Asymmetric Information

Asymmetric information exists where one party has more or better information than the other. This is evident in nearly every industry. But few sectors see its effects as sharply as the construction sector. In the residential and commercial industries, pricing can fluctuate significantly between contractors for the same project. This gap in pricing and lack of transparency often leads to confusion, frustration, and poor outcomes for both clients and trade partners alike.

Why Asymmetry Exists

This asymmetry stems from both sides.

Clients often don’t know which questions to ask, or they unintentionally overcomplicate the process. In reality, construction pricing is based on simple arithmetic operations, including addition, subtraction, and unit counts. Yet because clients don’t fully understand the true simplicity in the process, they struggle to evaluate bids.

Contractors, on the other hand, often take advantage of this lack of clarity. Especially in fixed-price or design-build contracts, contractors can offer guaranteed pricing but then pursue the lowest-cost labor, materials, and internal processes, along with opaque change orders, to maximize their margins.

By providing only high-level numbers, or none at all, Contractors maintain control of the narrative, making it difficult for clients to understand and ask questions.

This lack of transparency results in an “unsophisticated shell game,” where numbers are shuffled but never revealed. For profit-driven contractors, this opacity becomes a pricing advantage, albeit for a brief period.

Real-World Consequences

A few years ago, we served as the owner’s representative on a project where the client initially -selected a design‑build contractor using a fixed-price contract. Once involved, we documented numerous quality issues:

• Structural elements missing or improperly installed 

• Work not completed to code 

• Non‑engineered components 

• Poor execution of basic building practices 

• Corners cut throughout the project in both terms of management and construction 

These issues were not accidental; they were the direct result of a contractor driving aggressively toward cost reduction while maintaining a fixed price.

When we examined the contract and construction budget, the lack of transparency provided to the client was both strategic and overtly obtuse.  The contractor was unable to provide cost information or construction detail documentation.  In short, the project ultimately led to a lawsuit between the client and the contractor, with no clear winners.

The project cost was initially fixed at $2.9 million, but with change orders and repairs, the project ultimately totaled $3.3 million.  Not surprisingly, the $3.3 million cost is what we estimated the project would cost 3 years prior.

The market primarily sets material and labor pricing; the only way to lower costs is by lowering quality, hiding problems, or using cheap, unspecified materials/labor.   Some contractors will tout preferential pricing with the supplier, but here, too, asymmetry runs rampant.

Another example of that preferential supplier pricing played out on a window package for a home we were building in a gated community.

The community had a construction manager who oversaw the construction of the other homes, and we were brought in by the client for their project only.

The area construction manager informed us that we were to use their material suppliers and, most interestingly, their window supplier for our project.  The window package was approximately $300,000, and there are only two suppliers of this brand in the state.  During the project's pricing, we received a bid from the preferred window supplier, whom we were instructed to use.  We also received a bid from the other supplier, who is approved to sell this window brand in the state.

In short, the preferred window supplier we were told to use was 17% more expensive than the other supplier for the exact same window package. 

Having the data, coupled with a fully transparent process, allowed us to save our client approximately $51k on the cost of their windows alone.

To date, the area construction manager for this development still uses the more expensive supplier and continues to build fixed-price homes for other clients, ensuring that homeowners do not understand what goes into their homes.

If it sounds too good to be true, then it probably is.

Transparency Changes Everything

Transparency isn’t just a value; it’s a system. Our company provides clients with:

• Every invoice 

• Every receipt 

• Every hour and minute billed 

• Real-time cost tracking 

• Line-by-line budget justifications 

• A complete and open accounting structure 

This eliminates the fixed-price/change-order shell game entirely. Clients can see exactly where their money is going, and contractors are held to standards that reward quality, communication, and accuracy—rather than cost manipulation.

If clients want to understand their projects and evaluate contractors effectively, they need to engage directly with the accounting and cost-tracking process. The more informed they become, the less room there is for asymmetry (also known as graft) to exist.

Looking to the Future

On a brighter note, things seem to be changing.

First, there’s a slight resurgence of interest from younger people who want to build better, cleaner, and more precise work.  We have employed young apprentices from Germany and area high schoolers who are keen to enter the trades as an alternative to a traditional bachelor's degree.  This trend is encouraging, as our belief is that 90% or more of the tradespeople working today fell into the trades.  They didn’t know what to do after high school, so they got jobs in construction.  By in large, they hate their careers, and it shows.

We see the newer entrants to the industry making construction a choice.  They are building careers and seeking opportunities to rewrite the construction worker mindset of the past.

Second, AI is empowering clients with greater access to information, better cost comparisons, and improved oversight.  Our company has been experimenting with various AI platforms for loading full plan sets and asking for detailed bids.  The AI tools are not perfect, but they do a very good job at providing a baseline level of understanding that will allow a client to ask better questions when their contractor defaults to the old shell games.

Our industry is slowly shifting toward more transparent models, not because contractors want it, but because clients are demanding it. Our firm will lead the charge, setting new expectations that reward honesty, clarity, and above all, high-quality construction.

Conclusion

Information asymmetry has shaped construction pricing since the dawn of time, often to the detriment of clients.

Transparency is not only achievable but also transformative. Through open accounting, real-time data, and a renewed focus on quality, the construction industry has the potential to become more trustworthy, more efficient, and ultimately more aligned with the needs and values of all the people it serves.