Smaller than a breadbox. No more than a tiny, puffy cloud on the horizon.
The trick is to see what sort of problem or potential problem lurks in that small imperfection out there.
In a multi-milliom-dollar real estate project it may be an invisible impracticality in the architect's otherwise dramatic plan that, six months down the road, surfaces and bogs down the whole job. Hasty and expensive improvisations have to be made on the site . . . the momentum slows . . . unanticipated expenses throw the budget out of whack. Suddenly, the whole project is a month, six weeks off schedule.
Chain of Litigation
The unhappy concrete subcontractor sues the general contractor . . . the contractor sues the architect . . . the lender begins threatening litigation of his own.
It was from a nine-year background of mediating such disputes--during which Hill International became the country's largest consulting firm specializing in construction claims avoidance and resolution--that led the company to unveil its current Project Assurance program, an effort to rescue complex real estate projects before they get to the head-butting point of no return.
With a payroll of about 250 experts working out of its corporate headquarters at Willingboro, N.J., and three regional offices, including the local one in Century City, Hill International operates globally in its trouble-shooting role.
As the dollar figures in construction projects soar and as the number of disciplines--and temperaments--that are involved mushroom at a comparable rate, it has almost become a rarity to find one coming to completion without at least one or two lawsuits trailing along behind it like tin cans tied to a dog's tail.
In 1983 alone, according to Hill International's president, Irvin Richter, nearly $500 million in construction claims and counterclaims were filed against both contractors and owners. And this, by best estimates, is probably no more than a third of the actual cases since it represents only those submitted to the American Arbitration Assn.
And--where else?--Los Angeles alone, represents 10% of the total claims nationally, while California accounts for 19% of the total.
The rationale behind Richter's Project Assurance is simple: no one wants to tell the "emperor"--the chief executive officer whose reputation is on the line--that his cat is dead.
"Every party in a project," Richter said in a recent telephone interview, "has one reason or another for either not telling or not understanding what's going on in the project. And the owner is the one who ultimately pays--he needs someone who doesn't have any responsibility in the case of a problem. That's what Project Assurance is--an independent, objective source.
"On the projects on which we've worked, which include some of the largest in the world, people invariably take a certain position, and the positions they take tend not to indict them. Can you expect people to testify against their own self-interests? No, of course not. They'll cover their own backsides before they'll look at the interests of their clients. It's human nature."
In a recent case in point, Richter said, Hill International was called in on a bogged-down, $300-million hotel-casino in Atlantic City.
"The time frame was critical because if the hotel wasn't finished by the end of the year the temporary license they had been issued would expire," Richter said, "and since there were no more temporary licenses to be issued, they would have to wait as long as a year before they could open. And, when you're carrying a debt of $300 million you've got a real problem.
"The project manager had kept telling them that they would open well before the deadline and, each time they were told that, they'd do things that dug them in even deeper--lining up financing, hiring their people and that sort of thing. Gradually, they lost confidence in the project manager and asked us to come in and tell them exactly where the project stood--we were unbiased and had no position to take as to why the project was late.
"We replaced the construction manager and finished it--arranging new money with the banks, which also had lost confidence in it, and managed to finish it in the necessary time frame."
How Richter's Project Assurance activities differ from the responsibilities and duties of a conventional construction manager simply underscore how complex the commercial real estate development business has become.
"Actually," according to Corwin Vansant, president of Long Beach-based Paramount Construction Management Inc., and a representative of the conventional approach to bird-dogging a real estate project to completion, "neither an organization like Project Assurance nor our own firm is needed if you've got a top-grade general contractor who's hired at the same time the architect is--the job will move on schedule and on budget. But when you take an average general contractor, hand him a set of plans--and he gives you a price--and you tell him to go ahead and build it, there can be a big difference in the outcome.
"Like most construction managers, we're frequently hired before the architect is to work on the cost and scheduling. And we try to spot the problems while the plans are still drawn in pencil--not ink. We're working for the owner, of course, and so we don't flatly tell him, for instance, that the architect's plan isn't going to work. We simply tell him what it's going to cost him, and how long it's going to take, as the idea has been presented to him.
Already in Trouble
"We've got our own architects, estimators, schedulers and superintendents who all work together, and there is no general contractor on our projects. We take his place. And, ideally, of course, the Project Assurance people would be called in at the same time we are as construction managers, but I have the feeling that they're normally called in when the project is clearly in trouble."
It's a distinction that Hill International's Richter admits. "It's true that we should come into the picture right in the beginning, but it's difficult. It's a little bit like asking a young couple in love to sit down and draw up a prenuptial agreement. Even though they know perfectly well that the divorce rate is about 50/50, and that a prenuptial agreement makes sense, there's a reluctance to do it, and we've got the same problem with Project Assurance. We're normally called in when somebody in authority gets the gut feeling that things aren't going right."
In a fairly typical case about three years ago, Richter added, "we submitted a proposal on an extremely sophisticated and complex sewage treatment plant in Niagara Falls. It went to somebody else and the project got hopelessly into trouble, to the point where the federal government had moved in, taken them to court, and was threatening to appoint a federal administrator. We couldn't make up for all the lost time, but we did get it significantly back on schedule and got the government to drop the suit."
Walking on Eggs
Coming in, after the fact, to clean up other people's messes can have its sticky moments, Hill International's president admitted (and incidentally, there is no one named Hill in the firm--("I was going to locate the company in Cherry Hill, N.J.," Richter explained, "but decided it sounded a little funny so I just dropped the 'Cherry').
"We're frequently called in by the lender involved and there, in particular, you do some walking on eggs. You're dealing with people who have different interests and you can't expect them to embrace you. They're going to resent anybody who's going to come in and point fingers. Sometimes you have to tell the owner, himself: 'You've got to stop making changes, you're destroying the momentum of the job.'
"And, frequently, too, the construction management company can be held at least partially responsible. If there are time and cost overruns, well, the construction manager had a part in those decisions or lack of decisions that led to them."
Cost overruns have become so prevalent in federal projects, "and historically so in mass transit (city) projects--in Washington, Miami and Detroit (a real disaster)--that the government now requires an 'oversight' operation, like Project Assurance, from the very first day," Richter said.
Once Project Assurance has been called in, the complexity of the job is the determinant of how much staff will be required. "We might have one person, full time, on the site, for as long as a year or two and he will then call in special teams for a week or two at a time--a structural-steel expert, a curtain-wall expert for a few days, or what have you. In Sacramento, where we're serving as consultants on the $175-million mass-transit job, it may require five people, full time, until the job is done."
In spite of Richter's contention that there is no real "point of no return" on an on-going project that has gone sour ("there's always something you can do to cut losses. Bad projects don't get better, they just get worse"), Hill International still does a brisk business, too, in its old specialty: sweeping up the pieces, or going in after the botched project is completed to resolve the claims.
"Right now," he said, "we're working on about 10 cases around the world, involving about $100 million in lawsuits or disputes--not as mediators, but as an expert witness to determine what really went wrong."
And, in the wake of the recent, whopping, $750-million settlement involving claims against Brown & Root's construction of the South Texas Nuclear Project at Austin--the largest cash legal settlement in U .S. history--"I think you're going to see more and more lawsuits by utilities against constructors." Already a classic among cost-overrun horror stories, the South Texas Nuclear Project, Brown & Root's first venture into nuclear construction, came on-line at five times above the original estimate.
"What kind of information," Richter asked, rhetorically, "do you think they were giving their client as to who was responsible for cost-overruns of these dimensions?"