Integrated Expectations Spark New Era of Collaborative Agreements

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1 Construction Law Dispute Resolution Integrated Expectations Spark New Era of Collaborative Agreements A new project delivery method is rapidly taking hold in the industry and it s radically reshaping the contractual relationships that guide projects of all sizes, scope and complexity. Building information modeling (BIM) has captured the attention of a visible portion of the industry. In fact, over 51% of the principals and partners that participated in a recent AIA Work-on-the-Boards study conducted by the AIA s Economics and Market Research group believe that BIM will become an industry standard sometime after three years. This is good news for an industry focused on improving efficiencies and eliminating waste, says Charles E. Bolyard, Jr., chairman of the board and chief executive officer at McDonough Bolyard Peck Inc. At the same time, those firms making the shift to BIM and ultimately to integrated project delivery (IPD) must find new ways to allocate risk appropriately in this environment. For many, legal risk is the biggest hurdle to resolve before wide spread adoption of BIM or IPD is really possible. Owners and project teams will likely have to put aside traditional risk allocation principles and enter into new and very different contractual relationships. Maury Masucci, senior vice president at Hill International, Inc. says, I think the industry overall agrees that BIM and IPD make sense. But we also recognize that to-date most contracts are structured in the more traditional allocation of risk and responsibility. BIM blurs those lines. Clearing Obstacles For some, the push to BIM is driven, in part, by owner demand such as the General Services Administration s (GSA) mandate that contractors use BIM in the conceptual design stage of all projects. The Department of Veterans Affairs recently launched a similar initiative, requiring the use of IFC-compliant BIM for all new major construction projects and renovations starting design in fiscal year Many architecture and construction firms are also adopting the tools to improve efficiency, reduce chance of conflict or dispute and ultimately deliver a better, cost effective product. The AIA Work-on-the-Boards survey confirms this shift, finding that 69% of firms with annual billings of $5 million or more are currently using BIM on billable projects. So, how are these firms establishing a collaborative contract solution that allocates risk and responsibility appropriately? Howard W. Ashcraft of Hanson, Bridgett LLP, says, The trend is to use hybrid specifications that outline what you want to achieve with BIM. Based on those specifications, the project team jointly shapes a protocol to achieve those objectives. The hybrid specification might specify the use of a particular software product to create the model, along with the desired granularity and model detail. Naturally all models must be interoperable in some way in order to be used for fabrication or cost evaluation. Ashcraft says, There s still a huge amount of detail that the project team must define. The most successful interface specifications are fine-tuned through BIM workshops held early in the project planning stages. In these sessions, the contractor can explain the need to have the information and how it s ordered, which allows the designer to shape the design around project constructability. L 2 July 28, 2008

2 Contractual Conditions Often creating the best contract comes down to selecting the right team. Dave Corkum, partner at Donovan Hatem LLP, advises, Whether you are an owner or a building professional, select partners that you want to establish long-term relationships with; think best value, not low price and single transaction. After choosing partners that can be respected and collaborated with, a workable contract can be crafted. Corkum continues, The very exercise of negotiating a contract for a unique project or new delivery mechanism allows the participants to carefully consider their own role and responsibility as well as understand the expectations of the other participants. Help integrating BIM into contractual arrangements or in drafting IPD contracts is readily available with the new AIA IPD contract documents or the ConsensusDOCS documents such as the recently released BIM Addendum. While these documents offer a foundation for BIM or IPD contractual agreements, they are not off-the shelf documents. Roland Nikles, managing partner with Bell, Rosenberg & Hughes LLP, says, They are simply the frameworks to begin contract discussions the parties still need to work out the details of risk allocation, Before you enter into an IPD project, set the rules on what, if any, is an acceptable level of risk. Define the threshold for stakeholders becoming accountable and financially responsible for their share of the risk. Charles E. Bolyard, Jr., PSP, CFCC, chairman of the board/chief executive officer, McDonough Bolyard Peck, Inc. indemnity and incentive programs to make sure everyone can operate successfully in a cooperative environment. Developing the details will require a lot of involvement. In these early days, it does require strong leadership. Realizing the Promise Most experts agree that BIM and IPD are worth considering especially during the conceptual decision-making stages. Steve Charney, co-managing partner with Peckar & Abramson, P.C., says, At its core, BIM is a tool that can manage risks of delay, added cost, inefficiency and disruption and experience is demonstrating that the benefits are quite remarkable. Sure, there are risks that should be addressed, but designers, developers and contractors should not miss the big picture. The benefits derived by BIM can greatly overshadow the risks inherent in its use. Charney adds, BIM clearly offers remarkable value and efficiency in identifying problematic conditions that can be corrected long before they result in added cost or time the same conditions that often lead to costly claims and litigation. As a result, concerns about the risks of BIM should not dampen its use and legal obstacles should not be permitted to stand in the way of BIM. IPD is growing similarly and holds great promise to the entire industry. Donovan Hatem s Corkum concludes, The construction industry is under constant evolution, continually seeking better ways to most efficiently deliver a project. Public and private owners who hunker down behind arcane procurement regulations or overly protective contracts are going to have to settle for the B team. Those forwardthinking owners that seek improved delivery methods such as IPD are going to attract the better contractors and designers. That whole excitement is what makes the industry interesting and where project teams can deliver solutions better than expected for less. Avoid Disputes, Manage Your Schedule Construction managers and program managers for owners need to pay more attention to scheduling provisions specified in contracts. It s surprising how many disputes arise simply because this seemingly basic task was not completed. In fact, many project teams set aside schedule specifications soon after project go-ahead, and instead get caught up in the day-to-day activities of a project. John Livengood, Esq, AIA Associate Vice President PinnacleOne In my experience, many disputes during construction could have been prevented if the project team simply took the time to check the schedule regularly, to assign a dedicated scheduling analyst or to consult with a construction attorney. While most contractors don t have a lot of in-house resources and seldom hire scheduling analysts, technology can help. The PC revolution allows contractors to keep better records, schedules and now incorporate BIM. These tools permit even modest size contractor to properly monitor and manage their work. Added to this, general contractors and construction managers are considerably more skilled than in past years. One of the greatest incentives to make use of CPM, project management software and BIM is the rising cost of dispute resolution. Good project management not only produces more profit with projects on time with few change orders, but also reduces the risk of claims and if claims occur, makes them more predictable. Most contractors really can t afford to push scheduling provisions aside anymore. Resolve Disputes Before a Project Begins Overall, the industry commitment to resolve disputes without litigation is very high in some cases, the commitment is visible even before the contracts are signed. Maury Masucci Senior Vice President Hill International, Inc. July 28, L 5

3 FAR-Reaching Consequences Ethics Provisions Push Beyond Federal Boundaries With the introduction of the federal government s Contractor Code of Business Ethics and Conduct (FAR Part ) most every contractor that does business with the federal government or would like to do business with the federal government now realizes the importance of a comprehensive ethics and compliance program. Yet, the FAR rules and regulations go well beyond these seemingly clear boundaries. Robert Groves, managing director at Navigant Consulting, says, There are many contractors that will be impacted by the FAR provisions and they may not know it. For instance, July 28, L 17

4 this new FAR clause may also apply to smaller subcontractors providing services under an affected contract. At the federal level, the FAR may soon mandate a comprehensive ethics awareness and compliance program that includes a written code of business ethics and awareness within 30 days of contract award and an internal control system to manage the process within 90 days of contract award. The program must include periodic reviews, employee training and education, a hot line, audits and enforced disciplinary action for misconduct. There is no room to pick and choose which elements of the required program to implement. William (Tom) Thompson, partner with Peckar & Abramson, P.C., says, Contractors are expected to incorporate into their compliance programs all of the required elements defined in the FAR. You can t opt out of any part. However, for those contractors that do limited business with the federal government, there is some flexibility in the complexity of their ethics and compliance program. Thompson continues, In meeting the FAR requirements, the level of sophistication of a contractor s compliance program can be scaled to the size of the company and volume of business that it does with the government. Implementing a comprehensive program is not an overnight effort, says Navigant s Groves. Those firms that have gone through the process will tell you that it s an evolving process that is often We re well past the days when companies develop a corporate ethics statement, hang it on the wall, and hope that everyone across the company complies. Take affirmative steps to make sure you ve introduced a comprehensive ethics and compliance management program that reaches every person in your company. Dennis Allen, senior vice president, Hill International Inc. L 18 July 28, 2008

5 updated over time to become current with the new regulations. Perhaps the most important element of an ethics program is a company-wide training program to make sure all employees are aware of the risks of improper conduct. The training program should educate employees about false claims and other risks that have resulted in penalties. Groves adds, Executive management might clearly understand the risks, but unless every employee that is involved in contract administration understands those risks, a contractor is still at risk of improper conduct because some employees won t understand that a particular situation is improper. For instance, a contractor could be accused of making a false claim for payment if he invoices the government twice for same work. Including unallowable costs in the invoice or overstating the contractor s overhead pool might not be such an obvious potential violation. Bottom line, while most major contractors have always had some sort of ethics program, the new federal requirements dictate that contractors find a way to train and to monitor progress throughout the company. There are a lot of good reasons to have a compliance program notwithstanding the regulations. Peckar & Abramson s Thompson says, Industry studies suggest that companies with comprehensive ethics programs find that the incidence of fraud or other ethical violations is significantly reduced because their programs prevent fraud or catch it early enough. Others have found these programs to be excellent marketing opportunities, a chance to demonstrate to clients a robust and effective compliance program that ultimately benefits the client. Dennis L. Allen, senior vice president of Hill International, says, We all agree on the concepts of good ethics. The next step is to integrate those concepts into normal business processes and then document the efforts. The added advantage is that these programs will also help reduce internal losses from waste, fraud and abuse. Industry experts agree that the starting point for a quality ethics and compliance program is with legal counsel. Work with in-house or outside counsel to understand the current and often changing ethics and compliance regulations that may apply to your specific project, says Groves. For more information, read the FAR clause ( Additionally, AGC of America has a handbook on CD that offers insight into contractor ethics and professionalism.