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A new multifamily project was constructed and within three years there was so much rot that the structure needed significant repairs. Another project had no problems, but the water-resistant barrier was lapped backward; the developer demanded restitution. On yet another project, the owner of the company cannot talk with the craft workers because he doesn’t speak their language; however, the owner relies on their knowledge of local building codes to meet the project’s requirements.

All of these examples come from real cases. What do they have in common? All are contributing to a sea change in the construction industry, one separate from the current lack of financing and other woes plaguing the development industry.

The dramatic change is access to the industry. Not only is a financial shakeout taking place, but also one in regard to competence. What is most remarkable is that it is not the construction industry, but rather the insurance companies and law firms that are leading the charge. Insurance companies are determining who may enter the construction business. Any contractor that cannot demonstrate competence via a no-claims record may not qualify for insurance coverage or may pay premiums that render their services noncompetitive.

The result may be fewer, but more competent contractors that surely become more cautious. While the public may see higher quality, it will come at higher prices. Not only will the price of new construction and renovations increase, but fewer unemployed workers will return to their jobs in the industry.

The construction contracting business has always been a cauldron of free enterprise thinking. It has attracted risk takers looking to start enterprises with promises of greater rewards. In all the hubris of the last boom these novice entrepreneurs forgot a key paradigm: Long after the last check has been cashed and the project has been completed, it is the quality of the work that speaks the contractor’s name. The customer who was not well served is now demanding that accounts be squared. It was a flip-and-sell game of musical chairs in which everyone believed they would not be the ones without a chair when the music stopped.

So, who has taken the reins? First, the insurance carriers find themselves in the spotlight. They are the only ones remaining with any assets of substance. Their response is to be very selective for whom they write policies. No longer is it a given that insurance will be available. While they are spending a fortune defending themselves, they will decide who gets into the general contracting game and who does not. Secondly, the state government is ratcheting up the requirements for obtaining a general contractor’s license.

Both parties are motivated by either public interest or their own, but neither is in the best position to balance the issues at play. What is the upshot? There is an ongoing consolidation, and the small player, an industry mainstay, will be pushed out of the business. Buildings will still go up, but the names on the contractor signs will become increasingly familiar on the construction landscape.

Christian Steinbrecher is the owner of Capital Project Consultants and is on the board of Transcape LLC, a full-service transportation and infrastructure consulting firm. Contact him at [email protected].