, and buyout gains are treated; and
- whether a guaranteed maximum price limits the owner's exposure.
Shared-savings incentives can reward both parties for beating the control estimate. A guaranteed maximum price can establish a ceiling. Audit rights and detailed project accounting keep the arrangement legible.
The point is not “spend whatever it takes.” The point is to control cost using real information instead of controlling it with a guess made before the work began.
Why fixed-price bidding feels like gambling
Construction prices are fragmented and variable. The same scope can receive wildly different bids based on workload, timing, incomplete documents, local conditions, or how badly a bidder wants the job.
Meanwhile, the cost of goods and services can change during construction, and a contractor's target margin changes as demand rises and falls.
The common response is to add “healthy margin”—enough to absorb unexpected costs on this project or another one, but not so much that the bid loses.
Estimators are blindfolded, trying to pin the tail on the donkey.
Every bid also consumes real time. A contractor reviews drawings, collects trade pricing, makes assumptions, and commits to a number with uncertain profit. Many of those bids were never truly competitive. That effort becomes waste before construction even begins.
Better estimating tools can make the gamble more informed. They do not remove the incentives that created it.
What a Kerala fish market teaches construction
Robert Jensen's influential study, The Digital Provide, examined what happened as mobile phone service reached fishing communities in Kerala, India, between 1997 and 2001.
Before phones, fishermen at sea had limited information about prices at different coastal markets. They had to choose where to land without knowing which market had demand. One market could have excess fish going unsold while another had scarcity and higher prices.
Mobile phones made price information available before the fishermen committed to a destination. Jensen found a dramatic reduction in price dispersion, the elimination of waste, and gains for both producers and consumers.
The surprising result was that this was not a zero-sum transfer from buyers to sellers or from one group of fishermen to another. Information recovered value that the market had been wasting.
Modern construction already has phones, messaging, social media, estimating software, and project management platforms. Yet bidding can still resemble the old fishing market.
The mistake is confusing communication technology with useful information. Construction has faster ways to communicate, but powerful incentives still keep real prices hidden.
Cost plus changes the incentive
In a lump-sum bid, the contractor benefits when actual cost stays below the price, while the owner benefits from believing the price is as close to cost as possible. Both parties may cooperate, but the commercial structure starts them with different information and different incentives.
Cost plus makes the actual cost part of the shared project record. The contractor earns an agreed fee for managing and delivering the work. The owner gets the information needed to choose between budget, scope, schedule, and quality while those tradeoffs can still be controlled.
This is especially valuable when design is evolving, lead times are unstable, or the work contains too many unknowns for a reliable fixed price.
It is also more work.
Open-book accounting, payment support, cost coding, forecasts, approvals, and audit-ready records add overhead. Cost plus replaces some of the excitement—and occasional windfall—of a successful lump-sum gamble with process and a steadier, more modest return.
That can be a difficult cultural sell. But sophisticated owners who value price predictability and control over budget-versus-quality decisions are already driving better incentive structures.
For contractors, the payoff is a business that does not depend on hidden margin inside every scope to survive.
What is Buildplus?
Buildplus is the payments, expenses and invoicing platform built for contractors running cost-plus jobs. Every payment, swipe and reimbursable expense stays tied to the project it belongs to.
Offsite construction makes prices comparable
Cost plus improves information inside a project. Offsite construction can improve information across projects.
The usual story is that prefabrication has perennially overpromised and underdelivered. That overlooks how much construction has already moved offsite for good.
Precast concrete structures, prefabricated roof trusses, precast brick panels, and manufactured windows are established parts of the market. Residential windows are no longer artisanal building elements. They are highly engineered products sold in a competitive market with specifications and prices that can be compared.
As more of a building becomes a product, a larger share of project cost moves from the opaque world of one-off contract bidding into the more legible world of material purchasing.
When a contractor can price-shop a panelized wall system and compare it with traditional framing, the market can reward the option that delivers the best combination of cost, quality, schedule, and performance.
That creates incentives for competency, efficiency, and innovation—not merely for carrying the right hidden contingency.
Transparency can make the whole market more profitable
Smaller contractors often have the least room for estimating error. They cannot spread one bad job across a large portfolio, and they may lack the historical data or buying power of larger competitors.
More predictable pricing gives those firms a better chance to submit competitive bids with sustainable margins. It also helps established contractors grow without multiplying their exposure to uncertain work.
Owners benefit from clearer choices. Contractors benefit from more dependable profits. Efficient trades and manufacturers benefit when buyers can compare real value. Waste that once disappeared into unused bids, excess contingency, unsold capacity, and poor allocation becomes available to the project instead.
That is the construction version of Jensen's rising tide.
The takeaway
Construction will not estimate its way out of an opaque market.
The one simple trick is to make prices visible.
Cost-plus contracts are the most practical way to do that now. They replace guesswork with real costs, an explicit fee, and controls the owner and contractor can understand. Offsite construction pushes the same principle further by turning one-off scopes into comparable products.
Technology matters only when it improves the information available to make a decision. Better information reduces waste. Better incentives make that information worth sharing.
And a good construction business should earn its profit deliberately—not by hoping many small errors happen to cancel each other out.