Project management and contracts

What Your Project Manager Should Know (But May Not Tell You) About Your Contract

 

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.

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Five Contract Scope Must-Haves
to Improve Profitability and Reduce Risk

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.

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Business team having video conference with another business team in office

Video Conferencing: The virtual project team is here now.

 

Are you using video conferencing as a major tool in your meetings arsenal? You should! Technology has made video and online meetings one of the best ways to upgrade meeting efficiency and effectiveness while driving down costs.

Imagine. No more wasted windshield time, fighting traffic, going to hour(s)-long in person meetings, and then driving back for another hour. Online meetings and conference calls are immediate and convenient whether you’re across town or across the globe.  This means the experts and professionals attending these meetings are much more efficient and thus less costly.  And this cost savings flows back to the client.

With online meetings and conference calls, there’s an infinite amount of data you can share depending on how deep a dive you want to take or how the meeting topics change.

And frankly, it’s just more interesting. You can draw on the screen and point or circle the part you want to highlight for everyone’s benefit. No more leaving any doubt with your team as to what part of the floor plan the project leader was referring to when you said “the office in the NW corner.”   Plus with the benefit of being able to share screens with participants and the ability to add video guarantees you’ve not only thoroughly communicated with the entire project team but enhanced understanding and retention.

So how do you make your video conferences as effective as possible? Jill Conrath is an author, speaker and business strategist who uses video conferencing as well as anyone I’ve seen. She gives these tips:

Mistake #1: Technology Screw Ups
If you’re like me, using new technology is not second nature. I freak out when things go wrong. To ensure that doesn’t happen, I practice ahead of time with safe people who will still love me even when I’m a total loser. Or, I rope in a savvy geek to give me step-by-step instructions.

Make your mistakes before you go live – or risk embarrassing yourself.

Mistake #2: Unwanted Interruptions
After my husband barged into my home office during an important online meeting, I realized I needed to do something. Today, my office has a huge “Do Not Interrupt” sign outside it when I’m online.

Make sure you shut down text message and email too. I’ve heard horror stories about what’s popped up at a most inopportune time.

Mistake #3: Inappropriate Looks
If you’re using video meetings to create a personal connection, then doggone it, you need to be looking people in the eye. Obvious, yes. But when you’re talking to someone online, I’ll bet you’re looking at where their video shows up on your screen — which may be in the lower corner.

Make sure to move their smiling face right up under your camera. That way you’ll be looking directly at them – not at their navels.
More Jill Konrath at jillkonrath.com

In every project lead, I always make video conference and online meetings a critical tool for for conveniently staying in touch with every member of the team and ensuring that I’ve communicated and achieved a uniform understanding of all the topics covered with each and every team member. Simply stated, we get more done, there’s better understanding and consensus than with simple phone calls. And everyone’s schedule is more efficient because no one has to travel across town or across the country to make the meeting.

How about your company? Let’s hear your thoughts about how video conferencing is being used to save you money…or conversely, how it’s costing you because you don’t use it yet. Please leave your comments below.

 

 

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Building construction site at sunset

Commercial Properties: Choosing Right

As a project leader, I often get called into the very earliest stages of company moves and purchases, especially those where new construction or renovation are involved. Over the years, I’ve found a few tips you may want to keep in mind.

First, if you and your broker are negotiating on a piece of commercial real estate and you get an inadequate offer, don’t dismiss it out of hand. You almost never get the most optimal deal in the first offer. I’ve seen a few company owners steam out of the room as though the offer were an insult. Expect a low deal, then start negotiating. That’s just the way these deals work.

Next, be sure to pay close attention to all the documentation and paperwork. You’ll be required to guarantee the accuracy of any document files you’re called upon to present (such as company financials). If you do not have all the appropriate files, loan providers will not likely give you the financial package you need to buy the property. File and collect all the essential files ahead of time.

Be a savvy entrepreneur. When considering commercial real estate opportunities, make sure you are getting exactly what your company needs call for. Don’t “settle” for less than the optimal facility for what your company really needs. And if you find a property that falls short of your goals, with inadequate amenities, the wrong dimensions, etc., make sure you can afford to fix it so that it does meet your original requirements. If the deal doesn’t make sense, move on to the next one.

Most importantly, don’t overlook the fact that your new facility is subject to local zoning ordinances. Be sure your architect takes that into consideration as he suggests upgrades, expansion or other changes to the original facility.

Check every aspect of the property so you understand you are getting exactly what you had in mind. Don’t rush into a purchase you may one day regret.

Get your staff and trusted allies involved. Ask their opinions. Put an actual value upon the new facility in terms not only of its real estate value, but its value to your company. Will you be more productive? If so, what’s that worth? Does that make the size or price of the new facility more palatable…or less so?

Fresh and independent point of views can give you a clear view of the amount of others think the new facility is worth. You might discover that you are paying too much, or that your real estate representative is over-estimating the value of the property or under-estimating the cost of converting it to your needs.

Choose that property carefully. Don’t get emotional about it. Ask trusted advisors for feedback. Do all of that and your chances for a successful project are higher right from the start.

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House plan blueprints

Design Firms: How Risky Is Your Next Project?

There’s an area of business that all too many architectural design firms tend to overlook. In the excitement of chasing that project they’ve just heard about, they sometimes forget to look at the risks involved should they be awarded the job. Yet controlling is one of the most important contributors to the company’s long term profitability.

Well-run design firms follow specific strategies to keep liability claims low and infrequent. Here’s a very helpful article posted in ENR.COM that can guide you as you consider whether that next project is your masterpiece…or your financial downfall:

Project and Client Selection: Develop a Project Evaluation Checklist

Is it a good project for your firm? What do you know about the client? Does he/she have a history of suing their design professional? Is the money there? How’s the schedule? A process to evaluate prospective projects and clients can dramatically decrease the likelihood of a claim. 

Sign Equitable Contracts

If there is a problem or litigation on a project, your contract will become a source of scrutiny. A contract is supposed to lay out who is supposed to do what as well as outline terms and conditions. A well-written contract that accurately describes the intent of both parties will help prevent misunderstandings and simplify the resolution of any disputes that arise.  Well-run firms have developed contract review policies and procedures to make sure their contracts are reasonable. 

Identify Problems Early

While the definition of a claim in a Professional Liability policy is “a demand for money or services,” most Professional Liability policies also allow for and strongly encourage their policy holders to turn in “circumstances” which may give rise to a claim. I cannot emphasize how important this is. It can not only protect your insurability down the road, but the earlier you act on a potential claim, the quicker and less expensively it is generally resolved.  Educate your staff to know the warning signs of a potential claim. More at ENR.COM

The article goes on to discuss dispute resolutions provisions that you’ll want to check for in any contracts you sign. As both a project leader and a J.D. myself, I’ve always found it critical for this aspect of the negotiations to be dealt with throroughly and carefully.

All too often, contracts with design experts are a case of “you don’t know what you don’t know.” So even if you’ve got decades of experience in drafting contracts and contract scopes, it’s always a wise idea to run this past your attorney. And as quoted in the article…make sure you have the right professionals on your side, i.e. a knowledgeable attorney and specialist insurance broker. And I would also recommend a professional with expertise at drafting agreements for design and engineering work that maximize performance and reduce risk. Get this critical process right, and you’ll be on the right path to finding projects and clients with whom you can have an enjoyable, litigation-free experience.

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Technical Expertise

Skilled Workers: Short Supply May Endanger Your Company Vision

One of the challenges I see facing so many CEO’s is finding people who can carry out their vision for their companies. Building or moving to a new facility, for example, is often so complex, so risky and expensive, that it requires people with very specialized skills.

Skills that most companies don’t have.

Here’s an article from CoreNet Global’s Industry Tracker that addresses this very important issue:

A survey of CoreNet Global members has revealed that the top challenge facing the corporate real estate (CRE) industry is finding skilled people to deliver advanced solutions in complex workplace environments. Other challenges highlighted by the research include implementing cost savings initiatives, growth in new markets and developing new products and services.

The joint survey from CoreNet Global and Johnson Controls Global WorkPlace Solutions examined the challenges facing the CRE profession and the resulting impact on business success.

Key findings include:
64 percent of respondents had introduced new technology in the past two years, driven primarily by the need to improve processes (91 percent)

More than half of respondents said that new technology increased productivity by more than 20 percent

Fewer than 30 percent of real estate Directors are the key decision makers in the implementation of new technology, although they are responsible for delivering the outcome

As organizations expand in emerging markets the lack of appropriate skills are the biggest challenge

68 percent of respondents measure successful performance in new markets through business uptime and reliability

Other constraints preventing CRE teams from effectively supporting core business activities, through the introduction of new services and technologies and moving into new markets, were poor organizational and technical infrastructures, lack of investment / budgetary constraints, management expertise and lack of leadership engagement and employee acceptance.

So what do you do when you can’t find the necessary experience or skill sets internally? Same as you do for other projects: hire an expert who can then hire your experts. That ensures you have the best team of architects, project managers and contractors working efficiently on your project.

Around here, we refer to that first expert as a project leader. Get a good one and  you’ll save millions on  your next construction project.

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Bad schedule example: Descriptions that are too vague can cause confusion, such as repeated activities with no distinction.

Scheduling Projects: How Top Project Managers Do It Differently

Do the best construction project managers approach scheduling differently than PM’s with little or only moderate experience? The answer is “absolutely!” That’s not to say they don’t use tools like scheduling software–it’s hard to do complex projects without it–but the leaders in the field tend to use it less than their less experienced peers.

Why is that?

The reason is that less experienced PM’s tend to go wild with scheduling details. Every little item becomes a scheduling entry. Unfortunately, according to a recent article on ENR.com, that’s exactly how so many construction projects get bogged down.

Japka_badscheduleexample“The software lets the end user do too many dumb things,” says Jonathan Japka, a civil engineer by training and consultant on project management scheduling. “Most of the people who are practicing scheduling have never been formally trained, and they don’t know what a good schedule or a bad schedule is. I always put the question to [schedulers] by asking, how did you learn? It’s usually by mentors.”

The influence of software tools on scheduling confusion continues to be a flashpoint in construction—especially over how “float,” the extra time for activities, can be calculated or manipulated.”

The problem is exacerbated at many companies because they tend to hire PM’s who know the software, but have no practice experience or haven’t been properly trained on construction techniques. They don’t understand the time and coordination needs of the various trades, Japka said. He continues:

“There are several trades that often just need one trade to get a few days’ head start on the successors, such as metal-stud framing followed by electrical in-wall rough-in. The electrician is not going to wait until framing is complete to start. But at the same time, wall framing needs to complete before electrical in-wall can complete: SS-FF. And in most cases, there is no practical way (or useful purpose) to break down the framing activity any further to create an opportunity for a FS relationship. Are some of the lags going to be somewhat subjective? Yes. There is no way around it. But it is realistic because, at some point, there will be a subjective decision on when the electrician will start.”

So what’s the solution? In our experience, it’s hiring a project leader who is master of both the construction process and the software tools that help line up each task and timeline requirement for maximum efficiency and cost savings.

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businessman hand pushing solution button

Project Management: How To Shave 15% Off The Cost of Your Next Project

No doubt you’ve heard the old saw that ignorance of the law is no excuse. In project management, the same principle applies to the design, construction or expansion of your company’s facilities. What you don’t know could really jeopardize your project’s success, if not prematurely change your employment status.

There are several solutions. Here’s one:

First, start with some simple self-assessment. Setting aside phenomenal growth industries, most companies won’t attempt building new or expanding existing facilities more than once in the career of the average employee. This means there is no institutional knowledge or wise-sage that can guide the company through the complex, costly and risk laden process of engaging and managing design and construction professionals. This is an area where simple referrals won’t work.

Are you experienced enough to hire the experts you’re going to need for this project?

Architects, engineers and contractors come in many flavors. One thing all design and construction professionals have in common is that they’re experts, or at least seasoned veterans, at engaging with prospective clients while managing their exposure to risk and maintaining a fair profit. This is definitely not the same as saying that the above mentioned professionals have a win-lose mentality. That’s just not true. But shouldn’t the consumers of architectural and construction services be experts, too?

In other words, as the buyer of these servers, are you the expert you should be? And if you’re not, what are you putting at risk?

Do you have a solid, empirically based process for examining the capabilities and expertise of the design and construction professionals you’d like to hire? Too much is at stake to simply ask around for referrals. Relationship-based decisions are almost always correlated with poor results. To be successful, and to save money, you need a reliable, proven process that aligns the most efficient and capable professionals to the goals and objectives of your project.

I’m not referring to the various “delivery” methods like design-bid-build, design-build or CM at risk. I’m addressing the need for an evidence-based process for selection of the best fit design or construction team.

For example, this process should address:

  •  What can be expected to happen or be needed but is not included in the proposal?
  • What other vendors are involved that the design or construction professional doesn’t have control over?
  • What risks will be considered unforeseen or not determinable?
  • How will these risks be identified – and mitigated?

Do this phase of your project correctly and, in my experience, you’ll save at least 15% of the costs of your entire project. Do it incorrectly and you could risk losing much more.

For best results, I suggest the following: hire a broadly experienced and highly qualified project manager before you hire anyone else. That’s right. A good project manager can help you find the best architects, engineers and contractors. He’ll choose based upon how good these experts are, how deeply experienced, and how good a fit they are for you and your company.

He’ll choose without the emotion attached to “referrals from friends.” He can help you through contract negotiations, examining not just the proposals but the contracts associated with them. He’ll help you avoid problems you didn’t know you had. He’ll push ahead even when you’re busy with other tasks. He’ll save you time. Most importantly, he’ll save you at least that 15% I mentioned above. And he could save you much more than that.

Let me leave you with this one last thought:

Success or failure hangs upon your ability to handle these first critical steps. It’s baked in. Your alignment with the right expert design and construction professionals is central to that first step. You can go it alone—and face enormous risk—or you can get someone on your team who has the proven ability to ensure that you’re partnered with the right A&E and construction team.

Want to know more or just want to sleep better? Call me.
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HomePageSiteLaunchA

Apex Launches Revised Website

HomePageSiteLaunchA Rancho Santa Margarita, CA—1/20/2014—Apex Project Consulting today announced the launch of their newly redesigned company website at http://www.apexpjm.com, according to the firm’s president, Tom Conzelman.

The new design reflects the company’s mission to deliver results-oriented project leadership and A&E/construction management services to clients nationwide. The website highlights the firm’s focus on providing not just services, but results that offset or completely remove the cost of professional project consulting services. Read more

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