In this video, Tom Conzelman, President, Apex Project Consulting, Inc. shakes-up and challenges the status quo by declaring that for design, engineering, construction and real estate development project leadership, the value proposition must include a Return On Investment. See how Apex Project Consulting has saved clients millions of dollars in hard and soft design, engineering and construction costs.
What would you think if I said that one of the project leader’s most important jobs is forecasting the future? I’m crazy? Out of touch? Yet it is absolutely true!
If a project schedule is not an accurate and reliable predictive tool, then what’s the point? If a detailed project schedule isn’t used to integrate, communicate and predictably ensure the on-time, sequenced contributions of project team members, then it’s nothing more than a simple calendar – sans the scenic photos.
At first pass this might sound a bit over the top, but consider this.
A project schedule is to a calendar, what a thermostat is to a thermometer. One simply reports the conditions while the other acts to actually control and predict conditions.
Only the thermostat has any meaningful value. Which do you want to be (alternatively, which are you?)
Your garden-variety project manager is charged with tracking the budget, updating the schedule, and hosting project status meetings. I would suggest that’s babysitting and not real project leadership.
In the hands of a seasoned expert, the project schedule is a powerful predictive tool. It’s like a roadmap. Or a GPS navigational device. If it doesn’t help predict where you’re going, then exactly what’s the value? Much like a financial forecast, the value is not in telling you where you’ve been, but where you’re going to be. This is actionable information.
Knowing where you’ll be, when you’re going to be there, and what tasks are parts of the critical path is essential to confidently arriving at your target completion date. This knowledge will empower you to make critical business decisions and course corrections before it’s too late. It’s another key element of effective project preplanning.
A well honed project schedule also influences the project outcome.
You may recall from previous posts, that initial conditions are always the greatest indicator of final outcome. Thus an empirically derived schedule is a powerful tool. Consider this example situation.
A RECENT EXAMPLE
A client came to us at the end of last year. Their challenge – and our mission – was to get their new facilities designed, engineered, permitted and constructed – as well as their personnel relocated to the new facilities – before their lease expired. There was no way to know the magnitude of this undertaking without some analysis.
STEP ONE: OBSERVE
The first step towards influencing the project’s final outcome is to objectively observe and assess initial conditions. This is never more true that when it comes to the project schedule. The first thing to do is determine what the prospective schedule predicts. That is, when the fundamental tasks are linked in logical, predecessor-successor sequence, does that project schedule actually predict success? If you can’t make it work on paper, it’s not going to work in real-time.
STEP TWO: ASSESS
More importantly, the window of opportunity to make course-corrections or to take remedial steps is before the clock runs out, not after. Or to put it differently, “bad news doesn’t get better with age.” It’s better to find out now – while there is still some elbow to create new or revised schedule improvements.
STEP THREE: TAKE ACTION
In the case of this client, the data suggested that they would barely make the move-in date before their lease expired. However, instead of being viewed as bad news it was correctly interpreted as predicting success – but only if we started the project rolling ASAP.
MAKE THE CHANGE
One of the first steps with any project is not to just report out the “temperature”. It’s to predict the temperature and then set it at what you or your client wants it to be. YOU are the thermostat!
Taking this view of the project schedule will turbocharge your ability to stay on schedule and achieve all your project milestones.
Remember, it’s a project leader’s job to predict the future. Or as Yogi Berra said, “It’s tough to make predictions, especially about the future.”
So you graduated from law school. Now what?
You may think that there are plenty of lucrative opportunities created by having a law degree – and general speaking you’d be right. It’s just that actually practicing law isn’t always one.
If you aren’t leaping out of the starting blocks from an elite school, turning the sheepskin into cash flow is challenging. You might be better off as a barista than as a member of the bar.
There is anecdotal evidence (no pun intended) that a Juris Doctorate (JD) isn’t always the springboard to upper-middle-class land. According to a quick search of indeed.com, the average California attorney makes about $53,000 per year.
But before you conclude you’ve made the educational investment equivalent of buying-high and selling-low, consider just a few of the alternatives for which a JD is an advantage.
1. Capitalize on Your Versatility And Talents
A law degree makes you more versatile in the marketplace. Versatility translates into more money. It works in the business world the same way it works in sports. The greater the combination of skills, the more valued the athlete. The same principle applies to a JD – particularly when used outside of the legal field.
If you can run a 4.35 second 40-yard dash, can jump over 42 inches straight-up and can leap almost 12 feet in the broad jump, you’re pretty versatile. That kind of versatility and talent translates to money.
Those that can do more get paid more.
2. Sophisticated Consumer
A law degree makes you a more sophisticated consumer of legal services. You can speak the language of lawyers, adroitly discerning bloviating from real business. It’s a confidence booster too.
I admit it. I used to be intimidated by attorneys. Maybe that describes you as well. Certainly I was respectful of the what I-didn’t-know-I-didn’t-know blind spot. The good news is that absent the fear-factor you’ll feel more empowered to speak-up as well as mix it up; all to your client’s or company’s advantage.
Again, if you can do more you’ll get paid more. This point was illustrated for a client of mine recently. They were in the process of negotiating a build-to-suit agreement with a developer.
The short story: Negotiations between my client and the prospective developer/landlord had slowed. The friction wasn’t necessarily about typical land development issues; storm water retention, traffic circulation, soils, available volume and pressure for fire suppression, etc. It was about responsibility for risks.
Specifically, which party was responsible for issues and risks involved in the land development?
On the cross-country conference call between my client’s three attorneys (they always roam in packs) and their broker, debating the options, I jumped-in.
I suggested that they were looking at the issue from the wrong perspective. Whether our client, whose core business was not land development, could or should take on the various development challenges was not the question. Instead the only question was: Why weren’t we making this the responsibility of the developer through the real estate transaction?
An interminable pause followed.
The attorney from New York released the conversational parking brake and said, “That’s right. We should make these (issues) reps [representations] and warranties.” The idea was seconded by the other pair of lawyers. The result? My client avoided hundreds of thousands – if not actually unbounded – risks and costs.
If you’ll think more broadly, you’ll find that the JD multiplies the applications and advantages of your natural business acumen.
3. Career opportunities
A quick Google search reveals a long list of career opportunities enhanced by a legal background. In fact, it’s probably easier (and shorter) to enumerate the things that aren’t improved with a law degree. Pastry chefs could probably do without. But not if they’re opening their own business.
From politicians to plumbers, a JD will help you be more effective and useful (assuming you’ll allow that using the word “politician” and “useful” in the same sentence is not an oxymoron).
If gives you an advantage in almost all aspects of business.
4. The Never-Ending Need for Contracts
Almost all human interactions are memorialized in some fashion. Whether they’re written or unwritten. This includes rental agreements, purchase agreements, factory warranties, prenuptials, and even waivers so your kids can enjoy the local skate park or participate in organized sports. You’re probably mentally adding to this list right now.
Consider the real estate industry. I can’t think of another industry so burdened by a morass of documents. All things real estate-related seem to have an agreement attached to them. Whether it’s an offer sheet, letter of intent, sale and leaseback, work letter, purchase and sale agreement easement, right-of-way, or lease agreement, the list goes on ad infinitum.
A friend of mine quoted one of his professors saying, “If people fully understood the impact of taxes on their lives, that’s all they would talk about.” This is also true of contracts.
In fact, the more saturated your industry is with legal agreements or attorneys the greater the advantage. Again, the point is you don’t have the practice law to get full-time, year round benefits.
There’s more to it than helping yourself, you can also help your neighbor.
5. Givers Get More Back – Volunteering
I’m not talking about the straight ahead pro bono stuff. That’s important. But there’s more.
You could teach. I did. There are a lot of people hungry for even just a little legal help. While I taught Contracts for Contractors, it could be a smaller commitment. Maybe you might help a neighbor draft a letter refuting an excessive medical bill. Or it might be providing some guidance to a single-parent navigating a Travel Consent Form.
In fact, anyone that interacts with the legal system or courts could use your help. Consider CASA.
Court Appointed Special Advocates (CASA) is a national association in the United States that supports and promotes court-appointed advocates for abused or neglected children in order to provide children with a safe and healthy environment in permanent homes.
It’s not required that you have legal training. But it helps.
Everyday opportunities to help are all around. Being more helpful feels great, and you’ll also benefit from the authentic networking that develops when you volunteer your time.
So, To Wrap Things Up
If after you’ve graduated, the 80 hour work weeks and the pedestrian salary aren’t what you had envisioned, don’t worry. You’ll find that there are plenty of other opportunities to leverage your education, whether you graduated from Western State University, College of Law (my alma mater) or elsewhere.
Regardless of your profession or industry, in the long run, it will pay dividends your entire career.
What got me pulled into the law school wood-chipper was the need to survive in the lawyer-dominated, wireless real estate development industry. But what I got out of it was more valuable and enriching – economically and otherwise.
You’ll get more too.
Now, I’ll have that no-foam latte please.
FOR IMMEDIATE RELEASE -June 3, 2014—Apex Project Consulting, Inc., has successfully completed Tissue Banks International’s new Richmond, CA, facility that will house the company’s state-of-the-art ocular processing laboratory for musculoskeletal allografts, Apex President Tom Conzelman announced today.
Apex provided a broad range of diversified project development services including purchase and sale agreement consulting, building evaluation, architect and engineer selection/administration and construction contract drafting (modified GMP) as well as on-site construction management.
“We are proud to have been part of the Tissue Banks International team,” Conzelman said. “Working closely with their executive team, we were able to negotiate a strategic collaboration and partnership between the MEP engineering teams and the general contractor.”
According to Terrell Suddarth, Vice President of Product Engineering, Apex’s leadership “Resulted in over $2 million in hard cost savings and a 3 month reduction in the overall project schedule.”
At 57,820 sq. ft., the new facility includes show-case caliber offices and conference rooms, warehouse and approximately 20,000 sq. ft. of dedicated state-of-the-art ISO Class 5-8 clean processing rooms and labs. TBI/Tissue Banks International is a non-profit network of medical eye and tissue banks dedicated to the relief of human suffering through transplantation. More than 100,000 patients are treated with TBI tissue annually.
Apex Project Consulting, headquartered in Orange County, CA, leads projects throughout the western U.S. Apex has managed over a thousand projects from design through completion, including commercial, industrial, clean rooms, labs, manufacturing, and specialized environments.
General contractors are not commodities. Neither are architects or engineers. A commodity is a good or service without differentiation except price.
In today’s design and construction environment, contractors, architects and engineers are often considered interchangeable parts of the real property improvement process. Nothing could be further from the truth – or as expensive and risky!
Surprisingly (and sadly) though, many purchasing agents often consider general contractors, architects and engineers as commodities.
This “commoditization” of vendors works against the interests of the clients who hire them. This is true because of the incredible variety and complexity of project types. Mismatching a vendor to the project will ensure change orders, delays and rework.
Yet time after time, tenants, owners and other “improvers” of real property treat these professionals as commodities. Why?
There are many reasons for this, but just a few include:
1. Governmental and quasi-governmental procurement processes and regulations
2. Misunderstanding how to measure “performance” and “quality”
4. Deliberate or unintended bias
Not surprisingly, federal, state and local procurement processes are heavily regulated – often out of proportion to the result. The unintended consequence is that latitude to objectively evaluate dimensions other than price are stifled.
Governmental and quasi-governmental procurement processes often require that contracts only be awarded to the “lowest responsible” bidder. The “lowest responsible bidder” is a proxy for “meets minimum standards”. Regardless of the label, this ultimately results in a predominantly price-based award.
Price-based awards mean that the vendors are essentially interchangeable—an enormous error.
Misunderstanding How to Apply Other Dimensions
To some procuring entities, there is at least confusion, and maybe complete misunderstanding, about how to empirically measure dimensions of a vendor besides price. I see this a lot.
It’s most evident when procurement processes look more like a beauty pageant. Flashy presentations and glossy pictures saturate the material. Performance, quality and empirical metrics are marginalized.
This also opens the door to bias.
Great presenters and slick presentations consciously or otherwise get into the minds of the evaluation team. After all, if the presentation is terrific, won’t the results be the same?
Instead this is really just a low-bid-only, commodity selection process dressed up with slick photos, cool case studies and flashy presentations obscuring a deep-dive into the vendor’s abilities and past performance.
Inexperience is a second cousin of misunderstanding.
It’s not unusual for companies that relocate or build out new facilities to have no internal experience. No one has been at the company long enough to work through and learn the valuable lessons from an expansion or relocation. They are not to blame, it’s just a simple case of not-knowing-what-you-don’t-know.
Most companies will only relocate, expand or build new facilities once in in the career of the average employee. Thus there is no institutional knowledge.
Deliberate or Unintended Bias
Sometimes folks just play favorites.
I once was approached by a privately run college to take over the project leadership of their build-out and expansion program. I had a pleasant interview over coffee with the Corporate Director of Real Estate and Facilities. We we’re both sizing each other up.
As for me, I wanted to know what kind of hand I would be dealt if I agreed to consult with them? How would I be able to influence their success? I asked about whether or not they were married to the architectural and engineering team – one that I knew had a history of poor performance. The director hung his head a bit and said, “unfortunately, yes”.
It seems that one of the principals of the architectural firm was a golfing buddy of the president of the college – and the Real Estate Director’s boss. No amount of empirical evidence was going to convince them to change firms. With the architectural and engineering team occupying such a pivotal role (as they do with any project), it was impossible to be successful if the client wouldn’t at least consider alternatives.
Sometimes the bias is not intentional or at least not obvious at the conscious level, yet the net effect is the same.
There are several problems with treating contractors and design professionals as commodities.
• It allows bias to sneak into the decision making.
• Treating vendors as fungible commodities transfers the risk – and cost – of performance to the client.
• Because their offering is only price, performance is up to the client and or the client’s management team to control. However, once the contract is signed, project controls are often an ineffective substitute to simply matching the right vendor with the project.
Savvy procurement folks should demand empirical evidence of expertise. This allows the best experts to separate and distinguish themselves from the boastful or just plain bad.
Certain goods and services deserve to be categorized as commodities, differentiated only by price.
If price is all that separates one vendor from another, they’re merely commodities. However, expert professionals need to be differentiated by their expertise as well as price. This is critical for both the vendor and the purchaser.
Particularly in a low bid environment, design and construction professionals must be considered for their specialized expertise and NOT treated as interchangeable commodities.
• Industrial, commercial, ground up, laboratory, and manufacturing type projects, all require specialized expertise.
• Not having a process that matches a professional’s core expertise with your specific project requirements is the single fastest way to ensure busted budgets and broken schedules.
• Similarly, contractors can have many areas of expertise, but they generally concentrate on a few particular types of projects. Mismatching contractors to your project’s requirements will create problems that even money won’t fix.
Recognizing that there are many differences between the skills and abilities of architects, engineers, and contractors can save you time and money. More importantly, it will reduce your risk.
The best practice: Ensure that you have a proven process for empirically filtering and aligning the expertise of all the professionals you engage with the specific requirements of your project. This will still produce a competitive process, but one more aligned with getting the best experts – and the best experts are always the best value.
(…Everyone Uses Whether They Know It or Not)
There are a gazillion types of software, programs, catalogs and/or other tools for estimating construction costs. But all of these price-delivery tools fall into one of three basic categories.
What do these mean? How are they used? Which one should you use?
Glad you asked.
Analogous estimating (sometimes also called top-down estimating for reasons you’ll understand in a second) is a form of experienced, sophisticated guess-estimating. It’s also the handiest and least detailed.
Analogous estimating relies on experience. Cost information is derived from historical information from previous, like-kind projects. The projects need to be similar only in broad categories such as size, project schedule, industry type, (manufacturing, distribution, bio-tech, lab, etc.) and the type of the constructed or installed improvements.
For example, let’s say you’re using the Analogous estimating technique for a life science lab. Start by drawing on cost information that you have archived from previous similar projects. This would include mechanical, electrical, lab equipment, benches, finishes and flooring etc. Assuming the projects are similarly sized, an estimator could “analogize” the cost of the previous projects to the present example.
Architects and engineers are likely to select this type of estimating methodology.
This works well if the projects are similar in many broad dimensions. What the Analogous method lacks in specificity or detail it makes up for in speed and convenience.
Parametric estimating introduces a bit more empiricism. While not detailed down to every nut and bolt, it does rely on algorithms and mathematical relationships to establish cost.
Parametric estimating relies on the mathematical relationship of cost per unit. The unit can be square footage or length of cable or number of outlets or linear footage of wall. The point is that manageable chunks of the work are assigned labor and material costs. These unit costs are then multiplied by the quantities in the particular project.
Parametric estimating provides a much more higher level of accuracy and sophistication. As long as the underlying data is up to date and accurate, one can get high quality estimates without the tedium of counting every single carpet fiber.
While not as solid as Bottom-Up estimating, Parametric estimating is a great way to get a semi-solid estimate of costs without the brain damage and time required for a complete Bottom-up estimate.
This is the methodology used by almost all general contractors.
Bottom up estimating is a detailed quantity and labor take off. Materials and tasks are broken down into the smallest reasonable component.
Let’s take light fixtures for example. Imagine a matrix of every light fixture to be installed on the project. Naturally each light fixture would have an individual cost multiplied by quantity. Similarly each fixture would have a associated amount of time for installation. Multiply the number of fixtures by the time by the fully loaded cost of labor to install the fixtures and voila!, you’ve got a powerful, detailed component of the larger cost estimate.
Then basically rinse and repeat for every other element of the project.
This technique is embodied in a broad range of construction estimating software and books. But generally speaking, they’re all just automating or more efficiently executing the technique above.
This technique is essential, maybe even mandatory for competitive bid situations. On the other hand, if time is of the essence and the scope of the project is still a bit fluid, an Analogous or Parametric estimating technique may be more suitable.
Bottom Line (no pun intended)
It’s less important which of these methodologies you choose as long as you’re aware of what you’re getting.
A conceptual budget to provide a broad framework of the total cost of the project may be effectively accomplished with Analogous estimating. However in a competitive bid situation expert professionals, regardless of the software or tools, will perform some variation of Bottom-up estimating.
As long as the choice is informed and deliberate, each estimating technique has its place depending on the trade-off between speed and accuracy.
Either way there’s no substitute for experience. I’m reminded of the old saying, “Good judgment comes from experience and experience comes from bad judgment”. Choose wisely my friend.
Construction projects often involve a prime contractor located in one state and sub-contractors located in one or more other states. The construction project itself may be located in another state entirely. But when there is a falling out between the parties, where can or should the lawsuit be filed? Some contractors, in a position to leverage the award of the job to a subcontractor, will insist that the contract between the prime and the sub include a “forum selection” clause limiting where the subcontractor can file suit. For some out-of-state subcontractors, this could mean travelling thousands of miles to collect a debt or litigate an issue with the prime contractor. This has been a thorny issue that has created serious problems with risk assessment (pre-contract) for both sides as well as for savvy project leaders. When disputes arise, the question of venue or forum (the legally proper or convenient place where a party to an agreement should file a lawsuit) becomes a serious one for players in the design and construction business.
There are currently 22 states that have passed laws restricting or voiding forum-selection clauses in the interest of equity (fairness) and as against just plain public policy. The purpose of a forum-selection clause is to establish venue at the outset of the contract; when the parties are still playing nice in the sand box. Often times, this allows larger companies to leverage their subcontract with smaller companies in other states and essentially lock down the venue in advance; regardless of hassles to the other party. On the other hand, absent inserting this clause into the agreement opens the door to smaller contractors “forum shopping” (cherry picking the most convenient location). Prior to this issue being addressed by the Supreme Court, venue was established – and the law that would control the litigation – was based on the location of the actual initial filing. This deprives the prime contractor of the benefit of the contractual agreement with the subcontractor and or gives the advantage to the party that files first. This “forum-shopping” basically creates a race to the courthouse.
Forum selection clauses seek to nullify the general rule that venue resides where suit is filed by inserting a forum restricting clause in the contract. Until last October, however, the power to enforce these clauses depended heavily upon the original venue. In the case before the court, J-Crew Management Inc. alleged that Atlantic Marine Construction Inc., owed J-Crew $160,000 for work J.-Crew performed at a child development center near Killeen, Texas. When a dispute arose, J-Crew filed suit in the Western District of Texas, a clear violation of the foreign-selection clause. Instead of suing in Virginia which J-Crew’s contract required, J-Crew chose to sue in its home state. The original contract included a forum-selection clause establishing venue in Virginia. The U. S. District Court for the Western District of Texas held that J-spell Crew could pursue its claim in the Texas federal court. Atlantic Marine argued in its brief to the Supreme Court against the courts interfering with the contract terms between the parties. Atlantic Marine Construction Co. Inc. v. U.S. District Court for the Western District of Texas, 701 F. 3d 736.
On October 9, 2013, the Supreme Court ruled on the issue, settling the difference between the three most conservative Circuits in the United States and the rest of the country, and their ruling can be both complex and simple, depending on your viewpoint.
There are several inferences that can be drawn from the Court’s decision last year. First of all, while this is now settled law, there are several caveats that deserve mention. The court agreed that if the forum-selection process, or the contract foundation upon which it is built, is a product of fraud, it is invalid. Secondly, the court held when considering a motion to transfer the court should only consider public interest factors; to the exclusion of travel costs, convenience etc.
The important thing to remember here is that subcontractors are usually much smaller than prime contractors and consequently have far less resources. This makes it vitally important that subcontractors consider very carefully before agreeing to a forum-selection clause or, at the very least, insist that venue be local. Less clear are individual “if-you-build-it-here-you-need-to-file-suit-here state laws. However, the Supreme Court decision left little wiggle room for parties to argue for a transfer of venue absent a very strong public interest. In other words, the court held that simply arguing that it’s inconvenient (travel time and costs) to litigate out of state won’t be enough.
Tom Conzelman is President of Apex Project Consulting, Inc., a full spectrum project development and construction management consulting firm for commercial, industrial, healthcare and specialized-environment projects; both locally and across the United States. Mr. Conzelman is a licensed electrical contractor and general contractor (www.apexpjm.com). In addition to various project management credentials, Mr. Conzelman graduated from Western State University, College of Law and has taught Contracts-for-Contractors at the college level. This is not an offer or attempt to provide legal advice.
Businesses and property owners rarely begin projects with plans to fail. The fact is however that many projects do fail and many owners end up confused, looking around trying to figure out what happened and why. While there are many reasons for such failures most of these can be traced to a single problem: A lack of understanding of the contracts and contract drafting required to lock-in success.
Unfortunately this problem occurs not only with owners and contractors but with most Project Managers as well and this lack of understanding can lead to disastrous consequences.
Where the Problems Begin
There are two potential problems with poorly drafted project contracts and scopes:
• The contract is legally sufficient, but ignores critical performance criteria or specifications outside of the legal terms and conditions, or,
• The client took a ready-fire-aim approach. That is, the contract, and particularly the scope, was settled upon before an expert could make dramatic cost saving and risk prevention contributions.
A well crafted contract is, and should be, a very versatile tool. The details of the contract not should not only protect the legal interests of stakeholders but also contain expectations of performance of the service and/or the quality of the finished product. Without proper protections, the agreement might as well be written on the back of a napkin. Strong contracts the necessary scope and protections for the project’s and client’s success. Doing this right can mean hundreds of thousands of dollars; saved or lost.
Creating a Properly Crafted Contract
When a project begins, especially before the contracting phase, successful users, client and tenants should expect their project lead to protect them from what they-don’t-know-they- don’t know. Most users of real property are in a field or industry for which architectural and engineering administration is not a required or institutionalized skill set. It is especially important to have a professional PM review contracts before signing to ascertain that owners are properly protected. A good example of this is when there are unexpected and unpreventable delays in one or more phases of the project. Delays lead to costly change orders and, in the end, the user typically will have to shoulder the loss. Consider excerpts from this example.
The plaintiff commenced an action to recover damages for delays in the construction of a college library, which involved the renovation of two existing buildings and construction of an addition. The defendant…as agent for the owner, entered into a contract with the general contractor, whereby the general contractor agreed to act as construction manager, “[e]xpedite and coordinate the work of all Contractors,” and prepare a schedule for the project.
Pursuant to the “General Requirements” of the contract, the owner’s agent, was required to provide a “Critical Path Method” (hereinafter CPM) schedule, but plaintiff was obligated to cooperate with the contractor in the development, implementation, and updating of the CPM schedule.
The “General Conditions” section contained a no-damages-for-delay clause which stated: “No claims for increased costs, charges, expenses or damages of any kind shall be made by the Contractor against the Owner for any delays or hindrances from any cause whatsoever; provided that the Owner, in the Owner’s discretion, may compensate the Contractor for any said delays by extending the time for completion of the Work as specified in the Contract.” Further, “Should the Contractor sustain any damage through any act or omission of any other contractor having a contract with the Owner or through any act or omission of any Subcontractor of said other contractor, the Contractor shall have no claim against the Owner for said damage.” Provisions were made in the contract for changes and extra work.
Delays in the project were attributed to a number of causes.
The primary witness at the trial acknowledged that the schedule was updated four or five times but, in his opinion, the schedule was useless. He also acknowledged that there were weekly meetings of the prime contractors, the architect, and other representatives.
Updating the CPM schedule was abandoned in favor of two-week schedules, referred to as “look-a-heads,” because the updates were always behind what was actually happening as a result of deadlines not being met.
Among other things, the court held that the no-damages-for-delay clause exonerates the defendant for delays caused by inept administration or poor planning [poor project management].
How Properly Constructed Contracts Prevent Future Problems
A well crafted project contract should cover all aspects of the contract, including fine details like micro schedules for individual subcontractors, and most importantly outline expectations of each entity and the firms under their direct supervision.
A well drafted contract gives the PM powerful tool to keep the project running smoothly. Each of the terms of the contract, down to the smallest detail, can (and should) be expertly negotiated. An expert project leader should be expected to bring a broad set of skills to the effort and be able to foresee possible future problems and plan for them before they happen.
Fixing the Problem
The problem is that so few project management practitioners have the necessary credentials to carry this off and many in the community have basically decided that this type of involvement is simply not part of the job of a PM. They fail to recognize the very real fact that critical aspects of the project, such as contract details, are left out of the general structure it undermines the likelihood of meeting time and budget targets.
An expert project manager should have considerable design, engineering and construction experience to successfully complete the project. They should also possess sufficient contract drafting experience to handle and anticipate problems. Otherwise, without this potent combination of talents, users, tenants, purchasers and other occupiers and improvers of real property are just doing what they have always done, with the same unfortunate results.
The best contract is the one you never have to refer back to. On the other hand, if you ever do, it won’t be for a nostalgic trip down memory lane. It may the one and only indisputable basis or reminder of what everyone had agreed upon when they were playing nice together. With that in mind, clear and transparent communication up front is key for increased performance and decreased risk.
As a project leader and fierce advocate of the importance of transactional drafting (writing contracts and contract scopes), I find that there are enormous opportunities with the one pivotal document that links and describes the input and output of critical project team members in the real estate improvement supply chain.
Very rarely do contracts used in the architectural, engineering or construction industry fail because of legal sufficiency. And this is not intended as a substitute for good legal counsel. Instead, this is a shorthand summary of issues that I find give consumers of architectural, engineering and construction services the most grief or that are the most misunderstood or overlooked.
1. Scope: How much detail is enough?
Every contract divides the risks and benefits of the transaction between the parties. Whether it’s for architectural, engineering or construction services, the scope is the meat and potatoes of the contract. On one end of the spectrum, I’ve seen design services agreements that are like pastries: light, fluffy and without much substance. On the other hand, I’ve been involved in contracts that were better described in terms of weight than the number of pages.
What goes in the contract scope is often a function of who is doing the writing. As a project leader in the real estate development industry (site acquisition, architecture/engineering and/or construction), I am almost exclusively in the position of advocating for a client-consumer that is seeking to design and construct (or, if it’s a new greenfield project, building up) – their new or existing facilities. As such, I draft scopes that ensure vendor performance, close the holes in the description of work and insulate my clients from unnecessary risks.
In my view, the contract scope should be able to pass a three prong test. Protect the owner from risks (i.e., change orders). It should prevent disputes or misunderstandings by clearly communicating to both parties (good communication and transparency is key). Lastly, it should be broad enough such that there are no gaps in performance between the architectural, engineering and construction team.
2. Risk: How well are you protected?
A poorly drafted scope section of a contract is the “Welcome” sign for additional costs and almost limitless risks. On the other hand, a well crafted scope is also the greatest opportunity for proactive cost controls and risk avoidance. This is so for two reasons: (1) the contract drafting–whether it’s for design or construction services–naturally occurs before any work is performed. This means there is an invaluable window of opportunity to build risk protections into the agreement, and (2), this window opens early in the overall project life cycle so that in combination, this one-two punch gives users and project leaders an unparalleled opportunity to apportion risks, control costs and define deliverables before the risks arise and the costs are incurred.
3. Exit strategy: Getting into an agreement is the easy part.
Every agreement should be constructed so that the parties can exit without undue angst or pain. This is another area that is woefully overlooked. As a professional project leader and advocate for tenants, investors, and users, I’ve found that being able to pivot and exit an agreement or change vendors without undue costs or risk is critical to the success of a project. However unsavory it is to contemplate, some business arrangements need to be terminated. If the agreement provides no guidance as to how this is accomplished and how the handoff of deliverables and the payment for past work is taken care of it creates a recipe for disaster. Sadly, a few vendors will actually rely on a user, investor or tenant’s inability to terminate the agreement. Every agreement should have a clearly understood and clearly communicated exit strategy for either party; including exchange of deliverables that ensures the continuity of the project.
4. Change orders: the only constant is change
Change orders are always an unwelcome surprise. Setting aside the unanticipated, budget busting, additional capital costs piled on to what is probably already a project at its budget limits, many contracts fail to articulate the formula or calculation by which a change order is calculated. This opens a Pandora’s box of issues.
What costs can the vendor include with a change order? Administrative costs? Overhead? Profit? How much profit? How is profit calculated? What about mark-up on materials? Setting aside all the potential component parts of a change order, like insurance, overhead, administrative costs, supervision, materials and God knows what else, what determines (or better said, what limits) the amount of markup? The answer is, without some experienced forethought, not much.
I recently completed a large manufacturing project that unfortunately was subject to a sizable amount of change orders. In doing our review of change orders, we discovered that they included startlingly high material cost. After much back and forth, we determined that the contractor’s subcontractor was using an arbitrary industry-invented material costing formulation. There was no basis in actual costs. Worse yet, the contract was silent as to how change orders were to be calculated. So don’t leave this area to chance. Set forth precisely when, how, and the calculation for all conceivable project change orders.
5. If it’s not in writing, it doesn’t exist.
This section may seem blindingly obvious. However, underlying the four points above is another axiom of good scope drafting. And that is everything about the scope and the agreement between the parties must be in writing. When in doubt, write it down.
In the same way that “good fences make good neighbors,” contracts that are expertly drafted, transparently negotiated and communicated with expert professionals ensure efficient, effective and cost savings between users and expert vendors.
A legally sufficient contract is a fairly basic undertaking. But don’t go it alone. Align yourself with an attorney or other subject matter expert who can skillfully help you navigate beyond the terms and conditions or legal sufficiency of the agreement and ensure that tactically and substantively the contract acts as not only the glue binding the input-output of the participants in your project, but also as a crucial communication tool and barrier to insulate and protect the user from unknowns or unbounded costs that are best put in the court of the expert professional. Do this, and you’ll be well on your way to building success into your next project.
Tom Conzelman is President of Apex Project Consulting, Inc., a full spectrum project development and construction management consulting firm for commercial, industrial, healthcare and retail projects; both locally and across the United States. Mr. Conzelman is a licensed electrical contractor and general contractor (www.apexpjm.com). In addition to various project management credentials, Mr. Conzelman graduated law school from Western State University, College of Law and has taught Contracts-for-Contractors at the college level. This not an offer or attempt to provide legal advice.