The Construction Industry Has a $1.6 Trillion Problem — And Traditional Contracting Is Making It Worse

The Productivity Crisis in Construction

McKinsey’s research on global construction productivity is worth sitting with. Large construction projects typically take 20% longer than planned and run up to 80% over budget. The World Economic Forum puts global construction productivity growth at just 1% annually over the past 20 years — while manufacturing has grown at 3.6% over the same period. The construction industry manages approximately $10 trillion of economic activity annually, and its fundamental inefficiency is one of the most significant and underaddressed productivity problems in the global economy.

The causes of this underperformance are multiple and interconnected. But one structural factor stands above the others: how we contract.

What Traditional Contracting Does to Projects

The Design-Bid-Build model — owner designs, contractor bids lowest price, adversarial relationship ensues — was developed in an era when construction projects were simpler, supply chains were local, and the pace of design development was slow enough that a complete design before bidding was achievable and meaningful.

None of those conditions reliably apply to large infrastructure programs today. Designs are complex and interdependent. Supply chains span continents. The world changes between schematic design and construction completion in ways that no set of contract documents can fully anticipate.

The traditional model’s response to this complexity is to push risk onto the contractor through fixed-price lump sum contracting. The assumption is that competition at tender will produce an efficient price, and that forcing the contractor to absorb risk will make them manage it efficiently. In practice, the assumption fails regularly.

Fixed-price contracting on complex infrastructure does not eliminate risk. It relocates it — to the contractor’s contingency, to the claims and disputes process, and ultimately to the schedule and budget outcomes that the owner cares about most. A contractor who has absorbed risks they cannot manage will not manage them efficiently. They will manage them legally, through change orders and claims that shift liability back to the owner at the worst possible time.

What Progressive Models Change

The defining characteristic of progressive contract models — CMAR, Alliance, PDB, ECI, and IPD — is that they bring the contractor into the project before the design is complete, under terms that align their financial interests with project outcomes rather than against them.

Construction Manager at Risk engages the contractor during design under an open-book preconstruction agreement, culminating in a Guaranteed Maximum Price negotiated on the basis of real cost data rather than competitive desperation. Alliance Contracting creates a single entity from owner, designer, and contractor with a shared risk/reward pool that eliminates the claims dynamic entirely. Progressive Design-Build selects the delivery team on qualifications and develops scope and cost collaboratively before the price is locked. Early Contractor Involvement brings field expertise into planning before the design is committed. Integrated Project Delivery ties the financial outcomes of all parties to the project’s performance against shared targets.

Each model addresses the same underlying problem — the adversarial, information-poor, incentive-misaligned dynamic of traditional contracting — through a different structural mechanism.

The Global Shift

The adoption of progressive models is accelerating globally. Australia pioneered Alliance contracting for infrastructure and has three decades of institutional experience with it. The UK is rebuilding its PPP framework after the political collapse of PFI. Canada has adopted CMAR and Progressive Design-Build for transit delivery, with Metrolinx’s programs among the most ambitious implementations. The GCC is deploying PPP models across 98+ projects in Saudi Arabia alone, with a National Privatization Strategy targeting 220 transactions by 2030.

The shift is real, and the evidence base supporting it is growing. But the honest version of this story — which I will continue to tell in this series — includes the failure modes. Not every progressive model works in every situation. Picking the wrong model, or applying the right model without the governance, stakeholder readiness, and organizational capability it requires, can produce outcomes worse than traditional contracting.

The coming weeks of this series will break down each model, examine global case studies of both success and failure, and provide a framework for selecting and implementing progressive contracting in the Saudi and GCC context. This is the honest version. Not the sales pitch.