A Quarterly for the Real Estate, Design, and Construction Industries
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- From Vulnerable to Valuable?
- New York State Upholds Design-Build Contract
- Is Your Construction Project Water-Tight?
From Vulnerable to Valuable?
By Barry B. LePatner, Esq.
Architects need to reposition themselves in the client's eye if they ever hope to regain control of the building process.
For much of the 25 years I have been involved in issues affecting the built environment, I have been cautiously optimistic that architects could recapture their former role as the masters of the building process and return as the key player in the design and construction worlds.
Regretfully, I am no longer so optimistic. Since the early-1900s recession, architects have done little to indicate that they have learned much about either improving their outdated methods of service delivery or developing a competitive acumen attuned to today's business environment.
Architects, first of all, need to recognize that our economy is increasingly based on investment in technology and the flow of information. New technology makes it possible to deliver design services in a more efficient and cost-effective fashion. Today's new business environment also calls for flexibility on the part of service providers. This means that architects need to create teams that can deploy quickly and nimbly to serve clients on projects of any size and in any location. Indeed, architects need to think about everything they do for clients differently in today's information economy. They need to listen to clients to learn their business goals, and study the issues confronting them in their operations.Preaching Good Design
Today, however, architects have an ideal opportunity to turn around this worrisome trend. Some of the business world's top thinkers and consultants are preaching the gospel of the good design, telling business clients about the need to incorporate top-flight design onto their company offices, images, and products. For instance, Tom Peters, the 1980s management guru, states in his recent book titled The Circle of Innovation (Knoft): "Design isn't just hiring a great designer. Design surely isn't merely prettifying.'... [W]hen design makes a difference, it is...a way of life."
Even fewer firm principals have realized how critical it is to either modify the way they have been providing services, or risk becoming an even more irrelevant part of their clients' future building plans. The indifference of architects to eye business trends is strikingly illustrated by industry surveys showing that profitability and optimism are not much better for firm principals than they were during the early-1990s recession. Indeed, the majority of profits in the building and transportation markets since 1990 have gone to contractors and engineers, while the "do-it-yourself" market is taking away millions of dollars in potential design fees.
Despite an excellent economy, architects remain mired in a recessionary mindset. Rather than becoming competitive businesspeople, they'd simply rather deny that they have competition. This trend is sadly evident in recent attempts by the American Institute of Architects to prohibit engineers and interior designers from securing work traditionally performed by architects. At the state and local levels, the AIA is attempting to influence the language of licensing statutes by distinguishing architecture from other design professions. Such designations, however, only further alienate the architect from a potential client who, in asking for services provided by an interior designer, will purposely seek out an interior design firm.
Much of the problem is that architects have retreated from their traditional construction responsibilities over the past 20 years. Not coincidentally, this decline in services corresponded directly with the rise of the construction manager. Architects lost critical elements of their services to others because they weren't comfortable playing the larger role of building advisor to their clients. Through passivity and inaction, architects ceded services and fees to others in the building industry. How long will it be before architects realize they have hit bottom in the marketplace by continuing to offer up the same ill-suited brand of services they have provided for the past 100 years?
In the interest of improving the architect's marketing acumen today, I have several recommendations. First, we must define the new business environment that design professionals are confronting. Broadly speaking, it is characterized by the following five qualities:
1.Increased Client Sophistication. Clients are more savvy about their programmatic needs.
2.Pressure For Returns. Clients, particularly corporate real estate managers, increasingly need to show a direct return on what they spend for property management and professional services. Before selecting an architect, they must assess the value their expertise adds to the process.
3.Technological Mastery. Clients have little patience for professionals who can't work with their chosen technologies, particularly their communications methods. Technological dinosaurs need not apply.
4.Global Perspective. Clients want worldly, widely experienced consultants. A global perspective, if not global presence, is mandatory. Even if one's clients and practice are local in nature, product selection and technological demands for new construction command a global comprehension of building products and construction methodologies.
5.Talented Teams. Talent exclusively at the top no longer carries the day. Successful firms develop and retain competent professionals at all levels. Clients will not wait to have all issues discussed and addressed solely by the principal of the firm when dozens of critical issues can be handled by smart, experienced professionals working under them.
The New Client
Who are these new clients waiting for you to provide the services they need to meet their business goals? In the new global economy, a small sample looks like this: corporations seeking to recycle old warehouse facilities into new high-tech, back-office computer operations; small companies utilizing Internet communications looking to design and build open-area offices to meet constantly changing business needs; corporate facilities managers in downsized companies who want flexible facilities that can expand and contract as their companies' economic needs demand; pension fund and investment bankers trying to determine which shopping centers or hotels are economically feasible for their real estate portfolios; universities and other public institutions that need to add new research and laboratory facilities; banks who must balance new branch offices that meet the needs of 24-hour banking with their daily business customer services; and public libraries incorporating new computer tools to attract new users.
The above scenarios represent a fraction of the new services calling out for design professionals to meet the opportunities offered by today's clientele. Architects will only become a key part of the client's project process by acting like the quintessential corporate executive; by asking the same kinds of questions that executives ask; and by studying the problems of their clients' world with the same perspective of those decision-makers. Only then will the design professional be able to convince the corporate client that they can make a difference as part of that process.
This article was featured in the Practice section of the March, 1998 issue of Architecture magazine. Roy R. Pachecano, AIA, the firm's Design Consultant, contributed to this article.
New York State Upholds Design-Build Contract
By Ronald B. Feingold, Esq.
New York case law has fortified its position in ratifying a form of contract, enabling owner-developers to package their construction projects in one agreement. In a recent decision, the New York Appellate Division, reaffirming the New York Court of Appeals' decision in Charlebois v. J.M. Weller Associates, upheld the validity of a design-build contract entered into between a design firm and a restaurant owner.
In SKR Design Group Inc. v. Yonehama, Inc., Yonehama and SKR Design entered into a written contract in which SKR Design agreed to provide construction and design services for Yonehama's restaurant. The restaurant was completed and SKR Design was paid approximately $625,000. Due to construction delays and other disputes, Yonehama terminated the contract and refused to make further payments.
SKR Design commenced an action seeking the balance due under its contract and a ruling from the court upholding the validity of its contract. Yonehama answered the complaint and alleged that the contract was void and unenforceable because SKR Design fraudulently misrepresented itself as a corporation licensed to perform architectural services and had illegally performed those services.
Yonehama moved for summary judgment dismissing the complaint on the ground that the contract was void as against public policy under the Education Law. SKR Design cross-moved to dismiss Yonehama's defenses and counterclaims which alleged that the contract was void.
The Court was thus faced with the issue of whether a contract with a business corporation, which specifically provided that a licensed architect would perform the design professional services, was void under New York Education Law.
The Supreme Court denied the motions, finding that a triable issue of fact existed as to whether SKR Design was authorized to enter into the contract.
On appeal, SKR Design asserted that the contract did not run afoul of the Education Law because it neither performed any architectural services, nor did it contract to do so. SKR Design submitted proof that all of the architectural work was done by a licensed architect. It demonstrated that all formal plans utilized on the project were signed, sealed and stamped by the architect.
SKR Design also relied upon specific provisions of the contract which provided that "design services shall be performed by qualified architects, engineers and other professionals selected and paid by the Design/Builder [SKR Design]" and that "the Design/Builder shall provide or cause to be provided and shall pay for design services..." SKR Design argued that these provisions demonstrated that the contract expressly called for it to obtain the services of a "qualified architect," and did not expressly or impliedly require it to perform the services itself.
The Court recognized that only those persons licensed or otherwise authorized to practice architecture may do so and may use the title "architect" under the Education Law. In addition, the Court explained that only a professional corporation formed to practice architecture, or other related professions, may contract with another party to perform architectural services.
The Appellate Division, however, sanctioned the SKR contract, relying heavily upon the New York Court of Appeals 1989 Charlebois decision. In Charlebois, the owners hiredof Appeals 1989 Charlebois decision. In Charlebois, the owners hired a contractor to build a warehouse and an addition to an existing building. The contract provided that in addition to construction services, the contractor would furnish architectural and engineering services, which would be provided by a licensed architect. The contract identified the architect by name. After a dispute arose over the cost and design, the contractor commenced an arbitration proceeding to recover $600,000 in construction costs. In response, the owners commenced an action seeking a declaration that the contract was invalid under the Education Law because the contractor was no.
The Court of Appeals, in upholding the validity of the contract, held that the policies underlying the Education Law were not violated where the contract expressly required that the contractor "engage a specified licensed person or professional corporation to perform the tasks for which the law specifically requires a license."
In SKR Design, the contract similarly called for the retention of a "qualified" -- i.e., licensed -- architect to perform the architectural services. In validating SKR's contract, the Court reasoned as follows:
- That a contractor engages the services of a licensed professional to perform a portion of the services covered by the contract does not convert that contract into one for the performance of those services (Charlebois, supra; Facilities Development Corp. v. Miletta, 180 AD2d 97, 103). Thus, no triable issue of fact exists as to any Education Law violations.
- The Court held that the architect need not be specified in the contract.
- We believe since the purpose of the licensing requirements is to ensure that the regulated work is performed by those with the necessary skills and training, we see no reason why the contract must designate a specific person. Where a licensed architect performed all of the services despite not being named in the contract, as here, the effectiveness of the regulatory scheme is not weakened.
The Appellate Division, in so holding, denied Yonehama's motion for summary judgment, and granted SKR Design's cross-motion for partial summary judgment dismissing Yonehama's defenses which alleged that the contract was void and unenforceable.
New York has thus taken a further step in endorsing the design-build contract where there is a provision specifying that a licensed professional will perform the architectural (or engineering) services. Unless the New York legislature intervenes and more vigorously defines the lawful practice of the design professions, owners should be cognizant that this form of contract is valid and should not hesitate entering into design-build agreements, engaging a contractor to provide the design and construction package for their projects.
Is Your Construction Project Water-Tight?
By: Jeffery S. Feinerman, Esq.
Damage To Property Can Trigger Warranties . . . But How Can You Be Sure You Are Adequately Protected?
Let us assume that you are the owner of a construction project that was completed six years ago. You are just informed that the roof (or roofs) on your building(s) are severely leaking causing tremendous damage to the interiors and personal property. However, you made sure that prior to the end of the construction project all manufacturers and other warranties were turned over to you. You file a warranty claim with the manufacturer, who in turn, sends an inspector to the premises to inspect.
The following scenarios can unfold:
1.The inspector finds the leaks are not due to a defect in the roofing materials but due to the roofing contractor's installation error and denies your claim.
2.The inspector finds a manufacturing defect and the company offers a warranty settlement of either cash or materials. This settlement however, only applies to materials not labor and is prorated based on the amount of use received (in the hypothetical, 6 years).
The preceding scenarios are not only common but likely since most roofing manufacturers limited warranties cover only defects in material, not labor, and are prorated. While many owners and design professionals believe that obtaining a manufacturers' warranty is one hundred percent protection, the truth is that the warranty's scope of coverage and monetary relief for products associated with building materials is limited.
As manufacturers are becoming more consumer driven, the warranties they offer reflect this attitude. For example, GAF Materials Corporation's ("GAFMC") new warranty program for its asphalt roofing shingle system reflects a consumer friendly warranty with protections far in excess of the standard limited warranty.
To be eligible for the GAFMC warranty, the following criteria must be met. First, you must select a roofing contractor that has been certified by GAFMC as qualified (the roofing contractor is not an employee of GAFMC). GAFMC will provide you with a list of the professionals in your area and many area roofers advertise their certification in the local yellow pages. Second, in addition to the shingles, you must install GAFMC manufactured roofing underlayment, ice and water shield, hip and ridge shingles and ridge vent. While this may seem like a lot of product, the truth is these products are probably needed on the roof and would be specified in any event since they make the roof system work more efficiently.
Once the system has been installed you will receive an enhanced limited warranty. For the first twelve years of the life of your roof system, GAFMC will repair or replace, without proration, any material defects or labor defects which adversely impact the performance of your shingles. In essence, other than acts of God or other extraordinary events that are specified in the warranty, your roof is fully covered for labor and materials for the first twelve years. After these first twelve years, the warranty is prorated but the warranty still covers material and labor.
Imagine the above hypothetical if the specifications for the project called for the type of roof system available with an enhanced warranty. Whether the inspector found installation error or a material defect, the roof would be repaired or replaced at no cost to the owner.
Many roofing manufacturers are in the process of establishing similar programs to the GAFMC program and these types of programs, with enormous benefit to the construction project owner, will cause project specifications to necessarily include these warranties.
While these new warranties cover repair and replacement of the building materials, you must still notify your insurance carrier if the failure of the building materials causes damage to the interior of the premises.
There are many other manufacturers, in other industries within the construction field, that offer customers limited warranties that clearly offer more protection to the owner than the industry norm. As an owner, you should require your design professional, owners' representative or engineer to research the warranties available that afford the most protection.
As a design professional, specifying products that come with enhanced warranty coverage will not only benefit the owner, but may give you some control over the subcontractors retained by the GC or CM. GAFMC is taking a risk; that their product is free of defects and that the roofing contractor installing the roof will install the roof properly. Therefore, GAFMC and other manufacturers who offer these types of warranties will only certify roofing contractors and other trade contractors who are qualified and competent. These competent trade contractors should give the design professional some comfort since qualified companies will perform the work.
A warranty has historically been viewed as necessary protection in the event a product used in the construction of a project fails. It can now be viewed as protection if the labor and/or materials fail.
Jeffrey S. Feinerman, Esq. is an associate of LePatner & Associates with extensive experience in construction litigation including roofing litigation.
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