Where Construction Margin Really Goes and Why Owners Should Care
By Josh Levy, CEO & Co-Founder, Document Crunch
After more than a decade as a construction attorney, I learned that most project disputes don’t start with bad intentions or dramatic failures. They start quietly, long before work begins, when contract terms are accepted, misunderstood, or never operationalized.
Today, as projects grow larger and delivery timelines compress, this gap between contractual intent and field execution, on all sides, has become one of the most underappreciated drivers of cost, friction, and strained relationships in capital programs. And while the financial impact often shows up as contractor margin erosion, the downstream consequences affect owners just as directly: increased pricing for delivery, delayed decisions, contingency pressure, and avoidable disputes that distract from delivering value.
At Document Crunch, we recently talked to a cross-section of top ENR contractors and analyzed their contract review workflows and margin outcomes. What we found wasn’t a catastrophic failure. It was a consistent, preventable, slow leak. Risk wasn’t missed because teams didn’t care. It was being missed because the industry’s workflows haven’t kept pace with the scale and complexity of modern capital projects.
Margin Loss is a Symptom, Not the Root Problem
In construction, margin or fee erosion is often attributed to execution issues: schedule delays, scope growth, or productivity challenges. But those symptoms frequently trace back to decisions made, or deferred, during pursuit and preconstruction.
Across the portfolios we studied, the same categories of issues surfaced repeatedly after award, when leverage was gone and teams were already mobilized:
- Liquidated damages provisions without meaningful caps, identified only after delays materialized;
- Payment terms such as pay-if-paid clauses and extended retainage that quietly constrained working capital;
- Ambiguity around allowable change order markups that slowed pricing cycles and fueled disputes;
- Consequential damages language flagged but never renegotiated;
- Strict notice requirements missed by project teams unaware of timing or recipient obligations;
- Confusion between contingency rights; and
- Insurance requirements embedded in specifications but missed during bid pricing.
None of these risks are surprising. In fact, they’re routine and come up time and time again. That’s precisely the problem.
Individually, each provision might seem manageable. Collectively, they create predictable, measurable fee erosion and operational friction that compounds across a portfolio. For owners, this often surfaces as slower issue resolution, defensive behavior, and disputes that feel unnecessary in hindsight.
Why This Keeps Happening, Even on Sophisticated Programs
The root cause isn’t lack of expertise. It’s structural capacity.
Consider the realities of pursuit teams today. Lead estimators often manage five to 10 opportunities simultaneously, each with two- to three-week bid windows. A thorough contract review can take a day (or even more) and should involve numerous stakeholders to be done right. This condition simply doesn’t support systematic evaluation across every project.
As a result, organizations rely on heuristics like document length, familiarity with project type, and prior client experience to decide where to focus attention. These shortcuts feel reasonable but correlate poorly with actual risk; especially when every project can be so different, based upon so many factors. In some cases, especially when legal resources are stretched thin or roles are vacant, contracts proceed to execution with minimal review at all.
Even when risks are identified, another breakdown follows: knowledge transfer.
Preconstruction teams flag issues that never reach operations. Contract summaries take hours or days to prepare manually, so they’re deferred. Project managers start work without clarity on payment timing, notice procedures, or change pricing rules. The result is not just lost margin. It’s lost alignment.
As one operations leader told us: “We identify risks, then watch teams step on the same landmines because nobody briefed them.”
Why Owners Have a Stake in Fixing This
From an owner’s perspective, these breakdowns create ripple effects. When notice requirements are missed or change procedures are unclear, decisions slow down. When payment terms are misunderstood, trust erodes. When disputes arise over issues that could have been avoided with early clarity, projects lose momentum. Even if owners don’t bear the financial exposure, they have an interest in strong project execution done by a strong contractor base. When projects go south, and contractors’ businesses go south, owners end up with less competitive contractor pools, and/or increased pricing on their projects. Nobody wins.
Owners increasingly expect contractors to move faster, assume more risk, and operate with tighter margins. At the same time, contract structures are becoming more complex, not less. Without better systems to translate contractual intent into executable guidance, friction becomes inevitable, even on well-run programs.
A construction industry with fewer disputes doesn’t start in mediation or litigation – it starts before work begins, with shared clarity around rights, responsibilities, and processes.
What Leading Organizations Are Doing Differently
The organizations making progress here, both owners and contractors, aren’t relying on heroic individuals or “silver bullet” tools. They’re making structural changes to how risk ownership and information flow.
First, they’re redistributing responsibility. Estimators are accountable not just for cost accuracy, but for identifying contract provisions that affect pricing and cash flow. Preconstruction leaders treat risk briefings as required deliverables, not optional handoffs. Project executives ensure teams understand notice requirements and payment mechanics before mobilization.
Second, they’re operationalizing contract knowledge. Instead of abstract legal summaries, they create practical playbooks: how to submit payment applications, how to price changes, who must receive notice and when. The focus shifts from what the risk is to what teams must do.
Third, they’re standardizing risk assessment across portfolios. Institutional knowledge, what has caused disputes in the past and what should trigger escalation, is documented and reused rather than rediscovered. Risk review becomes systematic, not dependent on individual availability.
Finally, they’re treating knowledge transfer as a strategic capability. Contract translation happens before execution, while negotiation is still possible. Governance frameworks clarify when accelerated processes are acceptable and when higher verification standards apply.
The outcome isn’t fewer contracts, documents, or simpler terms. It’s fewer surprises and stronger working relationships.
Designing Workflows for the Industry We Have Today
The construction industry has invested heavily in improving how projects are built. Now it must invest with equal seriousness in how agreements are translated into action.
Post-award fee erosion isn’t usually driven by massive failures. It’s driven by routine risks accepted by default and intelligence that never reaches the field. The capacity constraint is real. The knowledge-transfer gap is real. But neither is inevitable.
Organizations that continue relying on manual, serial processes and siloed expertise will face increasing pressure, both financially and relationally. Those that develop scalable, systematic approaches to risk assessment and knowledge transfer will preserve margins, reduce disputes, and deliver more predictable outcomes.
The margin being lost today isn’t disappearing overnight. It’s leaking slowly, but it’s predictable and preventable. The real question is whether our workflows are designed for the scale and complexity of the industry we’re operating in now or the one we left behind years ago.
Interested in the data behind these patterns and how leading organizations are addressing them? We recently published an industry analysis on where construction margin actually goes and why. Read the full report here: https://hubs.la/Q03_Nhwr0
About Josh Levy, Co-Founder and CEO at Document Crunch Josh Levy currently serves as Document Crunch’s Chief Executive Officer.
Josh co-founded Document Crunch having spent much of his career building upon extensive leadership and expertise counseling the construction industry. He has worked for ENR Top 50 firms and has led departments earning $1 billion annually. Josh graduated with honors from the University of Florida with a Bachelor of Science in Construction Management and earned his Juris Doctorate from the University of Miami, graduating magna cum laude. Document Crunch is the culmination of all of these experiences. His vision is to raise the bar of the entire construction industry.