Design Build Project Procurement

Does Design-Build Save Tenants Money?

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A simple question, yes? Yet few topics elicit more passion among architects and contractors than a discussion of the best method to deliver design and construction services to tenants and owners. Design-build is no exception.

To some, design-build is a project delivery system. Others say it’s a professional services procurement process; a contractual arrangement that combines the services of the architect and contractor. One thing is for sure: design-build is the default choice for a large segment of the commercial real property improvement industry. Why is less clear? Could its popularity be that it saves tenants and owners money?

What is Meant by Saving Money?

Saving money and creating value are two concepts that often get confused. They’re not interchangeable.  Saving money is best understood when comparing commodities, such as coffee, steel, or concrete, where a determination of whether you saved money isn’t muddied by the attributes of the products or services. Not so with the complex and sophisticated procurement of professional design services and high-caliber contractors.

Value is the result of comparing (and quantifying) the bundled result of product, performance, and price. The product is the physical building. Performance is factors such as delivering on time, minimizing defects, and staying under budget.

And price? Well, it’s just that—the cost.  To paraphrase Warren Buffet, “Price is what you pay. Value is what you get.” If you can assign a price to a commodity or distill the attributes of a bundled set of professional services down to a number, you can then make rational observations about value.  However, quantifying different performance dimensions of competing design and construction professionals is challenging, even for the most sophisticated tenant or owner. Consider the design-build scenario.

With design-build, the product (the building) is no more than a concept or outline at the time the contract is signed. It’s a little like paying for a car and then specifying the features.

The Product is Purchased First

Imagine strolling into a car dealership and telling the car salesperson that you want to buy a new car. Naturally, the salesman asks, “What kind of car would you like?” You reply that you need it to seat five people comfortably, to have a retractable skylight, air-conditioning, plenty of windows, and you want high performance, without being too flashy. The salesman smiles and says, “Step right into my office. All we need to do is agree upon how much you can afford and the dealer’s profit. We can discuss the specifics of your car later.”

Sounds a little backwards, right? But isn’t that like the design-build purchase proposition?

Who would agree to a large purchase without specifics about performance or the actual product? Design-build devotees purchase first and develop plans and specifications second.  The buy-now build-later, bundled approach is at the heart of the design-build contract. That makes design-build often a multi-million dollar transaction in which the largest component of the overall cost is side-stepped before the details are fleshed out.  Construction costs are just temporary placeholder until “actual” costs are determined.

Once the design is complete, construction costs are calculated not by marketplace competition but simple math.   With design-build, the general construction cost is only represented by a locked-in percentage for the contractor’s overhead and profit.  That makes the design-build deal a no-competition, single-source arrangement without any marketplace influence. That’s brings us to another challenge: cost savings calculation.

The Marketplace Doesn’t Have Seat at the Table

The design-build procurement process is like a three-person poker game. The players are the tenant/owner, the architect/engineer and the contractor. But the game is one player short. There should be a seat at the table for the marketplace. The marketplace represents healthy, free-market competition.  With design-build, the marketplace doesn’t get a say in the outcome.

Value and Value Engineering

Value engineering is a method to reduce the cost by creating and incorporating efficiencies into the design or construction of a building.  Design-build blocks a clear view of cost analysis simply because there is no competition.  Design-build also puts a lesser emphasis on the rewards of value engineering.  The nature of the contract between the architectural team and the tenant or owner is partially responsible for this situation.

With design-build, the total price of the eventual project is computed by a simple formula. The total cost is the sum of the architect’s fee plus the general construction cost. However, it’s the general construction part that is a little more loosely defined.  The total construction costs are calculated by multiplying the general contractor’s overhead and profit percentage by their subcontractor costs. This number is fluid and moves up or down, depending on the design; irrespective of competition (more about why subcontractor costs are unhelpful for determining value here).

The design-build arrangement is usually memorialized with some variation of a guaranteed maximum price (GMP), cost plus contract or equivalent contract. Why does that matter? The design-build compensation formula shields overhead and profit from competitive pressure.

GMP contracts are created to cap the total price of a project.  However, the contractor’s overhead and profit are immune from market competition.  Since the total product (the design and building cost) are unknown at the time the contract is signed, the only way to express the contractor’s cost is as a percentage, on top of the total subcontractor costs.

The contract created this way offers little or no incentive for the architect or contractor to value engineer. The contractor’s overhead and profit are locked in as a percentage of the total construction costs. As a result, the only tool left to tenants and owners is to use simple, macro, overall design and feature reductions as a proxy for value engineering.   It’s a little like syphoning-off water from a barrel of oil and water.

Imagine a half-full barrel containing water and oil, with a spigot at the bottom. Oil floating on top represents the contractor’s overhead and profit. The water level is the sum of the materials and subcontract costs of the project—the building costs. Now further imagine that the total building cost exceeds the tenant or owner’s budget. What area do you suppose will get cut so that the tenant’s project stays under budget?  You guessed it—the water. And what about the oil—the contractor’s overhead and profit?  Well, that’s safe and sound, protected by the negotiated percentage mark-up and shielded from market forces by the nature of the original, single-source contract.

Thus, the only party on the project team that has to sacrifice to stay on budget is the owner. The architect and contactor simply open the spigot and let out a little water.

Consider this quote from a recent issue of Engineering News Record. In an article touting the benefits of integrated project delivery (IDP), an offspring of the design-build school of thought, Edwin Najarian, a structural engineer principal with TTG Corp., says, “The risk, as far as losing money, is minimal.” Najarian goes on to say that TTG’s profit, with respect to IPD, has been “the same or a little less.”  Further, in any other situation, wouldn’t a casual observer notice that the contractor’s profit rises the more the design expands?  If the contractor and architect are on the same team, doesn’t that at least suggest the appearance of a conflict of interest?

If the risk of loss for architect and contractor is transferred to the owner and their overhead and profit is locked-in, why would a tenant use the design-build approach?

What’s the Case for Using Design-Build?

If design-build doesn’t produce measurable savings, or at least comparisons, why would this procurement process persist?

Faux Value Engineering: Many users of the design-build approach counter the claim of inscrutable cost savings by asserting that they can always adjust the architectural design to fit their construction budget.  That’s true, but it’s simply draining the water.  This arrangement only reduces the content or specifications of the design, and thus, the building.

Continuous, Real Time Estimating: Because the contractor and architect are hired together, cost estimating occurs throughout the design process. Proponents suggest this is a major advantage. And it is. But any tenant can get pre-construction estimates. Simply purchase them.  Tenants and owners can purchase pre-construction estimating services like they would any other professional service. The incremental cost of a pre-construction estimate is likely a fraction of the total construction costs.

Speed to Market: Design-build is popular among industry supporters for its perceived ability to deliver projects faster. This is a phantom argument. All teams can start some portion of the project before the design is finalized. Demolition is one example.  But all projects need permits and inspection. No permits, no inspections. Design-build does nothing to change this.

Moreover, project delivery speed is often proportionate to the cost. The tighter the delivery schedule, the higher the design and construction costs. A compressed design-build schedule actually contributes to higher costs.

Ease of Use:  Tenants aren’t expected to be design and construction procurement pros. More than likely, their core expertise is running their business. Design-build simplifies the procurement process and makes the rigorous, selection process go away.  Sometimes money (i.e. cost) just doesn’t matter as much as one might think.

For some large organizations, the impacts of cost and value doesn’t resonate as acutely up through the company’s accounting central nervous system. In some cases, the costs simply aren’t highly scrutinized. The simplicity of the procurement process plus nonchalant trust makes design-build is a logical match for this type of organization.

Putting it All Together

Recognize that design-build is a procurement choice, not a project delivery method.  Know the differences between the various procurement processes. Use that knowledge to match your project and clients’ needs to the project delivery methodology. Saving money and getting value may not be a paramount concern for your project.

Agree to respect the procurement choices of tenants, owners and others to select a methodology that works for them. There is no one-size-fits-all solution.

As to the threshold question in the title, I would paraphrase Edward Deming, you can’t manage what you can’t measure.  Design-build may have numerous advantages for a wide swath of the real property improvement industry. But if you can’t measure or compare costs, it just may be that provable cost savings isn’t one of them.

 

Apex Project Consulting, Inc. is based in Orange County California, provides one-of-a-kind, full-spectrum project management across a wide variety of project types, including both ground-up and commercial tenant improvements, throughout the U.S. as well as internationally.  Apex has managed over 1,100 projects, from raw land development, due diligence and design through construction, including commercial office, industrial, healthcare, life science, labs and critical environments.

Mr. Conzelman is a licensed electrical contractor and general contractor, LEED® AP, CCM, and a California RE Broker License 01128636. Mr. Conzelman graduated from Western State University, College of Law and has taught Contracts-for-Contractors. Tom Conzelman is the author of “Protect Your Project”, the innovator behind the No Change Order Guarantee™ and the creator of the revolutionary Negatively Inferred Scope™ procurement process; Stopping Specification-Driven Change Orders and Rework.

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Yacht

What Are You Really Going to do About Change Orders?

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For most tenants or owners the answer is: surprisingly little. Buy why?  The answer lies in an inconspicuous, often overlooked spot in the real property design & construction supply chain: the contract.

The reason is deceptively simple.  Once a contract for architectural or general construction services is signed, the scope and body of the agreement either avoids change orders, controls them, or ignores them and optimistically assumes the best.  The latter position relinquishes control and creates the environment that puts change orders in motion. And this puts the tenant at a disadvantage.

Too little attention is paid to the power of the procurement process.  Consider what Barry Lapatner, in Broken Buildings, Busted Budgets, says:

“[B]uilding contractors [and architects] have at their fingertips all the critical information to establish the business terms with their buyers [owners], but the buyers do not [emphasis added]. That is, the contractor possesses far superior technical and operational knowledge of the industry then all owners,…”

So what does this mean? Specifically, what can you really do to prevent change orders? Consider these five tactics.

Change your mindset. Start by considering what hasn’t worked in the past; or has at least been ineffective. This means to de-emphasize project backend beat downs intended to curtail change orders by brute force. Hammering the general contractor for the costs, or even the existence, of change orders is unfair. A general contractor, however clever, doesn’t have the exclusive ability to create change orders.

Let go of liquidated damages.  This seems to be the old school, go-to solution for many tenants and owners.  My view? It’s just mutually assured litigation and unnecessary, ineffective mountains of paperwork. LDs suggest a damaged relationship with key professionals right from the start. It’s the design and construction equivalent of a prenuptial agreement. If you need one, maybe it’s not such a great match. Instead, the root cause is further up the real property improvement supply chain. And that’s where we need to set our sights.

Prevention versus prediction. I remember a colleague of mine commenting this way about the attitude he was seeking in his team members, “I want news makers, not news reporters.” Similarly, reports like risk registers that indicate the likelihood of change orders or the potential impact only deliver the news. The iceberg is already dead ahead. Instead, the solution is to navigate further back in the project improvement supply chain timeline.

Procurement process and not project delivery. Design-bid-build, construction management at risk, and integrated project delivery are all often referred to as a project delivery methodologies. This isn’t an entirely accurate description. They are procurement approaches. They are contractual purchasing mechanisms. Because they are procurement processes at the core, they necessarily happen at the very earliest spot in the real property improvement supply chain. This is the origins and the opportunity for improvement for most change orders.

The power of the procurement process.  Change orders are ensured or avoided the minute the ink dries on the architectural/engineering or construction contract. Or put another way, if the contract, specifications and scope of the contract with your professionals doesn’t exclude and or control change orders, what will?

The solution isn’t your garden-variety legal terms and conditions. I’m not talking about fill-in-the-blank template. And I’m certainly not referring to the vendor’s form of contract. If you’re not emphasizing the power of the procurement process and utilizing a refined services agreement, brace yourself or bolster your budget.

Remember the words of Barry LaPatner.

“The contractors’ [and architects’] superior knowledge and informational advantage coupled with the knowledge that [design] errors equal change orders.”

A sophisticated agreement is the most powerful and overlooked advantage in the toolkit of the right project manager – to head off change orders, reduce risks, and control the effects of substandard design and construction.

So before wading into this complex arena, give yourself an advantage and a project management ally up front. Do this simple step and you’ll be able to maximize the value of the vendors you hire, minimize change orders, and enjoy peace of mind along with substantial cost savings.

 

 

Apex Project Consulting, Inc., (www.apexpjm.com) based in Southern California, provides one-of-a-kind, full-spectrum project management leadership across a wide variety of project types, including both ground-up and tenant improvements, throughout the U.S. as well as internationally.  Apex has managed over eleven hundred projects, from due diligence and design through construction, including commercial, industrial, office, clean rooms, life science, labs, manufacturing, and specialized environments.

Mr. Conzelman is a licensed electrical contractor and general contractor, LEED® AP, CCM, and a California RE Broker License 01128636. Mr. Conzelman graduated from Western State University, College of Law and has taught Contracts-for-Contractors. Tom Conzelman is the author of “Protect Your Project”, the innovator behind the No Change Order Guarantee™ and the creator of the revolutionary Negatively Inferred Scope™ procurement process; Stopping Specification-Driven Change Orders and Rework.

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Contract signing

You Should Negotiate Your Own Lease

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You should negotiate your own lease. After all, what could possibly go wrong?

Operating expenses, subordination, rent increases, building repairs, force majeure, and property taxes are all problems for pikers. Not you. You’re the master of market trends. A titan of triple net. The commander of CAM charges. You’ve got significant C-level spending authority, and you’re not afraid to use it.

On the other hand, maybe you should be. Consider the car salesman.

The average person probably buys a new car every five years. Unless they buy it from a private party, they are self-aware enough to know the car salesman has the negotiation-knowledge upper hand. While you may buy a car every 60 months, a steadily employed salesperson may sell 16 cars a month. They know more than you. And you know it.

A botched car purchase could set you back a few thousand dollars. What about the cost of a bungled commercial lease? Let’s test drive some hypothetical numbers to make the math easy. Assume that market-rate rent is two dollars a square foot. Your space is 10,000 SF. The term is five years. Setting aside rent escalations, that’s almost a quarter million dollars a year, right? Or in excess of 1.2 million over the length of the lease.

A few hundred thousand here, a few hundred thousand there, pretty soon we’re talking about real money.

Surprisingly, some C-level folks are more cavalier about a multimillion dollar transaction than a new car purchase.

The truth is that a client without a broker representing them is going to get slaughtered in the market. A real estate transaction (lease or purchase) is likely one of the most complex and costly commitments (aside from marriage) on the planet.

It’s no different than the fool that acts as their own attorney.

Then why do tenants go unrepresented? Maybe it’s because money doesn’t matter. Possibly it’s the arrogance of ignorance. Or someone is lookingNegotiate Your Own Lease? for a little extracurricular OJT on the company’s nickel. The point is this, ignoring what-you-don’t-know-you-don’t-know, will cost you.

If this is true, then why would a tenant hire architects, engineers and contractors without similarly sophisticated representation? They shouldn’t. The average tenant won’t expand or relocate but once in the career of the average employee. This lack of institutionalized knowledge and experience makes tenants as vulnerable as a naïve first-time car buyer.

The average tenant can never rival the negotiating and purchasing savvy of their vendors. Thus, the same logic applies to the design, engineering and construction of major tenant improvements as it does the car buyer. Architects, engineers, contractors all negotiate their services several times a month. These contracts are regularly six figure commitments. Some tenant improvement contracts can easily be in the millions.

The result?  Advantage: architects, engineers and contractors. So what do you do?

Just like I recommend that every tenant be represented by a great broker, anyone seeking to improve their property should get sophisticated help; and not just anyone with “project manager” in their title.

Get an executive project management firm that creates a ROI. Demand that they demonstrate how they can stop change orders.   Require that they prove they can prevent risks of delays and defects. Or resign yourself to just plain getting taken.

Apex Project Consulting, Inc. can provide several tips – for free – that will save your firm enormous amounts of capital and grief.  But you need to get started now. Not after the lease is signed.

Mr. Conzelman is a licensed electrical contractor and general contractor, LEED® AP, CCM, and a California RE Broker License 01128636. Mr. Conzelman graduated from Western State University, College of Law and has taught Contracts-for-Contractors. Tom Conzelman is the author of “Protect Your Project”, the innovator behind the No Change Order Guarantee™ and the creator of the revolutionary Negatively Inferred Scope™ procurement process; Stopping Specification-Driven Change Orders and Rework.

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Open-Book Construction Procurement

The Myth of “Open-Book” Construction Contracts

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The “open-book” construction contracting method is at best a false choice and at worst a fraud.  The reason? The “open-book” construction process promises value but fails to deliver any rational business benefits.

Only myth, misunderstanding, or meme, explain away this procurement process shortcut. But why is it irrational? Let’s start by defining terms.

Most everyone has a working definition of what it means to solicit bids. It’s simply comparison-shopping. Whether it’s a new car, a kitchen remodel or carpet, buyers seek competitive alternatives before making a purchase. Comparison-shopping creates information about “value” that the buyer can analyze. “Value” is another way of expressing the ratio of performance to cost. It’s getting the most benefits for the buck. It’s letting the competitive, free-market, work to identify the best value. However it only “works” if money matters – that is, if “value” is valued.

If Money Doesn’t Matter

In some circumstances, the price or value of an object or service doesn’t matter. Other factors are more important. Personal preference is one example. You’re probably not going to solicit bids before changing your doctor. Politics is another. If your boss is golfing buddies with the president of a supplier or vendor, self-preservation or career continuity might control who gets your business. Bias and graft make the list too. But in business, with shareholders to answer to and bottom lines to bolster, getting value is fundamental or at least rational. Then what’s the problem with the open-book bid?

The open-book bid process masquerades as delivering value. It doesn’t. Its currency is supposedly its transparency. But that’s a shiny object distraction.

Transparency Translates to Value?

The open-book construction process trades on the belief that if you can “peak behind the curtain” and see the contractor’s “actual” price, then value is ensured. Imagine buying a new car. Instead of shopping, you negotiate with only one dealer. The dealer offers you a car at “actual” cost, plus a modest mark-up over the Manufacturer’s Suggested Retail Price. The dealer shows you the MSRP and voilà, value is documented and no further negotiations are necessary. Right? Wrong. It’s no different with the open-book construction process.

The open-book construction contract starts with the owner picking the contractor. The owner and the contractor then negotiate a fixed mark-up percentage (profit and overhead). The contractor then produces a total contract price, based-on and supported by, the “actual” subcontractors’ costs. Thus transparency serves as a substitute for market-rate competition and value. The “logic” behind this process gets thinner when examined more closely.

Extending the car-buying analogy; what can we learn about the competitiveness of a car price by examining the MSRP? Nothing. It’s just a number. Maybe the car manufacturer set an unrealistic retail price. What if the MSRP is offset by manufacturer rebates? Or the manufacturer provides incentives that offset the actual cost? How would you know? You wouldn’t. It’s no different with the open-book construction contract. But the similarities don’t end there.

Construction Estimating

Are you a construction estimating expert? In the design and construction business, an expert construction estimator is invaluable. Even a modest construction project involves an enormous amount of moving parts. Each part of which has to be assigned a cost and a labor component. Understanding each part and labor requirement, specifications, variations, cost, and quality, takes an enormous amount of experience. Every sizable construction firm has individuals – if not entire departments – dedicated only to preparing estimates. So why does the average client or tenant think they can glance at subcontractor costs and determine value? The answer is they can’t.

It takes good estimators years and years to be proficient. Even then mistakes are made. And sometimes the mistakes cost the business everything. Anyone who thinks they can do this themselves is either an estimating genius or blissfully unaware.

Numbers Are Numbers

Comparisons create context – and allow for the user to draw meaningful conclusions. Consider this: is $1.2ML a better value than $600,000?   Is two-for-the-price-of-one better than half-off? You correctly reply, “I would need more information.” Of course! That’s the point and the illusion of the “transparency” of the open-book process. You’re just looking at numbers!

The numbers don’t tell you anything about quality. They’re indifferent to project schedule. There’s no measurable dimension of the bid process focused on the superintendent’s experience. Numbers can’t inform you of a contractor’s track record – or their subcontractor’s.  Numbers alone have no intrinsic value. Thus, looking at subcontractor “costs” doesn’t allow for any meaningful conclusions. For that matter, a buyer won’t be able tell if the “numbers” include all subcontractors and trades needed to complete the work.

No Market Forces

We’d all love to avoid competition – or at least the low-bid-only psychosis. It’s a tired, but true cliché; competition makes for better results. Without a modicum of competition, prices can (and often are) unbounded. Consider for example public utilities. No competition equals no price controls. How about the $500 NASA toilet seat?

The point is that everyone understands and appreciates that some level of price comparison is required to produce value. It’s no different with procuring the services of professional contactor(s). Price should never be the sole determinant of a purchase unless the product is a true commodity. Contractors are not commodities.

Others Need Not Apply

If word gets out that you’re only going to use XYZ contractor, sooner or later the other professionals are going to stop working to get your business. And that’s bad for your business. Contractors will eventually get the message if you never allow them to bid – or never give them a shot. Whether they deserve your business or not, you can be sure that at some point the good guys will stop trying. And that’s bad for you.

We all probably know several firms or procurement executives that – for one reason or another – always choose the same vendors. Eventually, when you need a competitive bid, you’re not going to get their best effort; if they decide to bid at all.

Remember, preparing a complicated bid is a high risk/reward proposition. Contractors must be treated evenhandedly. They must know that they’ve got a shot. More so, they need to know you’ll consider more than just the price (more about the perils of low-bid-only processes here).

Lastly, do you think that general contractors are using an open-book method with their subcontractors? Not likely. If general contractors are experts at procuring construction subcontractor services, then why wouldn’t they use the open-book-bid process with their subs? The answer is they don’t.

Here is What I Recommend

Buy value only. Value is the ratio of “performance” characteristics to cost. The better the performance quotient, the better the value.

Have a process implemented by a project professional that lets the best vendors shine! The low-bid-only procurement process is a flawed, 20th century purchasing model. Instead, implement a procurement process that is proven to test bidders on a multi-dimensional level. Ensure that the dimensions measured are actually correlates of success (on-time, on-budget, no change orders, minimizing risk etc.).

Eliminate Bias. Trust is great. It’s essential for meaningful relationships. But it’s meaningless in the context of an objective procurement process.

Relationships matter. But relationships are often unrelated to achieving value. We all have vendors that have achieved “most-favored-nation status”. It’s not entirely illogical to steer work their way. But without a process to separate the familiar from the truly fantastic, you can’t argue that relationships are related to value.

So, if money, profits and ensuring on-time, on-budget performance matters, break with the familiar we’ve-always-done-it-that-way approach and embrace a methodology that is changing the way design and construction services are purchased. And it’s doing so at a lower total cost.

Again, it’s your money.

Mr. Conzelman is a licensed electrical contractor and general contractor, LEED® AP, PMP, CCM, and a California RE Broker License 01128636. Mr. Conzelman graduated from Western State University, College of Law and has taught Contracts-for-Contractors. Tom Conzelman is the author of “Protect Your Project”, the innovator behind the No Change Order Guarantee™ and the creator of the revolutionary Negatively Inferred Scope™ procurement process; Stopping Specification-Driven Change Orders and Rework.

Copyright 2014.

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No Change Orders-Guaranteed!tm

Can You Tell Which Contract Cost the Client an Additional $1.2 million?

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Can you tell which of the contracts above cost the client $1.2 million in additional change orders and which one didn’t? Here’s a hint: both agreements were touched by the same attorney. Thus, it’s not the legal Terms & Conditions.

Give up?

As a tenant or occupier of real property, your core business is something other than the hiring of professionals for the architectural design, engineering and/or construction of your new facilities or tenant improvements. It’s completely understandable that you can’t tell the difference. But how about your project management firm?  Surely, their size and global reach would include ways of protecting you…yes?

With millions of dollars at stake, and change orders growing as a percentage of design and construction costs, shouldn’t your Fortune 1000 project management firm be able to tell the difference? Shouldn’t they have a solution? What about a guarantee?

If not, and saving money matters to you and your business, expect more. Get away from the global real estate behemoths and the project management posers. Get Apex Project Consulting, Inc. – the Change Order Champions™

 

Tom Conzelman is President of Apex Project Consulting, Inc., a one-of-a-kind,  full spectrum project design, engineering 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, LEED® AP, and a California Real Estate Broker License 01128636 (www.apexpjm.com). Mr. Conzelman graduated from Western State University, College of Law and has taught Contracts-for-Contractors. Tom Conzelman is the innovator behind the No Change Order Guarantee™ and the No-Fee Guarantee. ™

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Scope is more important than terms and conditions

Attorneys Are Overrated

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Thank you, Captain obvious.

In all seriousness, when it comes to drafting contracts, for design, engineering and construction services, the input of attorneys is extremely overrated.

Not too long ago I was catching up over drinks with a friend of mine from law school. The conversation gravitated to various legal topics. At some point in our chat, he mentioned to me that he had recently helped a client with a construction contract. In retrospect, I should’ve simply nodded appreciatively and moved on to a different topic. However, I didn’t.

Instead, I offered, from my years of experience, that he probably didn’t help his client as much as he thought. I assumed, erroneously, that all attorneys would acknowledge that maximizing profits, or more importantly minimizing risks of change orders and other budget busting surprises, was NOT related to legal craftsmanship.

After all, isn’t the point of all business transactions to generate profits and minimize risk? Maybe not, if you’re on the attorney side of it. I started the defense of my position with something I thought we both could agree to.

Money matters. If money matters, then the measuring stick for success or failure of contracts for architectural, engineering and or general construction has to be money — the money saved by avoiding change orders.

It’s all well and good that contracts for design and construction satisfy the necessary legal standards. However, doing so is an expenditure that is essentially overhead. It doesn’t generate the lion share of savings.

The finest and most sophisticated contract will never do more for a client to save money and or prevent risks than a well crafted scope of work. An insufficient, sloppy, incomplete, or worst-case, a vendor-drafted scope of work will result in an almost boundless amount of change orders. It doesn’t matter how much fancy word-smithing you wrap around a crappy deal, it’s still a crappy deal. That’s why the legal part doesn’t mean jack.

It doesn’t matter if you correctly articulate or memorialize the indemnification provision, the waiver of subrogation, choice of law, insurance, and/or arbitration provision, etc. While all of these are swell, clients in this industry don’t lose money necessarily because the parties agreed to arbitration versus litigation. It’s all about the scope.

To paraphrase Bill Murray’s famous line in Meatballs, “IT JUST DOESN’T MATTER” how cleverly you drafted the indemnification clause – or any other provision – if you screw up the scope.

To no one’s surprise but my own, this argument had little affect on my attorney friend’s position. A little anxious that I might be challenging his abilities, I pressed ahead nonetheless.

Change orders are the most expensive “repeat offender” in the real estate improvement process. The uninitiated or unrepresented client or tenant can “bank” on change orders generating hundreds of thousands in additional costs (BTW: your vendors are counting on this, too).

I’m sure that the design and construction industry generates plenty of litigation. However, whether a client is hit with change orders from the architect, engineer or contractor, is almost exclusively a function of the scope. A poorly drafted scope (or worse, use of the vendor’s agreement) guarantees change orders. Change orders equal money. Big money.

Again, if the agreement doesn’t operate to anticipate and mitigate design errors in the construction documents or block (non-owner requested) change orders from the contractor – then none of the legal jargon matters.

They don’t teach scope-writing in law school. Yes, it helps to be able to write and talk like an attorney. I get that. But again, there is no course or class in how to describe the architectural, engineering and construction specifications and requirements for a tenant improvement project. It strictly comes from on-the-job training, YEARS of on-the-job training.

I don’t know if I’ve had more luck convincing you than I did my good friend from law school. But I will offer you this, before you consider laying out millions of dollars on your next project, carefully consider who’s helping you with the scope of work.

If the global Fortune 1000 real estate behemoth and the project management chaperone you’ve engaged to deliver your next project doesn’t demonstrate their ability to save you money through stopping change orders, then you might want to reconsider. Start by using an experienced project management professional with both design and construction contract drafting skills as well as CM experience that will maximize your profits while minimizing your exposure to risks.

Tom Conzelman is President of Apex Project Consulting, Inc., a one-of-a-kind,  full spectrum project design, engineering 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, LEED® AP, and a California Real Estate Broker License 01128636 (www.apexpjm.com). Mr. Conzelman graduated from Western State University, College of Law and has taught Contracts-for-Contractors. Tom Conzelman is the innovator behind the No Change Order Guarantee™ and the No-Fee Guarantee. ™

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Stopping change orders

How Will You Protect Yourself From Change Orders?

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When your company moves, expands or designs and constructs its next facility, how will you protect yourself and your company from change orders caused by poor architectural design?

Hint: The answer is not, “There’s nothing we can do about it”.

So, if you don’t have an answer, may we suggest you connect with a firm that does?

We’re Apex Project Consulting, Inc. Our promise – No Change Orders. Guaranteed. TM

Watch this video to discover the key to minimizing the unfortunate impact of change orders on your project – before it’s too late.

Stopping change orders

Change orders threaten to overwhelm any project budget.

 

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Apex Introduction Video

Apex Project Consulting, Inc. Introduction to No Change Orders-Guaranteed!

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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.

Apex Introduction Video

Return on Investment is one of the most important value propositions for project leaders.

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Are You a (Project) Thermometer or Thermostat?

Are You a Thermometer or Thermostat?

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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.”

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Use your law degree to further your career

Five Ways to Make Your Law Degree Pay – Without Practicing Law

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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.

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