The Art of Specificity

A real estate development company’s largest risk is that a construction project will go terribly wrong, as construction ventures cost millions or hundreds of millions of dollars. For that reason, a construction contract not only states how those dollars will be used but also what will happen if unforeseen problems arise. If not spelled out clearly, those unforeseen problems can cripple the project and, in bad cases, bankrupt the company itself. This makes the drafting of a good construction contract an existential exercise, though unfortunately it’s an exercise which many people do without much warm-up! Because I count myself in that group, I decided to chat with an expert to ground myself in the issues.

Eli Woyke spent 15 years as in-house counsel for Erdman, a development and project delivery firm which has completed thousands of buildings in its history. Erdman focuses heavily on healthcare facilities which, because of the precision and technology required in them, can be some of the most expensive buildings to construct. In this time, he became an expert on both contract structure and eventually contract disputes. Now that he has started his own firm, he’s regularly sought out for his expertise in those and related subjects. It was awesome to have him on the show.

After a good introduction to contracts and the two goals Eli has for each one (00:18), we discussed some of the primary project delivery components of a contract: the scope of work and material specifications (03:30), pricing (14:30), and scheduling (24:42). Then we pivoted to analyze the things that can go wrong in a construction project (36:20) and the possible solutions to these issues. We discussed the challenges with a one-size-fits-all, ultra-conservative approach (52:40) and then the use of robust indemnity language to protect your balance sheet (55:33). We concluded by discussing the pros and cons of managing construction in-house and also some of the industry standard construction forms like those made by the AIA (1:15:25). The conversation was extremely informative to me and I’m confident it will be for you too. Note: we had a few technical difficulties with a slow video feed at times, but the audio turned out great, so I don’t believe that will be a problem.

Shovels in the Ground

The idea for a building often starts in spreadsheets, in the language of finance. But it will be constructed in a very different world, using a different vernacular. My own experiences in a construction trailer during the summer of my first development internship were humbling. The number of foreign documents and terms overwhelmed me as much as an equity waterfall would overwhelm a plumber.

I don’t think I’m the first person in real estate finance to have left a construction trailer confused. So to help us get on the lead lap, I asked Jordan Schulz of Keel Partners (with whom I also did an internship) to introduce us to a few of the primary processes at work in construction management. Jordan is an “owner’s representative.” This means he is the person from a development team who represents the firm at the table with contractors and subcontractors. It requires him to have a foot in both worlds!

We first discussed stages of architectural drawings (starting at 0:39), document packages used in construction management (4:25), the question of whether we should spend longer working on drawings before we start construction (12:18), major stages of construction itself (15:32), and the question: how much more efficient can and will construction become (19:57.) Hope you enjoy our chat as much as I did!