The Legal Side of Building: Contracts, Risk, and AI

 Most projects don't fall apart on site, they fall apart in the contract. 

In this episode, construction attorney Gregory Reaume - Bryson's brother (really) - breaks down what owners and contractors most often get wrong before they ever break ground, from one-sided agreements that quietly set up lawsuits to the notice and change-order clauses that decide who eats the cost when things shift. He shares real war stories from the field, explains how to protect yourself on both sides of the deal, and digs into how AI is reshaping the way contracts get reviewed and negotiated. A candid, practical look at the legal side of building, with the people who live in it. 

Transcript

SPEAKER_04 0:15

All right, welcome back to From A to Built, where we explore the big ideas shaping the future of our cities. I'm Bryson Rayon here with my co-host Chris James. And today's episode is a little different because we're diving into the legal side of building contracts, risk, and how all of that is starting to evolve with AI. Now, before we get into it, we should probably address the obvious. Today's guest is my older yet somehow shorter brother, Greg Rayome. And while I may look older, thanks to my gray hair, I just want it on the record that I am taller because I feel like that's the right place to start this conversation. So, all jokes aside, Greg is a construction attorney who's spent years in the trenches working with developers, contractors, and investors on exactly the kind of deals we talk about on this show. He lives in the world of contracts, risk, disputes, all the things that can make or break a project long before you ever put a shovel in the ground. So today we're gonna break down what most people get wrong about construction contracts, how to actually protect yourself on both sides of a deal, some real-world war stories from the field, and then we'll get into how AI is starting to reshape the legal side of our industry. It's gonna be a great episode. Let's jump into it. All right, Greg, thank you for joining us on From A to Belt. We're excited to have you here. I feel like this one's been a long time coming. And um I'll just start right off the bat by saying Greg is uh my brother. He's my older brother, which confuses a lot of people. Um I will say I am taller than him since we're sitting down, but uh he does look younger than me. Um it's not an indicator of who works harder, but you know, it is what it is. He's good looking smart. This is the real person. Um Greg's been in the construction industry for well over a decade now. Uh he's been working for several of our firms on the legal side. And before we jump into it, I'll back up a little bit from my experience with construction law. Uh, construction is a very litigious industry. Um, we're constantly dealing with issues across the board. And if I just go to the law side and the law firms that we've worked with, there's the top five, the big 10 boys out there, there's the smaller firms. And again, I am obviously biased, but I will say working with you has been an amazing experience in terms of somebody that's very passionate about what they do, someone that's very knowledgeable about what they do. Uh, so I was so excited that you were going to come on the podcast here and kind of talk to us about the things that you've learned in your career and how we can help developers and contractors uh just be better in their industry and do better things. So, with that being said, um, let's just jump right into what you do. You are a construction lawyer. So, for most people out there, what is a construction lawyer? Like, what do you guys do on a day-to-day basis?

SPEAKER_01 3:10

Uh, great question. There's some variety. So uh you can work in public works construction, which is large lawsuits, which I've uh been involved in quite a few of those. Uh, you can also work on the employment side. Um, construction employment includes things like uh project labor agreements and the public work side uh and just all the kind of idiosyncrasies that go along with construction. So I work mainly on the construction litigation and contract side. So this is where you don't get paid and then you sue someone because you want to get paid, or your subcontractor, if you're a general contractor, sues you because you're not paying them, or if something breaks that you've installed, you know, if you're a general contractor again and you get sued, or if you're an owner, you need to sue someone for a construction defect. Um that's my general focus and my area of expertise. Now I want to back up real quick. You mentioned briefly um different types of firms. So this is just something that might be helpful for owners or contractors that are hiring firms out there. Typically in the construction litigation space, right? So you've got you've built something, it's a rail or dam or something, and now it's it's falling apart and everyone's gonna start suing each other. Um there are typical owners' firms, like Mayor Brown is one of them, Nossaman is one of them, that uh most owners will hire. If you're a GC, you don't see oftentimes you don't see the big boy contractors, and I mean like Kewitt, DPR, and those guys hiring a massive law firm. And the reason for that is that often what happens is you have a big firm, say Pillsbury is an international law firm. And within a massive law firm, they have a bunch of practice groups. You know, they've got the public work group, they've got the construction group, they've got a real estate group, they've got white-collar crime all under this huge thing. And so very often what happens is the partners who have all the client connections within their field break off and and start their own smaller firm. And those are the experts, and so they take with them, you know, the Swintertons, the Qits and stuff like that. So then when you end up across the table in a huge lawsuit, you're usually not in the room, oftentimes aren't these huge law firms. They're the guys that used to work at the huge law firms, but now they have like a five to 20 person law firm. Okay. So if you're you know, if you're in big trouble, you should be looking for a firm like that. Someone, you know, you got to poke around and ask, you know, who's who's been around, who works with these big guys, and you're gonna find um, you know, a smaller firm.

SPEAKER_04 5:46

Yeah. And that that kind of segues into the next question because you were with QIT for a long time. So you were with one of the big firms out there. Um so what led you and kind of what what was your history? How'd you get into this industry and why are you in the industry overall? Yeah, good question.

SPEAKER_01 6:01

Um, more by necessity, you know, I think like many people, if I could do whatever I want, I would be a university professor. But I grew up in construction, like you did, um, literally in houses that were being flipped, you know. So, like we grew up in houses that were being uh torn apart, there'd be a sheet of plastic over the bedroom wall, and then it'd be redone into a nice house, and then we'd move out to another house and fix up. And uh, you know, our father built the Anaheim Hilton Hotel, and so there's a there's a long history of my family of doing construction. Um and I kind of fell into it that way, really through the family connection because I'm familiar with the terminology, the industry. So I have a leg up, you know, on most lawyers um in this area, right? So if I if I went into something like biotech, I would have to learn that all from the ground up. But as it is, it's it wasn't hard for me to jump right into this. Um and I think clients trust me because of that, because I have I understand the business, you know.

SPEAKER_00 7:00

So, general question. Uh, do you think people spend too much time or too little time on their contract negotiations?

SPEAKER_01 7:09

That's a great question. I actually had read that as um, what do they spend too much time or too little time on when they're negotiating the contract? Uh this is an interesting question because in a public works contract, there they could be you know 500 pages, not including um all the technical specs and everything like that. And if you were to spend the right amount of time negotiating and understanding that contract, the project would never get built. So, as it is, these contracts are typically form contracts that attorneys know. And over the years, you know, if you get a seasoned construction manager or project manager, they would know how the contracts work. But you would never have enough time to go through one of these contracts and still construct a project, right? Which, which, you know, means that the the contracts themselves should all be reformed. And there is a movement in law to make contracts and legal language more simple, you know, and more straightforward so that people understand what the contracts say and actually use them. And when will we get to that point? Yeah, never. Never because because lawyers are too afraid uh to do that, because they're afraid of they they think that if they sound um too simple, you know, then it's they're not gonna be worth their time. That's what it is, really. Or they're they're afraid of sounding too straightforward because then they think the other lawyer will not think that they're yeah, or that what am I paying you for? Yeah, exactly. When when it's you know, when you say it's straightforward, it doesn't seem like that mysterious, yeah, you know, um, or worth that much money. Maybe it isn't. Um, so I think there is that's a great question because it what I would say is if you have a um a smaller project and by that, let's say like a five or ten million dollar multifamily project, something like that, then you should spend a lot of time on that contract, especially if you're an owner. I mean, for either side, especially if you're an owner or GC. Um, because you're probably gonna be um using it and and getting into it, you can use it to um to manage the project. Like if there's a change order, you can go back to the change order language and you'll look at it. If you're on a public works project, I mean, I don't I don't think a lot of folks read those contracts, to be frank, you know, and and when there's a dispute, you know, sometimes you'll go back to the contract, but I can tell you, you're not gonna take a 1,000-page contract in front of a jury and say, on page 894, subpoint B, that's not gonna happen, you know. So it's more the general outline of the contract that everyone generally knows from working in the industry. That's what that's what they go off.

SPEAKER_00 9:41

So I guess the next question is when projects do not succeed or are not on time or on budget, is it the contract that failed, or is it the people who were working on the project that so it's you almost always it's the people that fail.

SPEAKER_01 9:55

And you I'll say this again and again it's because people do not have emotional intelligence. And that's the basis of why there's a huge lawsuit, right? Now, you can set up a lawsuit to happen if you have a contract that's too one-sided. And and the reason for that is because say that you have here's an easy example. You know those waiver clauses? Actually, so let me, and this kind of leads into or back to the other question about what you should maybe negotiate in your clauses. What's come into contracts over the last like couple decades are these clauses that say, if you um if you're a contractor and there might be a reason for a change order, a potential change order, you have to inform the owner of that. And if you don't inform the owner of that within X amount of time, you waive your right to any change order, right? So owners use that as a way to control costs because they want to know if there's any potential changes out there. They want to be notified of that very quickly so that they can adjust their um financials, right? Um, but what's happened over the years is that's gone from something that prods contractors to make sure that they're telling the owners of potential changes to a punitive measure, kind of like to see if they can attorneys on owner sides use that to see if they can uh have a get out of jail free card in the contract. So, as an extreme example, there are contracts that say if you could have or might have or there could be any potential change, and you don't notify the owner of that within three days, you waive your right to a change order. Now that's totally unreasonable. But the attorney's owners, you know, who who put that in there think, well, I'm zealously representing the owner. Maybe we won't use it, but we have the right. Getting back to what we were talking about, that kind of sets up a conflict because now you've really put the parties in an adverse position because you can bet no contractor or subcontractor wants to be in that position. So they have a chip on their shoulder now, as they should going into the project, right? And so, and they're gonna have to do extra paperwork to comply with that. They're gonna be under the gun all the time. That sets the tone of the project off in the wrong direction. And so that contract is more likely to end up in a lawsuit than one where people embedded in the contract is more trust.

SPEAKER_04 12:10

Yeah.

SPEAKER_01 12:11

Is this what is this go back to your earlier comment about emotional intelligence? Exactly. Yeah. Because so, and this goes back to the legalese thing too. If you're a contract, if you're a if you're a lawyer working for an owner, right, and you are afraid, you don't really maybe you haven't practiced that long, and you, or maybe you're a contracts lawyer and you've never gone to litigation. And so you don't really know how these clauses actually play out in in the courtroom. Um, you might think, well, I'm gonna put the harshest clause in there I can to protect the owner. That's a very unsophisticated way of looking at it. That would tell me that you you don't, you've never been in a construction project. Like you don't know what it means to work with, you know, another party. All you've learned, you went to college, you went to law school, you only learned the adversarial system, and that's kind of where you're coming from. If you had a little bit more experience, you know, or a little bit of emotional intelligence, you would think, okay, what how are these clauses going to help the parties work together? Because that's what prevents lawsuits. Yeah. Right.

SPEAKER_04 13:13

And that's really interesting because you know, when I think about emotional intelligence and the communication piece, I immediately fast forward to the dispute. Uh-huh. Right? We're already in it. We're already having a contract dispute as opposed to backing up all the way to the contract negotiations. It's interesting to think about bringing emotional intelligence to that piece. And also the scales is really interesting to where we talk about very large projects, but it comes down to million-dollar residential projects. You know, we were recently working on a project. It was a uh $600,000 small renovation for a great couple. We came in way in after the fact. Just absolutely horrible contract, uh, a GC that didn't understand it, it was very adversarial from the be from the beginning. Um, they were up to over $400,000 in change orders on a $600,000 contract. And the contract was completely in favor of the architect and the GC and the owner couldn't do anything about it. But they were like, I didn't look, I just trusted them. Um I just signed what they gave me. I didn't know anything about the contract. Um, so thinking about that from an early stage, you know, you're really relying on people not just to have that level of emotional intelligence, but to bring up those points early on to say, hey, I see what's in this contract, that's probably gonna cause us all issues later and then surface those as early as possible.

SPEAKER_01 14:34

Yeah, going back to a fair contract. So, like that's the negotiation point is that when you're negotiating these contracts, whether you're the owner of the GC, you should be coming at it and you should say this subverbally. Like, you know, we want to have a fair contract, we want to, we want this to be a partnership.

SPEAKER_00 14:48

Well, I mean, going even further, uh, I mean, let's say I am a developer and I am about to hire a GC. Obviously, you want to protect yourself. So, what clauses should uh an owner always have in their contract without kind of starting off in that adversarial kind of foot or position?

SPEAKER_01 15:05

That's a good question. Um, you know, honestly, the contracts are all gonna be fairly the same. And the reason I say that is because historically, the American Institute of Architects has promulgated a contract suite that um is like a hundred years old. And so every construction attorney knows that those contracts and these are the AIA-based contracts. Exactly, yeah. And those contracts have in them, you know, um, the typical clause any contract would have in it, whether even if it's like a purchase order from Staples or something like that, as well as construction specific uh clauses, stuff that has come up over the years. Um so you if you're an owner or if you're a GC, you your attorney is, if you have a construction attorney, you know, they're gonna be working off a set of contracts that are gonna contain the the main parts of it. Um and that's also true for public works contracts, which a lot of those derive from federal contracts that have been around for a while. And a lot of those clauses are um mandated, a lot of federal clauses are mandated by the code of federal regulations. Um, and so there's just a flow down in practice from that. You know, this is where it starts, and then people may have used, say, a federal contract. And then from that, on their next project, they might copy and paste that, take out things they want or don't want. But the general main clauses are going to be there. And I'll tell you one right now. This is a kind of a sidetrack about um a case with Perini, now True Perini, um, and the Great Bay Hotel, which was actually the Sands Hotel in Las Vegas. So there's a place called the Great Bay Hotel in Atlantic City, New Jersey, um, gambling town just like Las Vegas, right? And the Sands Hotel had licensed their name to that place, and the Great Bay Hotel was going to renovate their whole hotel. They hired Perini, uh, this was before they merged with Tooner Perini, uh, to do this remodel. And the project cost was um $13 million. It was a GMP. They were supposed to be the construction manager um to a $13 million GMP. So the project went over budget and over cost by like quite a margin. Um, and so the Great Bay Hotel ended up suing uh Perini, right? So the project got completed, I think, in two years, and the lawsuit went on for like five years. Uh and Perini's fee was only $600,000. So $600,000 fee, $13 million contract. At the end of the day, the arbitrators and arbitration ruled that Perini had to pay the hotel $14 million. Wow. Yeah. And so why was that? The reason why that happened was because there was no um waiver of consequential damages in the contract. So there is a clause in every construction contract. And what it says is um we waive the right to pursue consequential damages uh if anything goes wrong in this contract. And I'll back up and I'll explain that a little bit so folks can understand, because this is an important clause. And it was this case, this is in the 80s. So this is in 19, you know, started in 1983 and ended in like 1990, 1989. Um, this case changed the AIA form contracts to include a waiver of consequential damages. And what consequential damages are are damages that are not directly related to the contract. So, for example, in a typical contract, um, let's just say I we contract that I'm gonna pay you $100 and you're gonna give me this widget, right? Now, if I don't pay you the $100 and you give me the widget, then your damages are $100. That's your strict damages on the contract, your contract damages. Um, if you don't give me the widget, my damages are the widget. I get the widget, right? So it's what the contract talks about within the four corners of the contract. Those are your damages. Anything outside of that would be just a different kind of damages. And there's a bunch of different kinds of damages, but generally you could just call it consequential damage. So it's like second, third, like fourth order of magnitude, yeah, fourth order of magnitude or like after the fact, basically. Exactly. So, like let's say I needed that widget um because it was gonna be a part in this like supercomputer I was gonna make. Yeah. And because I didn't have it, the supercomputer didn't work, and the supercomputer was gonna make me gold coins. Yeah, right. So, so if I want to come back to you and say, well, I would have gotten all these gold coins because, but you didn't give me the widget, so it's your fault I didn't get the gold coins. Um, you need to pay me all these gold coins now because you were the reason I didn't, those are called consequential damages. So in the Perini case that we just talked about, what the Great Bay Hotel said was, look, we told you that you had to be open on this date at the beginning of the summer. And we told you that the reason why we had to be open is because we're gonna make a bunch of money, be able to pay off this construction. And you blew way past that date, and we didn't open until after the tourist season. And so if we had opened during the tourist season, we would have made, you know, tens of millions of dollars. And that's what you have to pay back. That tens of millions of dollars we lost. So after that, the AI, the AIA put in a waiver of consequential damages in their form contract. So now in every contract, it'll say both sides waive consequential damages. So you can't get that anymore. That's very typical. And what you get in exchange for consequential damages if you're an owner, is you get liquidated damages. Yeah. So liquidated damages, those are, you know, let's say you have consequential damages, which could be unlimited, right? Could be any amount. Like let's imagine you're making a shopping center and you have a loan coming to you, and you're imagining you're gonna get like hundreds of thousands of dollars each month coming in in rent. Um, all those could be consequential damages, anything you can really think of. Um, so it's an amorphous thing. It's whatever attorneys can make it out to be, right? It's like emotional distress caused by yeah, different kinds of damages. But yeah, same in that it's amorphous like that. So, what liquidated damages are is saying, okay, let's just, because we know there's amorphous damages, let's just say they're gonna be this. We're gonna say that this amount for this period or what however you do it. But they're basically trying to make something concrete that's not concrete so everyone can agree on it. So you say, okay, in the case of delays, you say liquidated damages is are going to be, you know, whatever it is, $5,000 a day. Now the contractor can factor that amount into their risk analysis, right? And the owner, they get that in exchange for waiving all the consequential damages that they could have chased after what the contract chased the contractor down for, right? So that's the state of play and has been for a while in construction contracting, is that the owner gets liquidated damages and the contractor gets a waiver of consequential damages. And that's the general stuff. So that's a very important contract clause to have in your contracts.

SPEAKER_04 21:47

Do you see um people getting out of both of those? Because we go back to kind of setting up contracts, you're not entering into an agreement where out of the gate you're kind of feeling like on the back foot. And if I'm looking At liquidated damages, and I'm like, look, it's twenty thousand dollars a day. So right off the bat, if I'm on putting my builder hat on, I'm thinking, okay, we're gonna have to just be on point on this project. If they move a plug on this thing, it is a delay, it's an extra cost because I've got liquidated damages now. Yeah, and there is no, hey, don't worry about it. We got this, we'll cover you. It completely changes the tone of the project. Um, or is it more standard now that people are kind of getting used to the liquidated damages?

SPEAKER_01 22:28

It's pretty standard and it depends on the sophistication of the contractor, but also the size of the project. So if you're doing a residential contract and someone tries to get $20,000 in liquidated damages, that that would be ridiculous. Um, but if you're doing a public works project and the state could go after you for who knows how many consequential damages, or say you're building a nuclear submarine base, right? Like you don't want to have any consequences, if you're the contractor, you do not want to have any consequential damages on projects like that. So you're probably gonna take any amount of liquidated damages and be like, thank you. You know, so it really, yeah, it does depend. Yeah. And and there are, I mean, I've seen crazily high liquidated damages in big contracts. And the contractor will usually be like, well, it's better than it's better than what could happen. Yeah. Because if you get a lawsuit like that, it'll sink your whole company.

SPEAKER_00 23:13

You know, is there any data on how often uh liquidated damages are enacted or realized on a contract, just like on a, I don't know, just a per project basis? Like, is it 10%, 20%? Like, yeah, that's how litigious is the industry in general.

SPEAKER_04 23:29

That's every project.

SPEAKER_01 23:31

Yeah, that's a really great question because so at least in my experience, and this could be different. I mean, there's probably lawyers out there, construction lawyers, that um have a better way of doing this. But I haven't seen a standardized way of calculating liquidated damages. And I've tried to make them every product. So, what I typically do is I'll ask, you know, I'll ask the owner, what are your damages? Say it's a hotel. Um, what are your room rates? You know, like what are you gonna, yeah, like what do you think your damages are gonna be? And then let's use that as a basis for these damages. Um, that's what I that's what I typically try to do because the contractor is always gonna say, well, just let's make them as low as possible. But if you're representing an owner and you can say, look, this is like why, you know, this is these are my losses, you know, so that's why I'm coming at you with this amount, that all that is gonna seem much more reasonable than just pulling a number out of thin air. Um, but so in terms of the amount per day of liquidated damages for a delay, I haven't seen a systematic formula for that. I try to um do something reasonable by referencing what the owner might lose. Now, in terms of the industry in general, uh, most business cases don't go to court. And I mean like 95 or higher percent don't don't go to court. Arbitration they do, but oftentimes that issue just never gets litigated because it doesn't it doesn't end up in court. Inst where it's most commonly shows up is it during your as a leverage tool during settlement negotiations. So you you like if I'm representing the owner, you can bet I'm gonna be like, you guys are looking at five million dollars in liquidated damages. Yeah. So let's talk about that when we're talking about settlement, right? But um since most of these cases don't actually ever end up in court, I don't know that there's a lot of data on um on judgments that include that.

SPEAKER_04 25:18

You know, is there something like again, thinking about the consequential damages, liquidity damages, clauses when you're going through contracts, is there certain clauses that you see kind of over and over that generally always cause confusion? Like I kind of think of uh contingencies in budgets, right? Is it an owner contingency? Is it a contractor contingency? How exactly can I use that contingency? And it's not really clarified up front. So there's always a scenario where you're discussing it when it comes up. Is there any other examples of where you kind of see a certain clause coming up again and again during a project where you're like, ah, they should have, they should have clarified that better during the contract?

SPEAKER_01 25:59

Yeah. So and this goes back to attorneys are writing these contracts, not builders and owners. And the and really the builder um should be heavily involved in the contract and the owner should should ask for that. And the reason why I say that is because if the contract doesn't reflect real world practice, then it's if there's a problem, it people are gonna be confused by it or they're not gonna understand, you know, what they're supposed to do. Yeah. Right. And it wouldn't be like that if build the the GC and the owner's rep were involved in asking, like, what does this mean? I don't even know what this means. Right. And having the attorney explain it to it because without that, you've got attorneys who have no construction experience. And they're just referencing like general contract law. They might have been working on like an assembly line contract before that, right? And so so you need to have the attorneys talking with the people that are going to use the contract so they understand what to put in there. Um, back to what you said, I think contingency is a great example, yeah. You know, I and also um concurrent delay because the confusion like isn't just with the people using the contract, it's with the attorney. So I remember I was trying to negotiate a concurrent delay clause, and me and the other attorney were so confused. We were like, what does this even say? You know, and so we had to pull in like the the builders to be like, Can you explain this to it? And then we had to go through all these scenarios, like, well, if this, then this. So I think contingency is like I'm so glad I'm not the only one confused. No, yeah, yeah, it's very good. I mean, it's confusing, you know? And so, so I think contingency, uh, concurrent delay, builders' risk policies, who insurance in general, yeah, right. So you should always be bringing in a broker if you get um, if you're when you're touching on the insurance part, but who pays for builder's risk and what it covers is often very confusing. Because I believe in the AAA contracts, the um uh contractor purchases it and then will get reimbursed by the owner. But I have also seen, say, a serial developer, I think it's a good practice if you're an owner, like if you're a construction manager or an owner who's doing multiple projects, to get your own builder's risk policy lined up that you can apply to different projects because then you know what's in it. You know, and and so, and you're gonna pay for it anyways in the project. So you might as well have control over its terms and everything and get familiar with it. Um, that's often a source of confusion. Um I do think that uh when owners' attorneys, and I'm saying this very specifically, get a hold of these change order provision clauses, they can make it extremely confusing. So that everyone is wondering what is going on. And I part of that could be because you just have a bad attorney who doesn't do construction law. It could be because you have, you know, someone from one of these firms that's habitually only works for owners and they're trying to make it confusing such that people can't really use it, you know. So, like, and what I mean by that is, you know, say you have a clause that says something like, if there's, if there needs to be a change, you know, then tell the owner, ask for a potential change order. If the owner says yes, write the change order, get it signed. Now you've changed the contract. That should be the process. That's a reasonable process that everyone can read. That's not how some of these contracts work. They'll be like, if there's a change order, it must, if there's a potential change, it must fit into one of these categories. Um, and if you don't say it within this time, you know, if you don't notify people within this time in this manner, then you wave the right. And if you do, then you have to now format this in a certain way. And that's gonna be called this, like a potential, potential change order. Yeah. And then you take that and then you go from there and you got to get this permission, and they just make it this arcane maze, right? Intentionally, so that people can't follow it. And then that's for sure gonna make disputes. Yeah. You know, so I would say goes back to this the plain language, make things common sense that we're talking about. If you are an owner and you see that, if you're an owner's rep and you see the attorney doing stuff like that, or if you read it through and you can't make any sense out of it, you should go back to the attorney and say, Can you make this more reasonable? Can you make this more common sense? Put this in layman's terms. Yeah, put it in layman's terms.

SPEAKER_04 30:06

Yeah, yeah, absolutely. Yeah, it's even like the drawings. I think about like an uncoordinated set of drawings where you're like, yeah, it says it right here on the architectural. And I'm like, Yeah, but over here on the design set, you forgot to read. And it's like, oh, kind of with the contract with change orders like, well, here's the change order clause, and it's like, yeah, but in this clause over here, it also says you need to do X, Y, and Z. Right. So it is like a maze, it's like a game to how you do it.

SPEAKER_01 30:28

Yes. Yes. And and let me say um back to your question was are there habitual clauses, you know, or are there do you do I see clauses that people typically are confused by um or parts of the contract, right? So here's something to watch out for. This is a concrete tip. Oftentimes what you will see, depending on the size and the type of the contract, is that if you have a form contract, let's just start there, like an AIA contract, it's gonna have clauses that construction attorneys are familiar with, right? Like limitation of liability, indemnity, change orders, stuff like that. Now, the other attorney on the other side, they might have their own clauses that they want to put in there. But if they're under the gun time-wise, or if they're just someone who doesn't work well with other people, um, getting back to the emotional intelligence part, what they might do is they might draft a separate contract, attach it to the original contract, and just say, all these terms supersede the terms in the other contract. And then you go through it, and there'll be a new change order section. And it says, notwithstanding anything in this contract, this is the change order provision, right? That is a horrible practice. Because what happens then is now there's going to be a conflict between the main form of the contract and the added addendum that the lazy attorney has put in. And the reason why that happens is because it takes a lot of time, especially if it's a big contract or like a custom contract, it takes much more time for an attorney to go through a custom contract than one of the standard form contracts. So if you give a big contract to an attorney and not much time, you know, then they're gonna say, well, there's no way I can review this like a 300-page contract in the amount of time given to me. And the owner might not be willing or the GC might not be willing to pay me for like 50 hours of review on this thing. So rather than review it, I'm just gonna take terms that I know and I'm gonna put it at the end and I'm gonna say, you just tell them to take these terms, right? Because that's quicker and it's cheaper. But that makes big problems down the line. So don't do that. You did what I always do is I always say, look, if you've got terms that you want to include and you're trying to put them in an addendum, I'll find, I'll put it in there for you as a red line in the main body of the contract, and then we can go back and forth so that everything's just in one form of contract. Um, and if you tell your attorney that up front, it's gonna save you a bunch of time and a bunch of money. I'm gonna do some hopping around here because there's so much to get to.

SPEAKER_00 32:58

Yeah, yeah. It's like, wow, the law, it's so big. Um, I think before we kind of keep going, we should just for the non-construction professionals who are listening to the podcast. Uh, if you, Greg, could just explain very succinctly what a change order is. Yeah, I think they would really appreciate it because I'm sure they themselves are often very confused.

SPEAKER_01 33:19

With every contract backing up, um, all contracts are just that. Uh the basics of a contract are two people have to agree on something, they write it down, sign it, right? That's how a judge or anybody outside of construction or any area is gonna see a contract. So you'll often see folks say things like, Well, it's a um it's a progressive design build, or it's a design build, or it's a bit, you know, whatever the term, or it's a purchase order for that matter, whatever it is, right? They're all contracts. Yeah. So at base, a contract is you're writing down what you agree on and you sign it. That's what it is. And that's how judges, they're not gonna look at the title, right? Now, um, once you have that, if you want to change that contract, right? We all sign a contract, going back to the example we have of a widget. Say we sign a contract, it's like I pay you $100 and you give me a widget. If I want to change that contract, then you can change it verbally or you can change it in writing, right? Preferably you change it in writing. And so you say, um, you know, okay, I'm now gonna pay you $150 because I really like this widget for the next round, right? We we cross out the contract where it says the price and then we sign it again, right? That changes the contract. That's the only way you can change it. In construction, the term and the term for that is a change order. Now, everywhere else in all the other areas of law, you would just call it a contract amendment. Um, so it's it's just amending the contract. And because changes happen a lot in construction, that part of contracting has gotten very well developed. If you go to like manufacturing, there's not going to be a big change order provision. They're gonna say, you know, it's just gonna be like, this contract can't be changed unless it's done in writing. And then if people want to change it, they'll talk about it and they'll change it. But in construction, changes are a major thing that ends up getting litigated. So the change order parts of the contract are more developed than they are in other areas of law. Um, and the typical change order is um the contractor submits an idea to the owner for what needs to be changed, or the owner tells the contractor to change something. They both agree on it, they make a document that says what the change is, they sign it, and then that changes the contract. And you can change anything in the contract that way.

SPEAKER_00 35:30

I think uh one of the things that we should talk about, going back to your point about uncoordinated drawings, is how there is this unfortunate practice that contractors will sometimes do, not all of them, but some of them, um, where they will kind of change order a project to death almost, especially if they are the low bid uh contract or the low bid um GC. Uh have you ever seen that before? And if so, how do you handle it? This is a whole business.

SPEAKER_01 35:59

Yeah, I'm just employed. Yeah, yeah. I don't, you know, it's interesting. Like, I don't I yes, yes, absolutely. That is the whole business, you know. Um, and I guess to me, the fault lies the I'm gonna call it a I guess the fault, or it like a perfect project would have no changes, right? But to have a perfect project, you would have to have an architect design everything down to the screws, right? And the architect doesn't do that because they're not getting paid enough to design everything down to the screws, and or the owner can't make the design decisions by the time they want construction to start. So that's where it starts. So, as a starting matter, if you had an IKEA type project, like if you had a project that came like an IKEA set of furniture where you open it up and there's the instructions and there's all the stuff and you assemble it, there'd be no change orders. But no project ever, ever happens like that. Why is that? It's not the fault of the contractor, it's the fault of the designer, right? And the owner. And I, you might know this, listeners might know this. I know is you can test whether or not this is true if you've ever remodeled your own house. How many folks have tried to remodel their house and been like, that's it, I'm done with the plans and we're good to go. Never happens. You you get halfway through construction, you're like, I want the towel to look differently. You know what I mean? And so it's very common for owners to they, unless they're serial developers or track home developers where they're using the same set of plans and they are just out there to make money, those developers are folks that are like, they know you don't make any changes, right? Because that costs money, right? So now if you do have a set of plans that is gray, um, you're gonna get change orders. And if you have a and if you have a contractor that's not a good contractor, they'll exploit that absolutely and and um get change orders where they could have figured stuff out. Now, what you see in contracts, so that's this is where a lot of the sections get built out. And this is where um this is where a lot of these sections get built out. So you'll see change order sections. That's what they're trying to lock down when they'll say things like, you can only have a change order for these reasons, right? Like if it wasn't specifically called out in the plans and it's a material thing that should have been called out and there's no way to construct it without it, yeah, then you can ask for a change order. But you can't ask for a change order for anything else. So that's one way an owner's attorney, if you're if you're an attorney representing the owner's side, you'll try to restrict what a contractor can even ask for, right? And then you'll also say in the contract, as a contractor, you agree that you know how to build this and that there are gaps in the plans, and that those gaps in the plans that you've examined are not the grounds for a change order, essentially. You know, like you have means and methods to get to to cross the um the gray area. Yeah. So the contract will say that, right? And so then when they go to ask it go to ask for a change order, then what the owner should say is it says here in the contract, you know, that you should have anticipated that. So a best practice for owners is to say, we've given you all the drawings, you know, and you agree that you can build this, but you want to say something like this because your drawings, if you say you agree that you can build this and it's only a sketch, the contractor is gonna say, Yeah, I've I agree that I can build this, but you don't have any of the details. Yeah. So you've left that out. So that's grounds for a change order. So if you're an owner, you want to say something more along the lines that you agreed you you can build this and anything related to it that needs to be built to bring it into existence, essentially. Yeah. Um any supporting documentation or any supporting documents. Yes, exactly. Right. And you also agree that you've reviewed all of these documents. So now you've got the contractor on the hook for saying that they've reviewed all this stuff, right? And if you're a contractor on the flip side, you know, you you just want to make sure that what you're agreeing to is the set of drawings and that's it. And you want to limit that language that says um that that would require you to bridge any of those gray areas. Yeah. Um, so yeah, that's that's how I would answer that, you know.

SPEAKER_04 39:58

I think uh what this is leading me to ask, because we can spend this whole phone episode just on the tee up of of the design documents and the contracts. Because again, putting the builder's hat on, you go into a situation, you know they're crap drawings, right? You know, it's oh they're they're 85% CDs. It's like, no, they're like 50% at best, but you're telling me that's what it is. I have to work with this, or I'm not gonna be able to bid the job. You also know that they're looking for a low bid. So it puts contractors in a difficult position. And I think what our team ended up doing was trying to bid it accurately, but then also doing the best they can to identify everything that's missing. And then you that's where the exclusions page comes up. Yeah. Like, hey, we're excluding all of this because you guys don't have it detailed properly. We know it's needed, but we're gonna put it over here so you don't you can't say that we didn't call this out. Um, or you try and include it and capture it, but the problem with that is then you end up your price gets too high, and then you end up losing the project. Um, so this just comes back to this the industry has turned into a little bit of a game for everybody and they're all trying to protect themselves. Uh, and then for our tee up side, where um we talk about these, it all starts with the design drawings. And then how do you get a great set of design drawings? How do you fill all of those gaps early on? Because the reason we went from the GC side to the management side is living on the GC side for 20 years and just continually seeing subpar drawings and engineering documents and saying, why couldn't you solve these problems? And now being upstream and being able to work with the architecture teams and the structural teams and the MEP teams. Um, and it's still difficult because we've created very unique documents where we have design expectation checklists where it's like all of these things need to be initial that you've done it. And if you're not doing it, who is doing it? And surprisingly, there's a lot of pushback in the industry on that. Right. They don't even want to fill out that document.

SPEAKER_01 41:58

That's right. So so let me ask you actually, yeah, let me ask you as now that since you've been on both sides, yeah, how it is often that you find an owner that does have a complete design, or is it more often not the case? Yeah, more often not, they don't have a complete design. And then they blow the timeline. Yep. So this is another thing to watch out for. And this is this is my like, this is what owners should look out for. I'm and tell me if you've seen this, right? Yeah. Oftentimes you'll have an owner's doing the hard work of getting financing and getting everybody on board. Um, and so, and they have a project timeline that usually goes along with the financing. And oftentimes, and whether it's through indecision or just like um a laziness that they cannot have the contractor have, right? Yeah, they blow a lot of the timeline. If they get financing and they have, let's say, two years, they kind of end up being like, whoa, you're just past. What did we do? Yeah, you know, like you could have designed this thing in three months, but you've taken a year. And then what I see very often is they come rushing over to the contractor and say, you need to finish this project in a year, even though we all know it should take a year and a half, right? And now that instead of saying, like, that was kind of our fault because we were lazy, they're saying you got to double down and we're gonna try and make you accelerate our schedules, your schedules if you need to, you know, that gets back to what we were talking about originally, that that's gonna set the wrong tone for the project. So if you're an owner's rep or you're working for an owner, you should really have a reality check with the owner and say, you know, like make sure that they understand the implications of their own delays. Yeah. You know, and actually let me segue on this a little bit to something that I think is really important. Um, and this gets back to uh the amount of paperwork and requirements that you have a contractor um submit to the owner, right? So every contract is gonna have uh a lot of um uh checking that the owner is gonna do of the contractor's work, and actually, more speaking of design build or progressive design. Design built projects. So if you have a complicated project that requires a lot of design and requires a lot of engineering as it's going along, I would not recommend in your contract having the contractor run all that by you for checking. Say if you're a state agency or you're a big owner. And even worse, if you have, as an owner, you're hiring a third-party firm to double check all the contractor's work. And this is why I say that. If you what you should be doing is saying, we've hired you to design and build this thing, you design and build it. And if you screw it up, we're going to sue you. And it's on you. You're taking all that liability. What very often happens is you say, design and build this, but we want to check the design along the way and we want to have input to it. Now, if I'm representing the GC, I'm saying, great, now they've opened themselves up to liability, right? Not only for the design, but also for the massive delay this is going to cause. And this is how the delay happens. The um contractor, designer, builder will submit a design. If it's an agency, very often you have uh not a big pool of engineers on city staff or transit authority staff or whatever it is that can handle the volume of review that has been assigned to them through this crazy contract that these lawyers invented. Yeah. That right. And so they're trying to review thousands of pages. They can't and they don't have the drive to. Whereas the contractor, if it's a big contractor, they might have like 10 engineers on this thing, sending one engineer all this stuff. So then with the city or the transit authority, the county or whatever it is, what they try to do is they try to farm it out to their an independent set of engineers, an engineering group. And they say, Well, can you do this for us? Well, think about that for a second. This third-party engineering firm now has to prove their worth to the owner. So they can't just say, Yeah, it looks fine. It's not, it's safe, it's not going to collapse, the design looks fine. Send it on back. They're not going to get paid for that. So they have to, they have to mark it up and say something.

SPEAKER_00 45:57

Yeah.

SPEAKER_01 45:58

Well, why don't you move this? Why don't you do that? Okay, well, now we now we send it on back through the owner, which takes a few weeks, back to the contractor. And then the contractor's like, well, that's not our that's not how we designed it. But if since you're the owner, I guess now we got to redesign it to accommodate you. And we're all trying to play along. So now we're redesigning it. Now the schedule is getting pushed. So do you see that set up? You know, if if the recommendation that I'm giving is that if you're doing some sort of a design build and you're in a a public agency or a big contractor, let the designer builder do that and put the liability on them for that. Right. Don't try and micromanage it by hiring a third party because you're gonna that third party is gonna cause delays and your own staff isn't gonna be able to handle it, right? So think about that stuff, you know, when you're writing the contract and tell your attorneys that, you know. Processing a deep breath. Yeah.

SPEAKER_04 46:49

Right. Probably not out of the build side.

SPEAKER_00 46:51

Um, you know what that makes me think of, and this isn't funny, but it I think it's funny. At some point you have to laugh. Um, it makes me think of the uh the LA Convention Center. Yeah. Um, the expansion that do you remember that one? The RFP that we saw? Oh my um, so the City of LA uh released an RFP last minute for a third-party uh CM group to come in to manage, like you said, third party out the um overseeing of the convention center expansion, two billion dollar project, um P3 project. And uh the way they were handling it was let's just say it it left something to be desired. Yeah. Um and weeks knock it out. Good to go. Yeah. And uh I remember like walking into Bryson's office and I was like, I don't know if we should submit for this. This doesn't look like it's gonna go well. He's like, How much is the budget? I'm like, it's two billion dollars. He's like, Yeah, it's probably gonna be about three. Oh my god. But anyway, we'll put that little time capsule in there. We'll check in a year later, see where it is. Yeah, but um, I do want to ask just about contracts, uh, because there are so many different types of contracts. There's design, uh bid build, design build, progressive design build, integrated design, integrated, progressive design build. I don't know. There's all there's all types of things. Um, but what I've noticed, especially, especially in the public sector, is a move away from the traditional model of contract structures where the architect designs something, they send it out to bid, um, the general contractor will then bid on it, and the owner will hold two separate contracts, one for the architect and then one for the general contractor, and they'll facilitate the handoff. Now, what I notice is a lot of either design build or progressive design build projects, either at the county level or at higher education. And I'm wondering if you've seen the same thing, if you're seeing it creep creep into the private sector, and if so, why is that? And like the pluses and minuses of that approach.

SPEAKER_01 48:39

Yeah, that's a great question. Um, that is definitely happening in the public sector, and that has to happen by statute. So um the design bid build model, that's for public for any public works project, that is mandated by law. And the reason for that is they don't, they're trying to get away from nepotism where you know, some city official knows their cousin is a builder, so they're kind of there's some shenanigans and they hand off the contract to the builder. And this has been, you know, this is from the beginning of the country. And so it the model has been everyone submit a bid, no one can see it. It used to be literally in envelopes, and um, then everyone's public and transparent on the day of they open the envelopes, and the rule was the lowest person wins. Yeah, and that was fair. That was that's how they tried to make it fair, so there was no nepotism between politicians and builders. Um, like you alluded to, that uh results in people underbidding the project and then they're under the gun to try and uh change order up that project. And you can because of something called the Spear in Doctrine, which is a Supreme Court case where the Spear in Doctrine says if there's any um if it's not in the plans, the contractor doesn't have to do it, basically. So they're owed a change order. That's the basic Spear in Doctrine. And and that's what gives power to the contractor being able to write these change orders, right? Um, because of the problems with change orders in that model, um the design build stuff started catching on, but there had to be, you couldn't do that. You couldn't say um you that wasn't allowed. So there had to be lobbying and laws passed to allow for, and it usually will start with one sector in the public, like um water agencies were one of the first to be allowed to do progressive design build. Yeah. Um, and so it'll slowly start, you know, certain agencies will will be allowed to do it and then we'll start creeping, creeping into the public domain. I do think design build and progressive design build are better models than the um design bid build. There, I think that progressive design build as a relatively new um entry into the field, like the way of doing projects, there's still things that need to be ironed out. Um a simple example is the model is that the you get chosen on a um um like the it's basically just like the most qualified. Instead of instead of being the low bidder and you open up the thing, the agency can go look at folks, they can have them send in request, you know, after a request for qualification, they can have them send in qualifications and they can choose like the most qualified person. There's not, it could be their buddy. I mean, you can't really, but it's like it's not like it's a totally um it's not as transparent or strict as the design bid build bid build process. So they choose someone, and the model is that that firm now designs it, um, and then there's an off-ramp where after they design it, they give a price very almost exactly similar to construction management. But it's an integrated architect and builder team. Exactly. Yeah, exactly. Yeah. And so, and then they can, after they design it, if it's an integrated team, they design it, they give a price, a GMP. And then if the public agency doesn't like the price, they can off-ramp that um contractor and then use someone else, right? Interesting problem with that is because of what we were just talking about, how oftentimes engineers and owners are they haven't designed things all the way, but they need to get started because there's other pressures going on, like with funding and timelines and stuff. So they try to get the project started before the drawings are complete. So in a progressive design build, what you often see is the owner saying, Is there anything we can start early, like an early work package or an early release package? Um, and there usually is, right? Grading, for example. Yeah. But what happens when you have an early release package that is gonna extend well past the um the uh off-ramp date? So, like, let's say that you know it's gonna take a year to design the project and it's gonna take it four years to build it, right? After the year. So five years total. Well, you might have a grading project that's gonna go two years, right? So after you start the grading project, you know, right off the bat, people are grading. The design then later gets done within that year, but the agency decides to off-ramp the contractor, well, the contractor still has this early work package. So are they off-ramped for that or what's gonna happen there? And also, if they are off-ramp for that, now in the time since that package has been started, is the scope of work that was given to that package? Has that scope of work been confused or mixed with other scopes of work that are that are being teed up for when the construction officially starts? And how do you how do you separate those as you go along? So there's stuff like that that I think still needs to get worked out, or people are learning about it, you know, through through projects as as they're going along. Um so yeah, I think there's still a little bit of work to do, but I think design build is has worked, you know, pretty well. Why don't we see more of it in the private sector? I mean, have you seen it creeping in at all? That's a great question. Um, you know, I don't know. Um, I don't know that I just wouldn't have I don't I don't have enough of a view of the industry as a whole. Yeah, I think that would be something it would be very interesting to look at um like construction dive, like the news source or engineering news, news and review or engineering news record review, news record, that's what it is, yeah. Um I'll bet you they would have folks that have would have tallied stuff like that. But from my experience, I don't, I just don't have enough. Um, like what we would want to know is folks who are looking at like a thousand projects across the country each year, you know, um, probably have a good read on something like that.

SPEAKER_04 54:18

Yeah, you know. Well, and then also just taking on all that liability as soon as you get below a certain tier, I feel like it's not worth it, especially in this industry. You know, it's like, yeah, we want you to, especially if you're gonna design, build, or something like that. And it's like, okay, so you're now gonna take on 100% of that liability in this industry. It's it's just if you don't have that backing and you don't, you know, you can't weather those issues that come up, it's not really worth the risk. So you'll see the bigger groups do it.

SPEAKER_00 54:46

Um, but I don't see a ton of, I think there is specialists in the field, but so you're saying like design build though, it's only really effective, or actually it's only bigger GCs that could honestly weather that kind of liability risk. Yeah. Yeah.

SPEAKER_01 54:59

I think for commercial, but you know, you do see a lot of small residential folks do that. Oh, yeah, that's true. Which is like a lot of like kitchen and bathroom modelers. Yeah, you know, they'll have and I and I think that's a great model. Yeah, you know, because yeah, it's it I mean one-stop shop. Yeah, one-stop shop, yeah, exactly. That seems like a very and that seems like affordable, you know, for consumers for people that are getting their house redone. Yeah, I like that model. Yeah, yeah. It's more price certainty, yeah, we'd hope. Yeah, yeah. I will say that regardless of the model used, it goes back to what we were talking about earlier, that it's not really gonna be the model itself, the contract form that's gonna cause the lawsuit. It's gonna be the folks involved, yeah. Whether it's design bid build or whether it's design build or P3 or whatever it is, you know.

SPEAKER_04 55:43

Yeah. So all right. So our favorite part of the podcast, how is AI going to solve all of our problems in the legal and construction law space? Um, you already made a uh several comments throughout the this podcast around, you know, it's very difficult for lawyers to review a 300-page contract. There's these layer lazy lawyers that don't want to do XYZ. And immediately in my head, I was like, oh, well, they can do that now effectively with AI and get much better output. But I don't know if that's true or not. And I know the amount of stories that I'm hearing right now in the space are fascinating. I heard one the other day where it was two groups negotiating a contract, and essentially what was happening was one group was taking the contract and putting it into Chat GPT and sending back the comments. The other group was getting that contract and putting it into Chat GPT and sending back the comments. And so it just ended up being like this this horrible situation. Um, and because people are just trusting it at that level now. Yeah. So, where do you see the industry going with AI? What's good, what's bad? You know, how is it going to work for uh people in this industry in the next, I would say in the short term? Like, what do you see in the next 24, 36 months for the industry?

SPEAKER_01 56:58

Yeah. Well, that I mean, a lot of things come to mind because this is a big topic, but I'll just kind of shoot from the hip on some of them. Yeah. So there certainly is a lot of AI in construction law. Um, there are a lot of folks coming into that space. Um, one of them is called Document Crunch. And I don't know, you know, and so what Document Crunch does is it reviews contracts. And before, I mean, everything is happening so fast right now, but I would say last year, let's say, you know, I would I would say they might have had an edge in that field because they were, it seems to me like what they're doing is they're uploading law and analysis relevant to construction into their model. And so you could take a big contract, put it in a document crunch, and it will break down the stuff that like a construction lawyer would. It'll be referencing construction law. Um, I just think now any program, many programs can also do that, and you don't need to pay the fee that they're charging for it. Yeah. You know, so um I think that's exactly right. You the the contract review process has gotten um greatly assisted by AI. Now, you still have to understand the industry in order to get any use out of the AI. And that goes right to the example you were talking about, where a layperson is putting it in there and the AI is gonna tell it what it wants to hear, and then they're gonna send it back. And if the other side doesn't know anything about law or construction law either, and they're and they're going back and forth, they're probably not gonna get anywhere, particularly because there's no negotiation skills in that. So at least for me, a large part of being a lawyer is knowing how to negotiate with folks, right? And and kind of and it's not like there's some um esoteric set of skills for that, but if you're good, then I think at negotiating, then you kind of settle out and and you end up working on these contracts and negotiating. And there's a personality component that like, you know, your typical like engineer doesn't have, or your typical kind of like overblown macho broker doesn't have, right? So there's just a um there's an attitude and like I guess a you know, a way of talking with folks that AI is not going to be able to do for you. You're not gonna be able to replicate that with AI, I don't think. Yeah. Um and you have to know what to look for. So if you say you don't know construction law or you don't know law at all, and you're putting it into a program and asking, you know, what are the what should I do here? It might pick out stuff that's not really consequential. So it might say, you need this indemnity clause, and it needs to say this, this, and that, right? And that might be um important, but you just don't know. So you might you might spend all of your negotiation credit on trying to get that point when when really what's more important and might cause more problems during construction itself vis-a-vis the contract, is the payments clauses. And the payments clauses might not be that contentious. They might be like, you know, um, there might be some back and forth around, you know, we can withhold payment for this reason or we're gonna pay within this amount of time, like that kind of thing. And if that's very important to a contractor and to an owner, but if you're just putting through AI, AAI might not pick that out. And it might spend a lot of time, you know, or you might go down a rabbit hole with ChatGPT or whatever it is, yeah, chasing down clauses that you think are important, but you just don't know because you don't have the experience, or you might not understand this is very common, how that clause plays out, connects with another clause. Yeah. Right. So what I do in my contract negotiation is, and I think anybody who's good does this, you know, is you for construction, there are certain things that come up over and over and over again and certain ways of allocating risk that you can think of as like a matrix, right? So I have an Excel spreadsheet, and it's kind of like limitation of liability, um, waiver of consequential damages, liquidated damages, indemnity, insurance, um, those are change orders and waivers of change orders. Like those are kind of the main chunks. And then you look at that matrix and you think, okay, well, if we're, you know, given here, are they covered here? Like, you know, you want everybody to both sides should all, you know, should want the project to go off in with the least amount of risk possible. So if I take on this risk, am I covered in this other line item, you know, this other area of risk? And you don't really understand how all those parts interact unless you've done it for a while. Yeah. Unless you have construction experience so you understand what's most likely to happen and where the where the disputes are most likely to pop up. Or and if you're a lawyer and you understand how these clauses will interact with each other. Here's a good example um indemnity um clauses. Like you might have someone who doesn't know anything about it put in like a first um party indemnity clause that doesn't make any sense and will get kicked out, you know, like I want you to indemnify me from my own actions, right? It's like you can't do that in California. There's public policy against that. You know what I mean? It doesn't make any and it doesn't make any sense to die on that hill. Yeah. Because but if you just don't know that, you don't know that. Yeah, you know.

SPEAKER_04 1:01:57

And I think it's it's just interesting because I do see it speeding up the process to getting to a final contract, which is great. Helps the helps the process overall with what we're seeing with AI. But then going back to our earlier conversations about communication um and emotional intelligence there, 100% of the time in all contract disputes I've had in my entire career, you can pretty much throw the contract in the trash at the end of the day. I mean, people will pull out things to give them a little bit of leverage, but it comes back to you sitting down with the client and the lawyer sitting down and being able to work through it person to person. Yeah. And I don't think AI is ever going to replace that piece of it because it really, at the final stage, whether it's arbitration, mediation, any of that stuff, it really is can you sit down and work this out? Can you tell the story, your story, and can they tell their story? And can you have that rational conversation? Um, and I think AI helps with, you know, putting everyone in a good, stable position to get the project moving and to start things off. But if there ever is contract disputes in the future, the people piece is irreplaceable.

SPEAKER_01 1:03:04

Yeah, and that would be a better use of AI for that matter, if if the people negotiating it were to say, how can I be more emotionally intelligent in this negotiation? You know, if they were to ask AI, you know, what am I doing here? How can I communicate better?

SPEAKER_02 1:03:17

Yeah.

SPEAKER_01 1:03:17

That would be a good use of AI. A facilitator. A facilitator, yeah. I mean, that that that would be smart, you know. Like I think that would be a much more useful way of using AI in contract negotiation. I do want to say I love that AI conflict uh resolution expert.

SPEAKER_00 1:03:34

Yeah, yeah. Just bring the AI in. Yeah.

SPEAKER_01 1:03:37

I mean, there is actually, you might find this interesting. Um, I just heard this at a conference. So there is arbitration, right? Arbitration is private court. Um, and the there's a couple big players in arbitration that that you go to, the American Arbitration Association, the trip, which triple A, okay, and jams arbitration. And then there are also like little regional ones, but those are the two big ones. Um, the American Arbitration Association is just rolling out AI arbitration. So you can submit your stuff to just AI, apparently. And I haven't checked this out, so don't quote me on it. This is, I've been meaning to, once I get a second, I'm gonna look this up and you know do a social media post. Yeah. Um, but uh so you can submit it, and they're only doing construction law. Isn't that interesting? Yeah. Um, so yeah, so I've I'm very curious to check that out. One other thing on AI that I think is is very important in terms of saving costs for owners and contractors, is use it to organize your files and your what I'm gonna say is evidence, but what what I mean by that is like the project record. So if you're gonna have a dispute or if something's starting to come up, right? It's if you what has often happened is a contractor will just take their project file, whether it's a big box of papers or it's um a flash drive with just like a bunch of folders and hand it to the attorney and be like, I don't, you know, I'm too busy to go through, here's all this stuff, figure it out, right? Well, then you've just bought yourself a huge bill from the attorney because the attorney's gonna have to go through all this stuff, make a timeline, figure out like what happened five years ago, like where's this email, you know, follow up with you about it. Um, so if as an owner or an attorney, I mean, as an owner or a contractor, you use AI to organize the project history, think about it from the attorney's perspective, you know, in a way that makes sense, like make a timeline, yeah, somehow reference documents in that timeline. Hey, I can do all this so easily. And then you hand over to the attorney a package that's like, here's the story and here's all the documents. You probably you're gonna save a huge amount of money because then the attorney won't have to do all that, you know. Um, and the attorney may or may not have AI programs with the capacity to do that. Yeah, you know, like I use um uh Google Gemini for a lot of stuff and it has a capacity for s notebook LM within Google. Sorry. Yeah. It has a capacity for I think 600 documents.

SPEAKER_04 1:06:08

Yeah.

SPEAKER_01 1:06:09

Um, so I could put in that many, make a timeline, you know. But if I but if there's more than that, then I'll have to chunk it out somehow or figure out different ways of doing it.

SPEAKER_04 1:06:17

You know, oh, I think back on, you know, interesting contract disputes and to have the ability now to have AI go through your emails, pull out specific emails, analyze, create timelines, it's unbelievable. Because I would spend hours going back through years of emails being like, okay, I have to find those specific emails, pull them out, what did they say? And so now it's just do it. In 20 minutes, you have an entire timeline, every email pulled up. So I think that's going to be very helpful in the future.

SPEAKER_00 1:06:50

Yeah. It sounds like Greg, what you're saying, though. I mean, you already alluded to this in the beginning, but it sounds like when an owner assembles their team or when someone is putting together a project. Not that it's less important to have a good contract, but it is equally important. It is just as important to have a good contract as it is to have team members who have kind of this team spirit and emotional intelligence to get a project over the finish line. Because it's a relationship, right? It's almost like a marriage. Like you need someone that you can have because everyone's going to disagree at some point. Yeah. You need people who can work through things together who have demonstrated that capacity to like, yeah, you know, kind of have a give and take, you know, admit blame if they made a mistake, be honest and transparent. Do you agree with that?

SPEAKER_01 1:07:32

100%. And I and I would say that's what I mean. I think that cooperative does a good job. I'm not just like advertising to the operating podcast. I really believe, yeah, yeah. I really believe you guys do a good job of that. The reason part of it maybe is because it's a smaller group. And maybe the structure that they have in terms of the model for how people work together. But absolutely. And that kind of goes back to what I was saying. I don't like you don't see these massive law firms litigating these massive public works cases. And that might be for the same reason, you know, a massive law firm is going to put their associate on it. Right. And if you're have a bunch of money state, you don't want the associate. You want the partner that left, you know, and that knows how to work with people. Um, and you just don't get that level of like people with interpersonal skills, like if they're going to be in a big firm, you don't have as equal access to that. Yeah. You know, so I I totally agree with you.

SPEAKER_00 1:08:21

Rapid fire?

SPEAKER_01 1:08:22

Rapid fire. Um or rapid fire.

SPEAKER_04 1:08:25

I guess there's anything that we miss that you think you want to touch on, even from like a marketing standpoint, like any clip you want to get, anything you can think pops to mind, like uh yeah, that's specific clients you're trying to reach out to, like, yeah.

SPEAKER_01 1:08:41

Well, I mean, I guess, yeah, here's here's a little marketing um uh clip. I mean, I think a couple things. One, I'm very interested in um commercial projects, you know, multifamily and also public works projects. That's kind of my um main area. My main area of litigation is uh projects that are in like the five to you know $50 million range. Um, but in terms of contract negotiation, which I do a lot of, that's unlimited, you know, and I've I've negotiated um $500 million contracts, contracts for LNG terminals. Um I negotiated a contract for a hundred and fifty million dollar tunneling machine out of Germany with a team negotiators. So I have a pretty broad um experience in that area. Um, so that's my plug for you know, contact me if you have any questions. The other the one other thing I'll plug is you're depending on how much you talk, yeah, your attorney shouldn't be charging you for picking up the phone. I don't, you know, unless it's you know, unless if it's a serious question and it goes on for a while, then I'm like, okay, I'm gonna charge for this, you know. But um, or if it's like a meeting that you kind of set up, sure. But I love it when folks call me and have a quick question or they want to, you know, give me insight into something, partly because I just like hearing about stuff and staying in the loop. Um, and one of the kind of fun parts of being in the law is that you you just see all this stuff that other people don't see and you hear all these things that other people don't hear. And so you get that through someone picking up the phone and be like, oh my God, this just happened. Yeah. Um, so I welcome that that kind of those kind of calls. Yeah.

SPEAKER_04 1:10:18

And then um, I mean, it's in the intro, but you know, just ending it's it's gwrlaw.com.

SPEAKER_01 1:10:24

Yeah, GWR Law, that's my firm. Um, gwr uh-law.com is my website. And I work um all over California. I'm based in downtown Sacramento, and um most of my clients are LA, San Francisco, um, you know, kind of two big cities. Okay. So yeah, that's my I would, you know, it's funny, this is a random aside, but I would love to get more into um tunneling work just because I find tunneling and underground work so fascinating. Yeah, and I have some experience with it. I just think it's it's very interesting. Okay. Um, so and I represent owners and and GCs. Yeah. Um, but I would say my some general thoughts about stuff, you know, for the industry. It I I want to continue on with this idea of you should be careful with your team is with who your team is because it's really folks that have that ability to communicate that are gonna make the difference between a hundred billion dollar lawsuit and a project that you know gets done. You know, so there's there's you can't emphasize that enough. And I work on both sides of the table, as I've said. That said, I think it's important that owners recognize that they are in the superior bargaining position. And the challenge with being in the superior bargaining position is having some humility and some willingness to give when you don't have to. Most people don't have that type of emotional maturity. What that means, you know, and what I mean by that is saying, like, I have all the, I have all the duck, I have all the, I have all the cards. Yeah. You know, why would I give anything? Now, the owner's attorney never will. Yeah, they think it's their job, it is your job under the rules of professional conduct as a lawyer to zealously represent your client. But a smart owner will say, I have all the cards, but that also comes with the responsibility of being fair, right? Now, if you can sense this, right? There, there are studies, this comes from my previous life in psychology, um, that talk about how you get a real good sense of person within the first, you know, like 20 or 30 seconds of meeting them. You know, if you're an owner and you're dealing with a contractor that is has a bad record or has a bad attitude, I wouldn't give up any of those cards. But if you're dealing with an owner, with a contractor who seems to be fair, you know, and is like, we just want to work and make money, you know, then you should be prioritizing that relationship and giving up a lot. And why I say giving up with air quotes here is because the owner is in the superior bargaining position and the way the contract forms have evolved um really are heavily biased in terms of the owner already. So the standard form is heavily biased in terms of the owner. And in fact, as proof of that, that's why there are two major contract form families. One is the American Institute of Architects. That got so biased in terms in favor of owners and architects that the AGC, the Associated General Contractors of America, and a bunch of other organizations who used to participate every year in updating the contracts and meet in a forum to talk about them, broke off and said this is too, this is way too lopsided now, started their own set of forum contracts called consensus docs. Yeah, you know, which I which I heartily endorse because I do think they're more fair. Um, and I think because of that, the AIA has been trying to swing back. But it just underscores the point that if you're working for an owner, um, you know, have some have some self-awareness about your bargaining position. Yeah. Um, one last uh contract tip for folks, negotiation tip. What I do if I'm on the GC side is I will take the AIA contract, if that's what we're gonna use, that's if that's what the owner wants to use, and I would red line that and send over your version first. You want to send over your redline version first, and the reason for that is because then the owner is gonna reject a bunch of those red lines, right? And then when they reject the red lines, you're in the position of being like, okay, well, now I'm the nice guy because I'm letting you reject all the stuff that I wanted, right? So you should send over your red lines first. I would be very careful about um if I was an owner taking one of the AIA contracts, redlining that even further in my favor, and sending it over because I've seen uh negotiations fall apart right at the beginning because the contractors just throws up their hands like this is absurd. Yeah. Like, you know, we're already the contract is already starting bias in front of the owner, and now you're you're you're going e for even more. And so you've put us in the position of just trying to get back to a neutral position that is actually in favor of you. Yeah. Right. So just have some have some uh fairness when you think about that stuff.

SPEAKER_00 1:15:03

I have just a quick kind of question, uh, nitpiggy question about the AIA contracts. Um because the way I understand kind of the broad sweep of the AIA contract changes over time is that more and more they've offloaded risk onto the contractor from the architect. Right, that's right. And my question for you is if architects were willing to take on more risk, do you think it's reasonable for them to actually start charging better fees because they are taking on more risk instead of just throwing it off to the contractor?

SPEAKER_01 1:15:35

I don't know anything about architect fees, but I have a couple things to say about that. Number one, if you're a GC and if you're an owner, um, take out all of the extraneous references in the construction contract to the architect. So what you see in the construction contract, the AIA construction contracts, it'll say the contractor indemnifies the owner and the architect, but the architect's not a signatory to that contract. The contract is between the owner and the contractor.

SPEAKER_02 1:16:03

Yeah.

SPEAKER_01 1:16:03

And so that, but because it's the AIA, the the if you read through that, yeah, it absolves the architect of all kinds of stuff. And in a typical contract, the architect shouldn't even be mentioned in there. Because there's nothing to do with the it's it's the owner and the contractor, right? So that's one thing. If if you're on that side now, let's just, I'm gonna assume architects don't get paid that much that much based on your contract, your your comment. Contractors, definitely not. Right. So, okay, so based on that, if that's true, um this goes back to you've got to put, and I mean the industry, some pressure on the owners to do the right thing. And I'd actually like Bryson to weigh in on this because I know depending on the owner, um, they may not be able to have a project pencil out, right? Um, and so they might not be able to do the project at all.

SPEAKER_03 1:16:50

Yeah.

SPEAKER_01 1:16:51

But I what I've have heard from architects, and this is why I say this, is that they might have a great vision to design something that's cool and really beautiful and could enhance the value of the neighborhood and the owner's asset, but the owner does want to pay for it, right? And so then the owner keeps chopping down the price, right? So I think there is some merit to um the idea that the architect should get paid more, right? And they should be allowed, the architect should be allowed to design something that will um look great, that that's in line with their vision.

SPEAKER_00 1:17:26

Yeah.

SPEAKER_01 1:17:27

It all comes back though to the same point of folks need to pressure the owner to pay up. Yeah. Right. You know, I think that this goes back again to the emotional maturity thing. If you're someone holding a big bag of cash and you're gonna build something, you could look at it as um, well, how do I get more cash just for myself? Or you could look at it as I have a responsibility, right? To when I build something, to build something beautiful, right? Or something that enhances the value of the neighborhood, right? And you what you see a lot, if you go to um, I've done a lot of traveling and you go to certain countries and there is zero requirements or care put into the look of the buildings. And so when you go down uh like a downtown, you see drab gray buildings and you're like, this is kind of depressing. Yeah. And then you go to other countries and you see buildings that are really cool, you know, and you're like, wow, this is this is it's so cool. The architect got to express themselves. Now, I don't know what the difference is in terms of the pressure on the owner to make that happen or whoever's holding the cash. But everybody who's not the owner should be working in concert to get the message out there that there is a responsibility that you have to make something that the public enjoys, that the architect wants to design and that the builder wants to build. Yeah. You know, we're not all here to serve you to make more money, right? I mean, we are if we have to be by force, but that just doesn't seem like a very mature way to be a citizen. You know what I mean? And it and the reason why I was referenced to you earlier, Bryson, is that that's somewhat of an idealistic view. I don't think it is for a large group of owners who are who have just have a lot of money. Yeah. I don't think it's it's it's unreasonable to ask them to prioritize design and stuff like that. But maybe there's a large set of projects that don't pencil for development groups or investment groups and like, yeah, we'd love to do that, but we can't because we don't have money. Yeah. You know, but maybe in those projects, make them smaller and make them more interesting instead of maxing out like the you know, the floor area ratio and at the expense of having to do a bland exterior, yeah, for example. Yeah.

SPEAKER_04 1:19:31

I mean, this comes full circle to our last podcast around working in Los Angeles and all of the reasons it's so difficult to build here, which directly affects that. Like hard stop in terms of all the things that we have put in place in terms of the city and the requirements and uncertainty of building here. It just takes a lot of that away because now developers are saying, like, look, we'd love to do that, but first of all, I don't even know if I'm gonna be able to build this, not even from a financial standpoint. From from getting through the city's hoops to be able to get to the end, I don't even I don't even, I'm not even sure what I need to put on my list of the hoops I'm gonna have to jump through. Right. And so that's where we're seeing a lot of developers leave Los Angeles in this area just because it's too too hard to build.

SPEAKER_00 1:20:14

I had a professor uh USC. Um, this was yeah, when I was doing just like a crash course MRAT program, and uh she made a really great point. She was just talking about like why all buildings in LA seem to look the same now, like all multifamily buildings. It's like type five over one, you know, like sticks over bricks, every single one, you know, podium, yeah, apartments over and over and over again. And uh she was actually referencing that point that it is hard to have certainty in this market. Yeah. And so when developers are reaching out to institutional investors in New York or other markets, they need to reference a product type or a construction type that is so baked in, so basic that anyone can figure it out. Yeah. So that no investor will freak out. They'll be able to say, like, look, we've been there, done that. Like, this is the easiest way to build in LA. Simple, cheap, fast, effective. And when investors use that, it's like, good, we'll go, we'll go for it. Yeah. Yeah. But something creative, something unique, it's like, whoa, hold your horses there.

SPEAKER_01 1:21:11

So that gets to a point of who do you want investing in your neighborhood in your community? Yeah. Do you want some from New York New York investing in your local neighborhood? So there's a group called the Incremental Development Alliance, and a lot of in California, um, public planning agency, planning agencies are hiring them to come give these workshops. And their whole message, they're out of like um Arkansas or Oklahoma, somewhere in the Midwest. And um, their whole message is people should be doing the smallest increment of development they can, and everybody should be doing it because they're the ones that care about, you care about where you live. And so you should be doing development in your neighborhood. That's their message. Yeah. Their message is like, if there's, you know, a beat up house down the road and you can afford it, then it should be your responsibility as someone who wants to beautify their neighborhood or as a good citizen, like buy the house, fix it up, and paint it so that it looks good. Yeah. Right. Or if there's nothing going on in your park, set up a little um, you know, little fruit stand or whatever so that there's something interesting going on there. And so they could really get down to whatever the smallest unit of development that you can do, yeah, you should do that as a as a um, like a just to be a good citizen, right? And if people do that, then you'll start having cool, interesting, idiosyncratic neighborhoods, right? And that's very different than trying to get a guy from trying to get a firm from New York and you know, private equity to come in and build some five four heads. Yeah, that that to me doesn't make good, and that's not that's exactly going back to what we were talking about. The architects aren't gonna get paid on that. They're gonna try and cut their fees, they're not gonna let them do their vision, you know. Um, so yeah, I also think I wasn't at the last podcast about how difficult it is to build in LA, but I can tell you, I've seen many projects where very complex things need to happen. You know, like the engineers need to figure out how to do like this bridge or this tunnel. And it's like, how is this gonna happen? Like, none of us could figure out, I can tell you that. Yeah, but they've got these PhDs on it and they figure it out because they're smart and they've gone to MIT engineering school, but then the project isn't moving forward. And why isn't it moving forward? Because the management, who are not that emotionally intelligent, are arguing over whether or not this or that piece of paper um should have been set or whether they have permission to use to go to have the right flagger at the railroad. Something that is not hard to solve, but you make it hard to solve if you can't communicate well, or if there's a regulation that really doesn't need to be there, you know? So it's it's not that there's we have the technical expertise, it's just the regulatory and emotional expertise. And I feel like there's a big opportunity out there for with AI and some smart kid to go through all of the regulations and say, which of these do we need from like a safety standpoint, you know, or just you know, there's a there's something called um zero-based budgeting. Have you guys heard about that? No. It's just the just the basic idea is that a lot of states, this is a state agency thing, you know, or it's used and tried to be used with state agencies, at least some of them. Um, the idea is that every state agency, they get their budget, and then that the budget from the previous year, they spend it all so then they can go to the legislature and say, this is our budget from last year. We're just gonna redo the same thing this year. So just stamp the budget this year. And then that's what gets rolled out in the general budget. Um, but some agencies are trying to say each year or every few years, wipe out the entire budget and just go around the departments and figure out how much do you need this year? And don't look at what you spent last year and just tell me what we did last year.

SPEAKER_03 1:24:42

Yeah.

SPEAKER_01 1:24:42

How much you actually need. It's called zero-based budgeting. And it would be interesting if um that idea could be applied to regulations. Yeah, you know, so I can tell you from a legal standpoint, there's uh what runs the law, litigation, is called the code of civil procedure. And the code of civil procedure says how you can file something in court, how many days you have to do it, how it has to be written, all this stuff. And it is very thick, you know, and I, you know, half the stuff, I feel like this doesn't need to be here. Like, why do we have to have two days for this motion, but there's 23 days for this, and there's 81 days for that, and 30 for that. Like, why can't it all be just like 10 days? You know what I mean? Like, why can't this be simplified? Part of the reason I think is that there's too it's too big of a job. No one's gonna sit down with the code of civil procedure, read through with a highlighter, and figure out like, well, this actually is the same as this. We don't really need that. And it's and you no one can go back, there's not enough time to do that. But maybe someone could invent some AI program that could do that, yeah, you know, and slim it down to what we need. And maybe that could happen with the LA regulations.

SPEAKER_04 1:25:46

Well, we that we brought that up in the the last episode. It was a something Jeff Bezos was on, I was on a keynote speaker for a real estate conference. And he had just gone through an experience in Miami of building his house and going through the regulatory hurdles and stuff like that. And so he got really passionate. It's kind of like where Procore started. Procore has the same history. The guy was a tech entrepreneur, built his house, was like, this is a disaster. Like this industry is a mess. I'm gonna create Procore, and it's now one of the most widely used softwares. So Bezos was thinking, thinking the same thing. And he said, look, with where we're at with AI and where we're gonna be in one year, he's like, number one, I should have a complete set of documents using an architect and using AI. Yeah. I will upload that to the city infrastructure and I should have my permit in five seconds. Right. That's right. He's like, I don't know what's going on right now. He could cross-check all the safety codes. Yes, he's like, no problem. There's no reason that is not 100% a reality. Um, and so he's like, so we need everyone's on their feet like clapping. And so if you can get to that, that would change the game for how you develop in Los Angeles. The certainty comes back, and then you can get back right to your conversation of like, all right, now let's focus on building beautiful things for the communities.

SPEAKER_01 1:26:59

And and that also takes the human um lack of emotional intelligence out of it, right? I mean, it's kind of like you know how driving like Waymo and all those things, they're way less crashes than humans driving. Yeah. I think it's a I'm a big fan of Waymo. Right, right. And it's like a direct analogy to the building department and the planning department. Okay, right? Like if you had it all automated, the the computer's gonna do a much better job of check checking for safety and check I was having the bad day. Exactly. Just like I don't like how it looks today.

SPEAKER_02 1:27:27

Exactly. Like tomorrow. Yeah, exactly.

SPEAKER_00 1:27:31

I was explaining that to someone the other day. Uh, they're going through a um tier three ASC41 analysis for their uh non-ductile concrete building, and she was asking, you know, just the intricacies of going through your plant set. And I was like, you know, you can bring your plans there, and it can make total sense based on science and logic and law and rules, the black and white rules. And they can just yeah, and they can just look at it and be like, ah, sorry. It's coming back. So another Reason why, yeah, AI could probably help us out a little.

SPEAKER_04 1:28:03

Well, Greg, thanks for uh joining us on the podcast. If uh is there any one nugget of advice you want to leave developers and GCs out there before uh we sign off here?

SPEAKER_01 1:28:14

Uh yeah, I think it would be for for GCs, it would be take pride in what you're doing because you are literally uh making reality. You know, an idea starts in an architect's head and then it goes from the architect's head into reality, and you're doing that, and then that's going to affect people for generations to come. And that's a huge responsibility, and that's super cool. Um, and also the other thing is stay up with all the really interesting construction uh technology material advances that are happening. Yeah, there's so much happening in materials and green building that is just mind-blowing. And um, so that's that. For owners and developers, I would say take the responsibility of bringing something into reality and into a neighborhood seriously. Um, make sure that you're doing something that you'll be proud of years afterwards, and also be fair in your contracts and don't expect um folks that you work for free. Nice. Yeah. Great advice. Yeah, free work. Awesome. Thanks for coming. Yeah, yeah, I appreciate it.

SPEAKER_04 1:29:21

All right, thanks for listening, everyone. Um, before we go, a quick thank you to our sponsors, the Cooperative LA, a premier owner's representation and construction management firm, helping clients save real time and money across complex projects. And Ray One Richardson, a best in class commercial general contractor here in LA, known for delivering high-quality work the right way. You can check out both their websites in the description, along with more info in the links in the show notes below. And finally, if you're enjoying the podcast, if you like me, if you like Chris, please do us a huge favor, hit subscribe, follow, hit that button in there somewhere. I promise it's probably somewhere on the screen that you're looking at. We would appreciate it. It helps a lot more than you think. Thanks.