Excerpts

Preface:

After the submission of a "Letter to the Editor," the following article was solicited from this book's author by the staff of Engineering News Record's (ENR) Viewpoint section. ENR is a prestigious weekly construction periodical published by McGraw-Hill. The editor captured the original letter and immediately published it.

VIEWPOINT-ENR June 2000

I am an "old mud shoe" with much experience on both sides of the negotiating table; general contractor (including design/build) and as owner's representative agency CM. Recently a golf partner, a retired staff attorney for a major International Engineering Management firm, told me how their facility owner clients, when developing their budgets, did not intend to ever pay 100 percent of retention funds. In my first-hand experience, one of the largest facility owners and purchasers of building construction in California uses exculpatory contract language and change-order stalling as an integral ingredient in their operating plans.

The National President Elect of a major construction industry association commented to a gathering that I attended (seated at the same dinner table) of facility Owner Representatives and Construction Managers that in contract negotiations, the "Golden Rule" applies: "Those who have (or control) the gold make the rules." In this authors' opinion, "when you make the rules, do not complain about the result", should be added to that message.

Over the past 20 years we have witnessed the decline in "contract administration" and the willingness of the design team to actively participate in the resolution of questions that arise during the course of construction. That situation has been caused, to a large extent, by E&O carriers through their client designers, reacting to many facility owner's demands that if the contractor cannot be coerced (by the owner-architect team) into accomplishing the extra work for free, then the design group should pay.

The vacuum created by the reduced participation of the A-E has been partially filled by the creation of CM in the early eighties, and in the nineties by the aggressive marketing (by many of the same salesmen) of design/build. However, even the most sophisticated facility owners have learned that those alternate delivery systems are not a panacea.

The pretense that design services are procured on objective capability standards, and not in large part on a competitive cost bases, is perpetuated by the naive or dishonest. The result of that deception, inadequate plans and specifications, has in effect brought about the litigation so many decry. Shame on the facility owner who blames the legal profession (who draw up their contracts), for if you cannot manage your attorney, then you are in the wrong organizational position and a change is in order.

In my first-hand experience, contractors who possessed the tenacity and resources to continue the legal process to final resolution have proved the argument true that; the contractor is in no way responsible for design issues. Most contractors are aware of that protracted and tortuous processes however, and therefore, take a business decision not based on justice, to compromise. The facility owner is counting on capitulation.

Most senior management of facility owner organizations proclaim (some in public and most not) to their facility staff the demand for more building at less expense. That approach may reduce the original budget numbers (with celebratory slaps on the back), but, as most people in the project management trenches know, there are other costs and long-term reductions in performance as a direct result. A savvy staff can "cover" the negative repercussions in the short-run.

Given this recurring environment of non-trust (exacerbated on public works jobs) perpetuated by facility representatives at the behest of their superiors, the architect and contractor perceive the adversarial relationship, as defined in the agreements, and plan to act accordingly. You get what you pay for over the long haul.

An attorney may say that lacking a formal education in the law disqualifies one from having a valid opinion on the content of contracts. Established lawyers in the construction field must be comfortable because substantial changes are not proposed. The facility owner has the most influence (remember the Golden Rule) over the assumptions and risk allocation in the published "Standard" agreements, and as later modified and executed.

There are practical solutions-many can be incorporated immediately for projects in the planning stage. Nostalgic talk of the old handshake days is non-productive. Criteria for entry into all markets (design and contracting) have been tailored to promote maximum economic competition-and therefore communications, in the form of documentation, has evolved as the focus of agreements.

First, the facility owner must comprehend the "gap" in responsibility created by the established standards. The architect is not required to provide documents that are defect free. However, when the facility owner presents (regardless of the forum or transmittal procedure) those same plans and specs to the contractor for bid, that contractor is entitled to complete and accurate documents. A sliding scale for E&O can be established to address that issue between the appropriate parties, the A-E and facility owner.

Other solutions include editing "front-end" document sections such as "compensable delay" issues can be streamlined (procedure currently in use by a very large purchaser of new facilities) by requiring the GC to include a dollar amount in their bid for each day so determined. Further, to include that dollar amount within the bid analysis, a hypothetical number of delay days are used to calculate a potential result that is added to each GC's bid for evaluation of the apparent low-bidder standing.

The facility owner need not coddle the designer or contractor-just provide more equitable and precise descriptions for resolution of issues that continually arise. There are costs for establishing an environment that results in more efficient use of labor and management forces. That expense is offset, however, by the reduced amount of effort expended on disputes, including attorney's fees (not to mention the intangible costs).

The title is: TRUE LIES-a paradigm

After I wrote the above article, many professional and personal friends encouraged me to write this book. Hopefully, as Rush Limbaugh says about his radio show (May 2002), "This program validates what people already believe-and gave them confidence."

Professionals in the construction industry recognize The McGraw-Hill Companies as the leading publisher in that market. This book's author first subscribed to the periodical Engineering News Record (ENR) at the student discount rate while obtaining a Bachelors Degree at Cal-State University Los Angeles.

Over the past three decades, that weekly publication has provided much reported information, in conjunction with the author's continuing education, experience, and thoughts, culminating in this book. Numerous ENR articles were used to support the author's arguments and bolster the opinions in this work.

In the summer of 2000 in a telephone conversation with the Group Publisher, James McGraw IV, he indicated that this author had something to contribute, and he encouraged continued writing on the topics as presented in this book.

As the reader will witness, this work became a response to the challenge of "CHANGING TIMES," an ENR cover story (on December 31, 2001) that chronicled an Industry Summit where "Leaders say the construction industry must reinvent itself to be effective in a world that now demands peak performance."

Accompanying the Industry Summit article, the ENR editorial calls for "...developing common themes that work..." This book's author offers this effort as his response.