2014 Construction Law Update October 28, 2014
Session 1: Implementing Integrated Project Delivery: Theory Meets Reality Mark Voigtmann Partner
3 First the Theory
The case for IPD is not hard to make . . . Sheer number of participants Inherent Each with competing priorities project inefficiencies Working in separate silos Performing at different times 4
The case for IPD is not hard to make . . . Separate contracts with conflicting obligations Inherent Obligations flowing through legal isolated tiers inefficiencies In an environment of constant change 5
An unhealthy game . . . design in OWNERS DESIGNERS isolation 6
An Unhealthy Game . . . Understate Understate cost to win cost to win bid bid OWNERS Attack Attack “Guaranteed design performance of performance of max” others to others to improve margins improve margins CONTRACTORS 7
8
Integrated Project Delivery � Involving more parties at the beginning (and throughout) � Sharing of risks and rewards � Incentivizing cooperation 9
A Much-Used Catchphrase . . . INTEGRATED PROJECT DELIVERY “All in” Tri-party Design- build with inclusivity Design- build 10
11 Now for the Reality
12 Began with a research project
The IU Health Project: Ten companies + one neutral 5 3 Design Trades Firms IPD Team 1 1 Owner CM 1 Counsel INDIANA UNIVERSITY HEALTH Owner Project Counsel 13
14 Single Agreement Signed By All
15 “All in” IPD
The Structure Project Counsel Project Accountant Executive Team Project Management Team Implementation Implementation Implementation Team Team Team 16
The incentives Owner pays / IPD Team works at cost Overrun Profit Pool Project Reserve Project Reserve Savings shared 50/50 Target Cost Reimbursable Costs 17
“Contract in Motion”
19 Objective Results
There were significant savings $220M Savings $200M Profit Pool $20M Project Reserve Project Reserve Original +$9M authorization Target cost _____ _____ Reimbursable Costs $29M $191M 20
The Schedule was Shortened Key stakeholders engaged before design Construction (shortened due RFP to efficiencies) Design (6 mos. instead of traditional one year) 21
Duplication was Eliminated Traditional Electrical contractor Design does detailed electrical professional re- project drawings draws them IPD Electrical contractor does detailed electrical End of process project drawings Savings on IU Health project = $500K 22
The “status quo” was challenged Traditional Owner Minimal Team imposes its incentive to project implements “standards” save IPD Owner Team Savings is imposes its challenges project realized “standards” orthodoxy Resulted in lower costs and significant operational energy savings 23
Operational energy savings were realized 203,500 BTU per square foot (IPD design) 289,760 BTU per square foot (prior design) $3.76 per square foot (IPD design) $5.35 per square foot (prior design) 24
Non-owner change orders were lower than expected 1.6% of cost (this IPD project) 6% of cost (traditional healthcare project) 25
Requests for information (RFIs) were non-existent None 26
Claims were non-existent None* * Excluding workers compensation claims and one internal contract interpretation question 27
28 Subjective Results
Did the IPD model that was used add value? 4% Too Early to Tell 96% Yes 29
How was value added? 97% 82% 68% 57% 54% Coordination Eliminate posturing Efficiency of process Reduction of Empowering between design / mistakes innovation and construction creativity 30
What was better? What was worse? � Better: “When the group of contractors sit in a room and have conversations about what the right thing is to do versus defending why they aren't responsible or why they need [to be] paid for something there is an obvious improved value that is created.” � Worse: “Insufficient formalities / memorialization.” 31
What was better? What was worse? � Better: “Sense of teamwork between the individual contractors and owner, ability to incorporate innovative changes into design while minimizing risk of unintended consequences on other trades.” 32
What was better? What was worse? � Better: “True collaboration. Focus on serving the customer vs. managing individual company risk. Worse: Documentation and cost forecasting could be improved.” � Better: “The colocation of the entire team working on the project has been great and taken the interaction of the team to another level.” 33
What was better? What was worse? � Better: “Access to the most appropriate expert on the team is better... With decisions made more collectively among the experts (there is always more than one and the Architect or Engineer is not always the most appropriate). � Worse: “The conditions of satisfaction and financial models could be better. We made them too objective.” 34
What was better? What was worse? � Better: “The model allowed for open communication between team members which should result in a design that will be more efficient to construct. It also allowed time up front to complete coordination and identify and fix problems that historically would have gone through the RFI / wait for an answer / price a change order / process that is inherently inefficient and expensive.” 35
36 More About the Nuts and Bolts
“Contract in Motion” 3 2 Multi-party 1 Agreement Project Retreat This is the and Charter constitution for Select IPD Team the project. This is the moment the team The selection of takes shape. compatible partners is key.
“Contract in Motion” 6 5 Conditions of Satisfaction 4 Setting of short and Financial Model long term subjective Setting of target cost, and objective goals project reserve, profit Statement of pool, profit split and Program claims trigger Determination of scope and schedule, and allocation between IPD team members
Concepts of “Lead Designer” and “Lead Constructor” 39
40 Project Reserve
41 Project Counsel
42 Standard subcontract form
43 Claims Trigger
Dispute resolution (internal) Project Project Implementation Implementation Management Management Executive Team Executive Team Team Team Team Team Project Counsel Project Counsel Project Counsel Project Counsel investigation / investigation / Formal mediation Formal mediation conciliation conciliation report report Dispute resolution (arbitration or litigation) to the extent Dispute resolution (arbitration or litigation) to the extent permitted by many waivers of liability permitted by many waivers of liability 44
Dispute resolution (external) The IPD The IPD Any external Any external Team Team party party 45
Insurance Indy project Cincy project CCIP CCIP OCIP OCIP Project policy Project policy Practice PL Practice PL policies policies Practice PL policies Practice PL policies Contract risk Contract risk Contract risk exclusions Contract risk exclusions exclusions exclusions 46
47 Common “studio” space with BIM server
Revisions to this model in next iteration � Overall simplification � Addition of Project Accountant � Simplified profit split rules � Pre-loading of certain “constitution” elements into initial Project Charter � Addition of “Owner Reserve” concept � Improvement of the “rules” for Conditions of Satisfaction � Address changes in company management � Means of gaining greater clarity regarding original scope � Greater training 48
Session 2: Construction and Design Defects Ben Petre Associate
Construction Defect Claims: Common Considerations There are a number of frequent legal issues that arise in construction defect cases. These often center around the following questions: � When does a claim begin to accrue? That is, when does the clock start running? � How long does the claimant have to pursue the claim (i.e., statute of limitations and statute of repose)? � Who are the liable parties (e.g., design, construction, management, etc.)? � What types of claims may be asserted (e.g., contract, tort, etc.)?
Johnston v. Centennial Log Homes & Furnishings, Inc., 305 P.3d 781 (Mont. 2013) � Background Facts � The Leonards contracted with Centennial for the sale of a log home kit and construction of a custom log home on their property � After the construction, the Leonards granted 36% of the interest in the property to the Johnstons, who were Sandy Leonard's parents � Shortly thereafter, in 2005, the Leonards and Johnstons discovered the existence of construction defects and property damage � Centennial and the Leonards eventually executed a “General Release” in favor of Centennial � The Leonards, Centennial, and all of Centennial’s subcontractors were all parties to the release, but the Johnstons were not � The Johnstons eventually obtained 100% interest in the property and discovered even more serious construction defects in 2008 and 2010 51
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