Colorado-Real-Estate-Journal_332572

Page 36 - March 14-April 4, 2023 www.crej.com Construction, Design & Engineering H istorically, project development involved three primary parties: the developer, who owns the land and has the vision of the proj- ect’s end use; the designer, who captures the developer’s vision and transfers it onto paper (or more likely a computer); and the contractor, who builds the vision into existence. All three parties must play their part if the project is to be successfully completed. Accordingly, each party’s responsibilities are usu- ally described in great detail within the construction con- tracts signed at the beginning of the project. Negotiations can go back and forth with each party pressing for favorable terms on the scope of work, inclusions and exclusions, pay- ment terms, completion times, remedies and the dispute res- olution process. Upon execu- tion, the contract’s price should accurately reflect each party’s appetite for risk on the project weighed against the profits to be earned. But what happens when the developer and contractor (or designer) are under the control of the same parent company? The risks and rewards that are usually allocated to one party to insulate the others are now shared, creating benefits unique under the common o w n e r s h i p relationship. This article focuses on the benefits when the d e v e l o p e r and contrac- tor share c o m m o n o w n e r s h i p ; however, the examples may also be applicable to devel- oper-designer and contractor- designer common entities. The idea of a general contrac- tor who is also a developer isn’t new. Similar to when Ray Kroc told McDonald’s that it was actually in the real estate busi- ness, certain contractors recog- nized that purchasing the land and developing the projects being built opened the door to earn additional profit from the same project. Contractors and developers alike utilized dif- ferent corporate structures to create and operate the develop- ment and contracting entities under the umbrella of a parent company. The unique nuances of differing corporate umbrel- las and associated risk disper- sion are beyond the scope of this article. Projects utilizing develop- ers and contractors who share common ownership can reap the benefit gained when both developer and contractor pos- sess a complete understanding of the other party’s expecta- tions and limitations for the project. Open communication and free discussion can, and should, occur from the start, specifically while drafting the construction agreement between the developer and contractor. During this stage, the developer can explain its position, such as the con- straints imposed by investors or banks for the project to pen- cil. Alternatively, the contrac- tor can explain how the con- tract’s flow-down provisions to subcontractors are negatively impacting the buyout pro- cess. In some situations where there is only one person serv- ing as representative for both the developer and contractor, that person will have complete knowledge and understanding of both parties’ expectations and limitations. Open and hon- est communication can occur because the inherent instinct of self-preservation prevalent in construction isn’t necessary when the developer and con- tractor are both sitting on the same side of the table collabo- rating toward achieving the common goal of a completed project that benefits both sides of the project equation. Prob- lems that arise can be openly discussed and effective solu- tions implemented for the good of the overall project. Another benefit is increased collaboration between the par- ties throughout the life of the project. Common issues that often plague projects and decrease efficiency can be identified early and freely dis- cussed from a solutions-orient- ed position, rather than taking an accusatory or adversarial approach. Take design devel- opment, for example. In the eyes of a general contractor, the designer’s plans should be (but in practice often are not) fully developed when issued “for construction.” When a design question inevitably arises, the contractor can notify the devel- oper and engage in open dia- logue without the fear of losing credibility or confidence in the eyes of its client. The developer can listen to the contractor’s concerns and analyze whether the project would benefit from additional design services at this stage or knowingly take the risk that the current design may lead to future impacts during construction. A free flow of communication allows the parties to analyze the pros and cons and make informed decisions for the benefit of the project. By having these con- versations upfront, and not in an adversarial or defensive set- ting, the parties will under- stand each side’s concerns and constraints when issues arise during construction. Common ownership over both the developer and con- tractor certainly has its ben- efits; however, that is not to say it is without drawbacks or risk. Developers and con- tractors under common own- ership face market and proj- ect-specific risks that should be understood and addressed by both parties to increase the likelihood of a successful proj- ect. Developers or contractors considering entering the com- mon ownership arena should obtain the advice of a lawyer experienced with these deals to identify and plan for such risk. Like most things in the real estate and construction indus- tries, the question to be evalu- ated on every project is risk versus reward, and before you jump into the proverbial deep end, it helps to have somebody tell you exactly how deep it may be. s alex@bbglaw.com Common benefits when owner, GC are under same roof For the past 39 years, SMPS Colorado has come together with the industry’s business development and marketing elite to provide the premier forum for education and networking in the architectural, engineering, and construction communities. SPECIAL PROGRAM CONFERENCE Federal Outlook April 26 | 11:30 AM - 1:30 PM SMPS will be hosting April’s Federal Luncheon on the US Air Force Academy’s campus at the Falcon Club. We’ll welcome a panel of local federal leaders to the stage to discuss the evolving landscape of military a airs combined with community growth. 2023 Southwest Regional Conference April 12 - 14 | Santa Fe, NM Come together with the SMPS Southwest Regional Chapters this spring in Santa Fe to rediscover strategies and best practices through three days of marketing, business development, and leadership programs. Alex King Associate, BBG Construction Law