A recent article in the Nashville Business Journal equated a joint venture on a construction project to a marriage: "Want a successful joint venture? Think seamless."

 

The article offered several points of what should be addressed in the joint venture agreement before pursuing work: 

  1. Address potential consequences.  Parties should address the potential consequences of joining finances and forces for the joint venture.  When disputes arise, how are the parties going to resolve them?  What should the agreement say about permissible and prohibited activities, such as hiring away employees?
  2. Divide the duties.  The agreement should clearly outline the respective duties of the parties, whether relating to performance of work, management, and decision making. 
  3. Split the proceeds.  The agreement should also address how the parties are going to divide the proceeds from the contract.  This often depends on the investment of the parties, whether monetary and non-monetary.
  4. Contemplate duration.  Remember that the joint venture generally lasts through the life of the project.  It is important to consider warranties when contemplating the duration of the parties’ agreement.

The article not only speaks about matters of the mind (…the legal obligations of the joint venture partners …), it also recommends matters of the heart: "Experts agree that forming that seamless partnership is key in all joint venture situations."  In other words, the success of the joint venture will often depend on the integrity, character, commitment and relationship of the parties, as opposed to simply the agreement between them.

This is more than legal mumbo-jumbo, particularly for highway and bridge contractors. At the federal level, there are contract set asides for companies certified under the Small Business Administration’s 8(a) program.  At the state level, where most DOT work is allocated, each state and local transit agency must establish a goal for the participation of Disadvantaged Business Enterprises (DBE).  Partnering with an SBA 8(a) or DBE contractor can meet these requirements.

But each state will have specific guidelines and requirements for joint ventures on projects.  For example, Washington DOT has a set of pre-qualification guidelines (pdf) for what is required of joint ventures on their projects.  Similarly, at the federal level, the FAA and the USDOT have issued a Joint Venture Guidance document (pdf) for DBEs.  The real lesson is to make sure to explore and understand the legal requirements when you set out to establish a joint venture on a construction project, particularly if it involves minority participation.

Image: Belvoir Army Engineers

In February, I was featured on Kevin O’Neill’s Capital Thinking Radio Show on the VoiceAmerica Business Network to discuss social media business development tips and legal risks.  Well, I’m back to the radio waves tomorrow to discuss new trends in social media, including some recent missteps and use of social media in the political world.  Tune in on Thursday. 

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THURSDAY, April 7, 2011 @ 9 AM PST / Noon EST 
on VoiceAmerica Business Network

Capital Thinking 
 

Pipeline Safety – Political Internet for 2012 – Campaign Finance Update – Redefining Philanthropy

 

Join us this week on Capital Thinking with host Kevin O’Neill as we will first be joined by Gordon Arbuckle to discuss pipeline safety and Secretary of Transportation Ray LaHood’s plan of action.

Next, we will hear from returning guest Matthew DeVries of Stites & Harbison PPLC on the development of social media since the 2008 elections and how it will change the face of political Internet in 2012.

Then, staying with the topic of elections, William McGinley will join us to talk about next year’s campaign finance changes. 

Finally, Charles Pinto and Michael Cohen, co-founders of unitechange, give us their take on micro-philanthropy, which gives donors the opportunity and tools needed to have a more direct relationship with projects they support.

 

In a room filled with more than a hundred highway and bridge contractors, yesterday Tennessee Governor Bill Haslam helped kick off the Tennessee Road Builder Association’s "Day on the Hill" event.  Haslam’s was a welcome voice to this group of business men and women who wanted to hear about ideas for growth, as well as future plans for the transportation industry in Tennessee.

"It matters that you’re here," Haslam said to the participants. "It’s really about people who make their passions and positions known in a way that the legislators can understand."

Haslam equated the state budgetary process to what businesses need to do: "What we are going to do going forward is take a whole different look at state government. We are going to do the same thing you do in your business."  Haslam then outlined some ideas to get the budget aligned, as well as how to promote growth.  "I don’t think the Legislature creates jobs.  I think businesses do."

According to Haslam, the following three issues are key to a job development plan:

  • Play offense.   It is important for the Administration to do what it can to attract businesses to Tennessee, whether through incentives or other efforts. 
  • Review regulations.  It is also important to review current regulations to identify those that restrict growth.  While there is a need for regulation and oversight in any industry, including construction and transportation, there is a point where over-regulation stifles growth and you simply need to "get out" of their way.
  • Analyze risk.  According to Haslam, businesses must be empowered to grow.  This can be done by taking part of the risk out of capital investment, primarily through tort report.  By addressing tort reform, Haslam’s plan seeks to make the state more attractive to businesses seeking to relocate to Tennessee. 

You can listen to an audio version of Haslam’s talk to the TRBA (.wav file).

Image: Kent Starwalt

I was tucking in my Power Ranger last night when he asked me, "Dad, if the clock is unplugged, does time stand still?" I was awed by the brilliant question by this six-year-old mind. "Of course not," I responded. "Okay, Dad. Goodnight." As simple as that, my genius went to sleep.

 

On a construction project, time is one of the most important variables that must be considered by the parties.  IT DOES NOT STAND STILL.  Here are some things to think about when allocating risk in the parties’ agreement relating to time:

  • Commencement Date.  Although the parties’ agreement may define the Commencement Date, it is better to tie this date to when the contractor receives a Notice of Commencement from the owner.  An often-litigated issue is when the contractor actually begins the work on site and whether there were delays prior to commencement.  Try to clarify when the clock starts ticking for purposes of contract time.
  • Liquidated Damages.  In the world of litigation, liquidates damages ("LDs") are a fruitful area of disputes.  The LD provisions in the prime contract are often incorporated into subcontract agreements so that delays caused by subcontractors will be grounds for the prime contractor to assert claims against the responsible subcontractor. As a practical matter, the contractor should make sure any changes by the owner or delays beyond the reasonable control of the contractor allow for a time extension in order to get relief from any assessment of LDs. 
  • Scheduling Obligations.  Make sure you identify scheduling obligations, whether you are a prime contractor or subcontractor.  In some instances, you may not have a contractual obligation to maintain a critical path schedule, but you will want to do so nonetheless for claims support.  In other words, you will want to maintain an accurate schedule in order to pursue claims even if you are not contractually required to produce a schedule for the owner.
  • Notice Provisions.  Time is also important from the perspective of providing notice of claims.  It is important to identify the notice provisions in the contract and outline them in a separate document.  When all your project members have access to this "notice" document, they can track the dates when notice should be given for particular events (i.e., notice of any delay affecting time of completion or the cost of the work shall be given within seven days of the event giving rise to the claim).  

These are just a few of the important "time " considerations on a construction project.  What tips do you have when discussing time?

Image: katchoo

It is time for some new running shoes.  In the past month, I attended two major trade shows after speaking to the particular industry association.  First, I was humbled to speak to the Kentucky chapter of USGBC on the ASHRAE 189.1 standards and the International Green Construction Code, as well as some of the top legal risks in green construction.  Afterward, I walked for about three hours through the AIA-CSI Mardi Gras Trade Fair.  Next, I was humbled to speak at the AGC National Convention on social media business development tips and legal risks for contractors.  Afterward, I ran for about 6 hours through the miles-and-miles of exhibits at CONEXPO/CON-AGG. 

As I walked around these two trade shows, I made a few observations about the people, booths and information presented by the companies in attendance. 

  • People love giveaways.  This may not seem like a big deal to you or your company after having shelled out thousands of dollars to attend and host a booth at one of these shows.  However, your booth will see a lot more traffic if you have some incentive, enticement or … let’s just say it … an iPad to give away. 
  • Eye contact is important.  Whether you are manning the booth for your company or you are walking the floor trying to decide where to stop, eye contact is the first meaningful connection that you will make.  I cannot tell you how many booths I strutted right past because the person sitting (…not standing…) behind the booth was either reading something, texting on their phone, or simply not paying attention.
  • A smile invites a meaningful connection.  Again, no matter which side of the booth you are on, a smile can make all the difference in the world.  As a construction lawyer, I am not sure how much these vendors or suppliers want to chat with me.  In other words, I am not looking to purchase a new excavator or concrete product.  However, it is about making connections with people in the industry.  If I cannot help them, perhaps I can find someone who can help them.  

In the end, trade show connections are kind of like speed-dating.  You may be selling products, services or expertise.  You only have a short amount of time.  Give them a smile … a genuine introduction … and make a meaningful connection.

Last week, I was in Las Vegas speaking at the AGC National Convention and attending CONEXPO / CON-AGG, an international tradeshow featuring more than 2,000 exhibitors showcasing the latest in construction equipment, technologies and services.  Later this week, I will share some thoughts about the tradeshow, including some of my favorite exhibits.

In the meantime, I was impressed with the number of vendors with software solutions for document management.  The process of documentation, including its evaluation and improvement, may be better understood if it is subdivided into the following sub-tasks:

  1. Recognition, collection and recordation: This is the most vital step in the entire process. Without it, the other steps are moot. It requires that field superintendents and/or project engineers evaluate all real-time events, selecting those that appear to be of future value, and committing them to a permanent record.  Many contractors have reported that their field personnel do not adequately evaluate the real-time events until after they have experienced a major claim on one of their projects. It is a shame to pay the costs for an undocumented claim to ensure better documentation in the future. For that reason, I have given numerous workshops and presentations on documentation and "real litigation" examples to demonstrate the importance of documentation.
  2. Reporting, distribution and transmission:  This is a matter of communicating the documents or information to another party. Modern software is available to help with the reporting, distribution and transmission. There are many contractors who customize their software to meet their own particular needs. If field records are computerized at the outset, the cost of organizing them at a later point is eliminated.
  3. Initial utilization: Initial utilization of field documentation is important. Contractor management must know what is going on in the field so that adjustments can be made. It is similar to football coaches reviewing real true photographs of plays during a game and then making adjustments to their plan. The documentations that is not reviewed may be routed directly to storage.
  4. Storage and retrieval: Storage typically involves filing the information so that it can be retrieved at a later point. Once again, storage by use of computer software makes retrieval at a later date an easier task.

The solutions out there are numerous.  As we move forward to the paperless project, there will be more efficient, more effective and better integration through these task.

I have never been to Japan.  I cannot begin to understand the tremendous circumstances the country and its people have experienced.  However, I have lived through a natural disaster.  Many of my Nashville friends and clients found themselves in a mess of trouble earlier this year during the May floods. 

What did we learn?  We learned that you should have a disaster recovery or emergency plan.  Here is what else we learned:

  1. The time for creating an emergency plan is not during the emergency.  There are going to be obvious and not-so-obvious things to do before an emergency occurs.  One of the most obvious preparations that can be done is to prepare an emergency manual that outlines the potential "events" and "responses."   As a developer or contractor, you can prepare a manual that outlines how your company and employees should respond to a work site accident involving a fatality, or unusually severe weather, or other "unexpected" event.
  2. Build the "right" culture of leaders, management and employees.  In other words, get the "right people on the bus" or find competent leadership. Start by setting up a team consisting of the department heads in the company to discuss all the possible risks that might be encountered. Conduct a risk assessment study.
  3. Communication has to be direct and honest during an emergency.  You cannot rely 100% on the information given to you about a particular event, emergency or disaster.  But you can control the information that process.   It is important to communicate clearly to your employees and the public about the emergency affecting your project.
  4. Draft an interim plan to address any immediate emergency issues. Identify how to face it with minimal losses and make sure you have a command center (the "home office") and an outside communication line in case a disaster occurs. (Again, this takes pre-planning.)
  5. Draft an ongoing plan to address the aftermath.  Explain what each department is going to do, identify the leaders, and suggested protocol.  This can involve everything from notice letters to all contracting parties, as well as recovery plans for getting the project back on schedule. 
  6. Test your plan and adjust it accordingly.  How are you to know that your plan will work without testing it?  You won’t.  You and your company need to prepare for the worst case scenario and plan for the best case response. 

I hope that we never experience a disaster like the one facing Japanese families and businesses.  But if so … you should be prepared.

I realize that many different types of people read this blog: contractors, architects, consultants, homeowners, lawyers … and the list goes on.  Despite our differences in vocation or industry, I think we all have a few things in common: (1) we all will face adversity in our lives; (2) we all have desire to be better than we actually are; and (3) we all have the ability to improve.  Do you agree?

 

Former construction attorney and current coach to lawyers, Cordell Parvin, has challenged me over the past few months in my professional and personal development.  At Cordell’s pushing, I drafted an article on my first ten years of practice that was published by The Practical Lawyer.  Although the "lessons learned" relate to my development as a lawyer, there are certainly some life lessons for contractors and other executives.

Years before my first law class, I thought I was ready to practice law.  At the time, I was already working as a law clerk at a personal injury firm.  My job entailed interviewing witnesses, preparing and responding to discovery requests, and drafting legal memos and briefs.  Among these tasks, I enjoyed legal writing the most.  In fact, I had drafted trial court briefs, administrative agency statements, state and federal appeals, and even a writ of certiorari to "the Supremes" in Washington.  Based upon all this work, I was confident about my preparation for the practice of law.  However, a few stumbling blocks remained in my way to becoming a successful attorney, including a bar exam, many non-billable articles and conferences, hundreds of soiled diapers, and tens of thousands of dollars in debt.  Click here to continue reading this article in its entirety.

Image: Kim Vetter Photography

My transition to a new law firm has come with a few new perks, such as working with a tight-knit group of construction and environmental lawyers who practice both nationally and internationally.

One of our bright young stars, Lauran Sturm, recently compiled a comprehensive list of global codes and standards governing sustainable design and green construction. Here is the list so far:

Australia

  • Green Star has rating tools for the following types of buildings: education, healthcare, industrial, multi-unit residential, office, office interiors, retail centre, office design, and office-as-built. Green Star has pilot rating tools for convention centre design, public buildings, and custom buildings (i.e., those that do not fall into any of the other categories).
  • The National Australian Built Environment Rating System (“NABERS”) is a system that “measures an existing building’s environmental performance during operation” in categories including water, waste, energy, and indoor environment. NABERS provides ratings for office buildings, office tenancy, hotels, shopping centres, and homes.

Brazil

  • LEED for Brazil has been in development since 2008, with the goal of completion of at least LEED for New Construction this year.

Canada

  • Canada’s Green Building Council implements the LEED program, which provides rating systems for new construction, core and shell, commercial interiors, existing buildings, homes, and neighborhoods.
  • Green Globes is derived from the Building Research Establishment’s Environmental Assessment Method (“BREEAM”) and, in Canada, is operated by the Building Owners and Managers Association of Canada (in the US, The Green Building Initiative operates Green Globes).  Rating systems include new buildings & retrofits, office buildings, multi-residential, and light industrial.

China

  • There is no official website for the Three Star System, but the ChinaGreenBuildings blog has a good overview of this voluntary rating system which applies to large commercial and residential buildings. Ratings are based on the following categories: land savings and outdoor environment, energy savings, water savings, material savings, indoor environmental quality, and operations management. One notable component: ratings are only awarded after one year of operation.

France

  • Haute Qualitie Environnementale (HQE) [pdf attachment] is a voluntary certification system for the following buildings: commercial centers, hotels, schools, houses, residential, offices, in use, healthcare, sports, and occupational. 14 operational targets are arranged in 4 “families”: eco-construction, eco-management, comfort, and health. Pursuant to a recent memorandum of understanding, HQE’s certifying organization (Certivea) will also provide the BREEAM program (used in the UK) as an optional complement to the HQE system.

Germany

  • The German Green Building Council provides a certification system for new office and administration buildings, new retail buildings, new industrial buildings, new educational buildings, modernized office and administration buildings, new residential buildings, new hotels, city districts, and existing office and administrative buildings. DGNB is also developing rating systems for several other types of buildings, including new hospitals, new laboratory buildings, and new parking structures. Rating system criteria are ecological quality, economic quality, sociocultural and functional quality, technical quality, process quality, and site quality.

Hong Kong

  • Beam Plus is a voluntary rating system that applies to both new and existing buildings. The relevant credit categories are site aspects, material aspects, energy use, water use, indoor environmental quality, and innovation and additions.

India

  • India Green Building Council (IGBC) provides several different rating systems. LEED India evaluates sustainable site development, water savings, energy efficiency, materials selection, and indoor environmental quality for both new construction and core and shell. IGBC also provides a Green Homes rating system for individual homes, high rise residential apartments, gated communities, row houses, and retrofit of existing residential buildings; a Green Townships rating system for large developments and townships; and a Green Factory Building rating system. Green Townships and Green Factory Buildings appear to still be in the pilot stage.

Japan

  • CASBEE is a system that evaluates a project from pre-design through post-construction operation and life cycle. It consists of four general assessment tools: pre-design (which is still in development), new construction, existing building, and renovation. Separate tools evaluate Temporary Construction, such as expo pavilions, and Home (Detached Houses). Some Japanese cities, such as Nagoya and Osaka, have adopted their own CASBEE scoring guidelines.

Malaysia

  • Green Building Index (GBI) applies to both nonresidential and residential buildings. The GBI rating evaluates energy efficiency, indoor environmental quality, sustainable site planning & management, material and resources, water efficiency, and innovation.

New Zealand

  • Green Star has rating tools for the following types of buildings: office, industrial, education, and interiors. Assessment criteria are as follows: management, indoor environmental quality, energy, transport, water, materials, land use & ecology, emissions, and innovation.

Portugal

  • LiderA – Version 2.0 of this system (announced in 2009) applies to buildings, outdoor areas, public spaces, blocks, and neighborhoods. Projects are evaluated on the following criteria: site and integration, resources, environmental loadings, environmental comfort, socioeconomic experience, and sustainable use. The six different ratings are called “classes” and are based on improvement on baseline performance (from 12.5% to 90% improvement).

South Africa

  • Green Star was developed by the Green Building Council of South Africa.  This system has rating tools for the following types of buildings: office, multi-unit residential, and retail centre.

United Arab Emirates

  • Estidama Pearl evaluates communities, buildings (specific requirements apply to offices, schools, retail, multi-residential and mixed use), and villas. An Executive Council order issued May 2010 requires all new development to meet at least level 1 of these standards (government-funded buildings must meet level 2). Evaluation categories include integrated development process, natural systems, livable communities/buildings/villas, precious water, resourceful energy, stewarding materials, and innovating practice.

United Kingdom

  • Code for Sustainable Homes applies to new homes in England, Northern Ireland, and Wales, but it is a voluntary program. It measures energy/carbon dioxide, water, materials, surfacewater runoff, (flooding and flood prevention), waste, pollution, health & well-being, management, and ecology.
  • BREEAM measures the following types of buildings in the UK: courts, new housing (in accordance with the Code for Sustainable Homes), refurbished housing, healthcare, industrial, multi-residential, prisons, offices, retail, education, committees, and other buildings not included in the referenced categories.
  • BREEAM also has international schemes for Europe and the Middle East

Have we missed any others? Send us a note if you have any additions.

image: sporkwrapper

Last week was crazy for me!  Not only did I have more meetings than one could fit in the work week, but we had to find alternative overnight plans for our six children for an out-of-town law firm event.  Just like a construction project, we had to deal with the "ripple effect" of many changes to our plans.

Attorney coach and former construction lawyer Cordell Parvin wrote about the "ripple effect" of change orders many years ago.  Changes, differing site conditions and delays frequently occur on complex highway and bridge construction projects.  Whether the owner is a federal agency, state government or local municipality, contractors are regularly asked to perform the "additional work" or "remedy the differing site condition" during the construction project.  If there is not enough time for the contractor to prepare a change order with proposed costs, the contractor may be required to perform the work on a force-account basis.

The "ripple effect" or "cumulative impact" of changes in the work, delays, and differing site conditions require the contractor to document work activities, as well as money spent for the additional work.  In this instance, the contractor should also be focused on recovering compensation for the "impact" that the change, delay or differing site condition had on the original scope of work. 

In the California case discussed in Cordell’s article, State v. Guy F. Atkinson, the Owner DOT contracted with the Contractor to build 1.6 mile long section of Highway 101. Various problems arose during the project relating to wet soil conditions, which ultimately prohibited construction as specified under the bid plans. Over the course of the project, state engineers ordered numerous changes.

The Contractor initially signed the change orders, which allowed for additional compensation on a unit price basis.  The Contractor later refused to sign the proposed change orders because its entire project schedule was disrupted and delayed.  Ultimately, the Contractor submitted a claim for $1.5 million in additional compensation for the cumulative impact of the changes. 

The dispute was subject to mandatory arbitration, which resulted in a decision in favor of the Contractor.  The Arbitrator awarded the Contractor 65% of its claimed damages, finding that "[t]here were cumulative effects of all of the ordered changes. It is not feasible or possible to separately identify or measure those costs which were incurred by Atkinson as a result of the actions by the state." 

The award was confirmed at the trial court level, as well as on appeal.  The appellate court noted that the changes ordered by the State were major, ongoing and seriously impacted the entire project in terms of efficient use of labor, machinery and planning ability. The appellate court held:

The entire operation was disrupted by the ongoing piecemeal changes ordered by the state. The suggestion that only a small amount of the total embankment fill was actually replaced by other materials fails to recognize these massive ‘"ripple effects.’"

As noted by the court, in most complex cases it is "humanly impossible to trace, find and specify in detail, and quantify in effect the numerous circumstances [that] cause or contribute to financial consequences."

Just like a weekend away from six children requires advanced scheduling and back-up contingency plans, the best way for contractors to deal with changes, delays and differing site conditions is to prepare for the "ripple effect" or "cumulative impact."   Consider the time and productivity impacts of changes on the unchanged work when pricing changes.  With proper planning and scheduling, the impact can be estimated and predicted. This can minimize the uncertainty of change.

Image: Robert Hurzek