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The AOD Monitor The Newsletter for Associated Owners & Developers A Message from the President The Voice for Owners and Developers in the Construction Industry The Associated Owners & Developers' Construction Industry Monitor discusses construction industry issues important to facility owners and real estate developers. For those of you who have not yet joined AOD, this may be your intitial contact with our association. Therefore, we take this opportunity to briefly describe ourselves: AOD works to create greater opportunity for owners & developers through representation, education and cooperation throughout the construction process. Our mission is to support the interests of owners and developers while encouraging participation and cooperation among individuals and organizations who support design, development and construction of projects. We serve as a forum and platform for the industry; facilitating networking among its participants; thereby increasing profitability and improved quality and enhanced productivity. AOD is now publishing the Monitor on a quarterly basis, and intends that the Monitor be a brief summary of some of the current issues important to owners and developers. The Monitor also has a Question and Answer Forum, in which AOD members pose questions and receive answers from other members, a member of the Research and Speakers' Bureau, or other people whom AOD contacts to respond to the question. In addition, the Monitor keeps all members informed of upcoming AOD events and other events of interest to AOD members. AOD Steering Committee Leadership Firmly in Place: At the end-of-year Steering Committee Meeting in McLean, Virginia; W. P. Dinsmoor White of Gannett Co., Inc, was elected Chairman of the Steering Committee; and Joseph D. Wilbanks of Walt Disney World Co., was elected Vice Chairman. Both men are eminently well qualified to lead our Association Steering Committee. Dinny White joined Gannett Co., Inc. in 1987 as Vice President of Real Estate & Construction to serve as the principal officer for all real estate matters for corporate divisions and over 100 operating units around the USA. Joe Wilbanks has been with Walt Disney World Co. since 1986, first as Director of Contract Services, and currently as Director of Strategic Sourcing. He has played prominent roles in real estate development and operation support during a period of their remarkable corporate growth in Florida. Marketing pays off, and Membership in AOD continues to Grow: Membership in AOD is open to owners and developers of all sizes and shapes in multiple walks of life. Public agencies from all levels of federal, state, county, and city government are now beginning to hear of the energized activities of AOD and are joining as new members from around the country. Transportation Authorities; including aviation, highway, railroad, and subway; continue to participate as active members. Private Owners such as Gannett Co., Walt Disney World Co., Universal Studios, Federal Express, and Georgia-Pacific Corporation are also getting most actively involved. In addition, universities such as Princeton, MIT, and Penn State have chosen to get involved in the activities and leadership of Associated Owners & Developers. One of our stated goals for 1998 was to attain our first thousand members, and we are proud of having already done that during our first Quarter of this year. Some of those new members are listed herein, and others will soon be found posted on the Internet on our new Web Site (www.constructionchannel.net). In addition, as Affiliate Members continue to join, a brief description of their Corporate capabilities will be included on the Internet under the AOD Web Site to enable owners and developers to contact them as needed and appropriate to meet their facility delivery needs. Upcoming Conferences & Seminars for Members of AOD: Many of our members have made plans to attend the Construction Leadership Conference in Orlando, Florida on March 23-24, 1998. With the theme of Protecting Your Interests in the 1990's....and Beyond, it is expected that there will be many noteworthy presentations and discussions for our owners and developers. We hope this is the first of many of the Construction Leadership Conferences that our members will plan to attend, thereby exercising one of their many benefits of membership in AOD. Plans are now also set for our Annual AOD Seminar, scheduled for the Washington, D.C. Metropolitan Area at the Key Bridge Marriott on August 31 - September 1, 1998. With the Seminar Theme of Delivering Best Value Projects, and participation by many leaders in the Industry, we look forward to the opportunity of interacting with as many of our members as possible. See you there! AOD Gains Significant Momentum and Industry-wide Support AOD is still a relatively new acronmym in a world of thousands of associations. However, it is already being emblazoned in the minds of many across the country, because it is being viewed as the organization that will be driving the largest industry in the U.S. well into the next century. The design and construction industry has for far too long had a void that has interfered with the health and long-term welfare of the industry upon which this country has been built. That void has been the lack of understanding and educated participation of the singularly most important representative in the facility delivery business-The Owner. Associated Owners & Developers has not only been conceived, developed and energized to fill that void, but is now fully in gear and moving rapidly to ensure that all owners and developers are fully recognized as equal partners with the rest of the delivery team. I am personally excited with the opportunity to build and lead this most significant Association at a most important time in our Industry. I am pleased to report that I have already been able to acquaint myself with many of those who care in the facility delivery business. Having made many personal contacts, I can assure our membership that the executives of many leading professional associations have begun to throw their support behind Associated Owners & Developers. The result, of course, is that the public will continue to enjoy the fruits of the construction trade labors well into the next millennium. Active participation in AOD will only help to ensure successful delivery of best value construction projects. We look forward to working with all of you in this most important undertaking. To our new members - welcome to the Monitor. To our first time readers who wish to join AOD and take advantage of the owners' and developers' voice in the construction industry - please contact us toll free at 1-888-999-2536; or (703) 734-2397; Fax (703) 734-2908; www.constructionchannel.net/aod; or our E-Mail address: build@constructionchannel.net. We look forward to hearing from each of you in the very near future. ............... Design-Build Contracts: Advantages and Disadvantages The recent sharp growth in design-build contracting now requires that owners understand the advantages and disadvantages of design-build and the practical measures owners can take to minimize the risks of this arrangement while maximizing its advantages. According to the Design-Build Institute of America and F. W. Dodge DATALINE, the number of design-build contracts increased 103% from April 1995 to April 1996. A particularly large increase occurred in projects where civil engineering was the primary focus of design; the use of design-build contracting in this category increased by anywhere from 80% to 150%, depending on the nature of the structure or facility. The fundamental difference between the conventional contracting arrangement and the design-build contracting arrangement centers on the relationship between the owner and designer. In the conventional tripartite arrangement, the owner independently contracts with a design firm for the development of comprehensive drawings and specifications, which are presented to contractors for bidding and then usually awarded to the low bidder for construction. In the design-build arrangement, the owner contracts with a single design-build entity, which is responsible for both the design and construction of the project. Sophisticated owners recognize that such an arrangement can reduce risk, expedite project completion time and reduce costs, but those owners also realize that design-build requires as much diligence and involvement on their part as the conventional contracting relationship. Advantages Of Design-Build The single greatest advantage that owners derive from design-build is that the design-build entity serves as a single source of responsibility for both construction and design. Defects in construction and inade- quacies in design theoretically are the sole responsibility of the design-build entity. This advantage applies whether the contractor is proceeding as a joint venture partner with the designer, the contractor has subcontracted design responsibility to an architectural or engineering firm, or the contractor has in-house design personnel capable of handling all aspects of project design. When responsibility lies with a single source, the owner does not have to engage in the time consuming process of determining whether a costly disruption or delay to the progress of the work is the result of a design error or omission or a defect in construction on the part of the builder. Moreover, the owner does not warrant the adequacy of the plans and specifications, and the design-build entity bears responsibility for any increase in costs caused by inadequate or incomplete design documents. However, owners must recognize that if they take a more active role in the development of design specifications and the design-build entity can demonstrate that it relied on owner generated design criteria, then the builder may be entitled to an equitable adjustment if a more expensive material or method of construction becomes necessary to achieve the owner's intended purpose or to complete the project properly. A successful design-build arrangement can also save the owner time and money. If the design is phased, construction can begin before all plans and specifications are complete, giving the contractor an opportunity to start work early. Such a phasing program may also permit the owner more flexibility with respect to design, allowing the owner to recommend changes as the design proceeds to the more detail intensive phases of the design. The owner must be careful, however, to keep the contractor apprised of all design criteria as early as possible so that a price can be locked in and sufficient lead times can be provided to the contractor to ensure timely completion of the project. Finally, when the components of a design-build entity truly work together as a team, efficiency results, and cost savings inevitably flow to the owner. Disadvantages of Design-Build The primary disadvantage an owner experiences when contracting with a design-build entity results from the lack of control the owner exercises over the design process. Consequently, the owner may be forced to accept a facility or structure different from that which was originally envisioned since so many different approaches to building exist. In fact, the owner is often forced to concede control over the details or aesthetics of a project. Thus, it is wise for an owner to assess the importance of aesthetics and details to a particular project before entering into a design-build contract. If details and aesthetics are of prime importance, then the owner may wish to forego a design-build arrangement. Design-build contractual arrangements are usually the result of negotiations between the owner and the design-build entity. Consequently, price is not fixed at the outset of the construction process, and negotiations over a period of time present a risk to the owner that costs for the project may exceed budget after a substantial portion of design, and perhaps even construction work, has been completed. Since competitive bidding is not generally used, the owner is not assured of the lowest price. Ultimately, the best opportunity to maximize the advantages of design-build and avoid the disadvantages is to prequalify thoroughly all design-build candidates and select the one most likely to develop into a reliable, trustworthy partner. Ira Genberg, Esq. is AOD Counsel, and a partner in the law firm of Smith Gambrell & Russell, LLP, Atlanta, GA. ............... Question & Answer Forum Q) I have been told that every contract dispute with a contractor that cannot be resolved through negotiation should be submitted to arbitration, while others have stated that litigation should be the preferred method. Which procedure is most advantageous to owners? A) Arbitration and litigation both represent adversarial procedures in which a disinterested party is called upon to make a binding, final determination of the dispute. Each procedure, however, has certain advantages over the other. Arbitration generally represents a streamlined, less-formal procedure in which a more limited amount of evidence is exchanged between the parties prior to the hearing of the dispute. That generally means arbitration will offer a less-expensive, considerably quicker way to resolve the dispute. At the arbitration hearing, more lenient rules are in place regarding what may be presented as evidence. The parties can select a decision-maker that has extensive knowledge and experience in the field from which the dispute has arisen, which can expedite the hearing, save time and money and avoid decisions predicated upon confusion and misunderstanding. Arbitration decisions are appealable on much more limited grounds than court decisions and, therefore, have a greater degree of finality. Arbitrators need not strictly adhere to legal precedent, which gives them more flexibility to fashion what they deem "fair" or "equitable" results. Lastly, arbitration can be conducted as a private matter not held in a public forum like trials. Litigation proves more advantageous to those that can benefit from a more formalized, precedent bound forum. Litigation takes place in courts of law that are more likely to enforce contract clauses and other strictly legal defenses. That may work to the owner's favor because it usually drafts the contract. Stricter rules of evidence applicable in the courts also help insure that the dispute stays centered more on the legal issues and lessens the opportunity for decisions based on emotion. Lastly, the prospect of litigation with its attendant costs and long duration may prove advantageous to an owner involved in negotiations with a contractor whose failure to settle will leave it with no option but litigation. Ultimately, the circumstances of the owner and its particular dispute will determine which procedure will be most advantageous. For example, an owner facing a small dollar, highly technical claim brought by a financially secure, unsympathetic contractor will probably prefer arbitration. Litigation, however, may prove more beneficial to the owner facing a dispute with a contractor that wants to avoid the application of specific contractual provisions. ............... Let us hear from you Please address all articles, comments, questions and suggestions concerning this newsletter to:
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