GlobeSt.com: In your book, you state that lawyerscan be part of the process of making construction jobs moreefficient. What role do lawyers play?

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LePatner: Lawyers should approach this as much asthe owner's business adviser as legal adviser. We pay closeattention at the outset of every project to a client's businessobjects, and we tailor the approach to structuring contracts basedon those objectives. We don't use form agreements. We do not acceptthe construction and design industry's statements that this is theway business has always been done and always will be.

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Clients often come to us who in the past have experiencedterrible problems with cost overruns. And we help them change thatexperience and make sure their new projects do not have costoverruns.

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GlobeSt.com: How did you arrive at this newapproach to structuring construction contracts?

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LePatner: I did an industry-wide analysis of theconstruction industry as a whole and compared it to otherindustries in America. The construction industry operates in afashion different from every other industry in America. There are7.7 million construction workers in America in 883,000 constructionfirms. And 92% of those construction companies employ 20 workers orless. It's truly a mom-and-pop-shop industry. Therefore, thesecompanies function like mom-and-pop shops: They live from paycheckto paycheck. They don't have deep pockets, and as a result, theycan't take on risk. And most importantly, they spend next tonothing on IT research and development and technology to improveefficiency.

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What this all translates into is that when we go to hirecontractors, it is all done on a low-bid basis. To get a job, acontractor has to bid at or below cost. That means that when acontractor signs contract to do a $1 million sheetrock job, heknows that the only way he can make a real profit is through changeorders and to hope the team will find ways to make money, becausehe won't make money on the base contract. And it means the ownerhas to gird itself for cost overruns.

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Most of the workers on construction jobs are independentsubcontractors. Every subcontractor wants to get in and out, andwhen there are problems, the subs say, "I've got to get a changeorder, or I'm going to walk off the job."

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GlobeSt.com: And you have found particularproblems with so-called "fast track" projects?

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LePatner: The term "fast track" is a disaster ofthe first magnitude. The concept of starting a project beforearchitectural and engineering drawings are 100% complete is absurd.If you give contractors 70% complete drawings for them to maketheir bids then it opens everything up to cost overruns.

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Suppose a contractor tells an owner than he can fast track theproject by starting it four months early before the plans arecomplete--starting the demolition and the foundation and givingcontracts of to various subcontractors for steel, electrical,framing, etc. Four months later when the new set of drawings comesout, everyone on the job will raise their bids. Everyone usessupplemental drawings as a way to go back and reconfigure theirprices. If the owner balks, everyone starts finger-pointing. It's afree for all.

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GlobeSt.com: So a project should never begin untilall the drawings are complete?

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LePatner: To get a true fixed-price contract, allthe drawings must be complete and all the risks must be negotiatedout. Then contractors know that they're not going to get one pennyextra for the work, so they have to be efficient. And the ownerdoesn't get any surprises--unless the owner decides that he wantsto add something and that he is willing to pay for that.

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GlobeSt.com: What about the inevitable change inthe price of materials? How do owners and subcontractors factor inthat?

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LePatner:Contractors can lock in their prices onmaterials. Let's say an owner wants to build a 10-story building,and the architects and engineers have it fully designed. If thecontractors come in and bid $20 million and $4 million of it issteel, then the owner should say, "I will pay for that right now.Order the steel." It may be come in five months before the projectstarts. But the contractor can put it on the lot and put a fencearound it. The owner has locked in costs on the steel and paid theprice.

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What happens when jobs are fast-tracked is that a contractorputs in a preliminary order for two-thirds of the steel at oneprice. And six months later, when they bid for the balance of thesteel, the price has gone up. An owner or a government agencydoesn't want those kinds of surprises.

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GlobeSt.com: How do the contracts you creatediffer from standard form agreements?

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LePatner: Standard form agreements are anathema.They have been prepared over decades in conjunction with thecontractors, and they perpetuate bad business practices.

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My agreements are different because, first and foremost, wespend time meeting with the architects and engineers beforehand andtell them we are going to give them extra time to give us completedrawings. We even tell them that if they need to add on extrapeople to check the drawings, that the owner is willing to pay forthat. And we tell the contractors that we are creating a truefixed-price contract based on 100% complete drawings. We askcontractors to waive the right to claim that the drawings aren'tcomplete. We have them sit down with the engineers and architectsand acknowledge in the contract that they have had sufficientopportunity to review the drawing and specifications with thedesign team and that they are complete.

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In addition, profits are all built into the initial price. Inthe old construction-pricing system, everyone is at odds. I'mmaking it a more collaborative system.

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GlobeSt.com: How do you account for thepossibility that things may go wrong during construction?

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LePatner: We create a whole list of "riskallocations." We sit down with all the parties and go through therisks and put a price next to them. So if we run into those risks,we have prenegotiated what they will cost. If it's a $100 millionproject, we may have negotiated $4 million in risks that may occur.Even if all the risks occur, our client knows what the maximumprice will be.

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GlobeSt.com: Clearly owners would favor thesetypes of contracts, but what about the other parties involved?

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LePatner: Contractors love it. They get tired ofdealing with change orders and claims and fights withsubcontractors. Architects love it because they get more time tocoordinate with the engineers and more chance to interface with thecontractors who sometimes have good ideas. And they don't haveclaims against them.

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