Contracts are at the heart of construction projects, and often are the source of inefficiencies and ultimately litigation. Brian Perlberg, Executive Director and Senior Counsel of ConsensusDocs, walks us through how they're making better contracts, creating new contracts that empower innovations like BIM, Design-Build and more, and are formed from a huge coalition of contractors, technologists, trades and more.
Brian Perlberg
[00:00:00] Hugh Seaton: Welcome to Constructed Futures. I'm Hugh Seaton, today. I'm here with Brian Pearlberg, executive director, and lead counsel for ConsensusDocs. Brian, welcome to the podcast.
[00:00:12] Brian Perlberg: Thanks for having me happy to be here.
[00:00:14] Hugh Seaton: Yeah. So let's start like I like to, with what does ConsensusDocs do?
[00:00:20] Brian Perlberg: Well, we are one of the largest producers of standard construction contract documents.
We've been around for over 13 years. The docs in Consensusdocs stands for designers, owners, contractors, subcontractors/sureties, and we publish standard construction contracts that address all project delivery types.
[00:00:43] Hugh Seaton: Awesome. So let's dig into some of what was in there. What were you thinking or what was the group of people that you were a part of and leading 13 years ago, What were you guys thinking? Cause I think the way you've come together is kind of unique.
[00:00:57] Brian Perlberg: I think so our origin story is unique in the United States, in which a broad coalition of different segments of the design and construction industry came together. And the origin story starts with what ENR reported when we made the cover in 2007, when we launched.
There is too much, negotiations about unfair contracts. Contracts tend to be written from the perspective of one segment of the population or industry. And that is usually written in their favor and usually a zero sum game against others. And as a result of that, construction is one of the most contentious, litigious industries in the United States and it is a major reason why construction is not as efficient as it should be and can be.
Some cities or places in the country had many standard documents. So there was no certainty. One place said that they had 54 standard "construction contracts."
Because we're so fragmented people have to repetitively look through, negotiate and find how they're quite frankly getting screwed in contracts, rather than focusing on memorializing a business relationship, how we can build a better foundation to build buildings. And quite frankly, the contract is the first collaborative act of a project.
And if you screw that up, you're likely to not have good results. What they say about construction is people often come together as strangers and leave as enemies. We've got to change that, there is a better way. And over the last 13 years, we've proven that you can do better with better contracts.
[00:02:45] Hugh Seaton: There's a, there's just, it's like the contracts and what they sometimes create from an antagonistic approach and so on is just it's such a part of the industry that you hear about, when you talk about the word consensus, and then it kind of enunciated what the docs stand for.
That kind of gets at what you were saying, right. Talk a little bit about how you thought of this would have been, I mean, I don't know if you could not call it a coalition, but it seems sounds about right.
[00:03:11] Brian Perlberg: I call it a coalition. Yeah, absolutely. It was actually one of the things was the hardest part was to figure out how we were going to come together as a coalition and have business operations. Surprisingly, writing the contracts, once we established one simple rule is that while you bring forth your experience and knowledge as a participant in the industry, we focus on what is best for the overall project. That led to us to have success on how to write a contract that optimizes project results.
The business relationship was tough. We started out as a separate entity. We were trying to get funding to have enough staff and really what we wound up doing is creating a memorandum of understanding that each group signs that agrees to participate, sharing revenue. Get volunteers who were qualified to help write the contracts with that mentality of a project first mentality.
[00:04:15] Hugh Seaton: Isn't it interesting that your origin story kind of supports one of your theses, right? Is that you have to come together and agree to do business together and kind of put aside some of the things that might go into making a contract more difficult.
[00:04:30] Brian Perlberg: That's a great point. And I think that when people come together for projects, a lot of people, they have emotional baggage and a lot of people write contracts that are Frankenstein contracts.
And when I say that is that it's sewn together with the dead body parts have all failed projects. That are sewn together and it doesn't work. They conflict, they they're antagonistic. Some of them, you just read them and they just sound mean because they're trying to protect one party's interest and it winds up biting the other person in the behind, because by doing that, there's always something in a construction project that pops up that's difficult that will require problem solving and fixes. And when you squeeze one party, you wind up getting squeezed in the long run. And we see that with the results.
Design-bid-build, the ceiling becomes the floor, and we see delays. We see cost overruns. We see schedule overruns. We see that when you do it differently, you get better results with taking a more collaborative approach.
[00:05:39] Hugh Seaton: And actually that's a great segue to another area of discussion and that is, delivery methods. So do you find that the work you do and the consumption of your product is heavier in newer, delivery methods or is it pretty even across different delivery methods.
[00:05:57] Brian Perlberg: Great question, and I'll start out by saying I'm a little bit of a project delivery methodology geek. I used to be the general counsel at the Design-Build Institute of America and sort of got my real first lesson on the industry. And they are particular about project delivery methods and how they're defined.
And then as an attorney, for the most part I'm, I'm a purist. And I think a lot of project delivery methods are defined by your contractual relationship. A lot of people say, well, mine's different, it's a hybrid. And for the most part, they're not many project delivery methods. And they're really defined by your contractual relationship.
Our strength, I think, and penetration has been Design-Build. I have heard from Victor O. Shinnerer & company who reviews a lot of contracts that when they are reviewing Design-Build contracts, our contracts are the highest percentage of what they see. There's really no way to track it with precision, but it just goes without saying, is that traditionally in the Design-Bid-Build world, the first contract is usually between the owner and the design professional and in buildings, most likely the architect.
And there has been a long history of a certain association that starts with "A" that has written contracts that further the interest of the architects and the architects are often suggesting and have an inertia of using those contracts. So percentage wise we don't do as well, but when there is a better communication with the builder and even specialty contractors or where there's owners who are more sophisticated and take a larger control of their ongoing repetitive serial building contract, we do much better.
We do better with CM at risk, where there's much more likelihood and requirement of early involvement of the builder. And then probably the highest percentage, but not the highest or most used project delivery method is we were the first to publish an integrated project delivery document or IPD, or some people called IPLD for lean integrated project lean delivery.
And the ConsensusDocs 300 was the first to establish that, in some ways it's our signature contract, because it establishes the consensus that our coalition has brought. It brings that kind of mentality to the project of dealing with risk management as a whole and sharing risk as a project whole, rather than allocating risk to an individual and incentivizing folks.
And so I've heard that we do very well with IPD. The problem is IPD is an emerging project delivery method, but it does not have, I don't think the percentage of the marketplace as a Design-Build or CM at risk yet. And then my belief is, well, I, and I still can't get great statistics, Design-Bid-Build, which everybody complains about, and seemingly everybody hates is still the most used project delivery method.
[00:09:16] Hugh Seaton: Well, I wonder... just speaking of the continued existence and prevalence of Design-Bid-Build, I think some of that has to reflect smaller buildings and smaller… I think about what I've seen in my own kind of career and people I've talked to, and there there's a, when people don't do things very often or their funding is of a certain type, you know what I mean?
Like, the more advanced or more progressive ways of doing things sometimes just don't make it to people that are building smaller things or don't build that often.
Let me ask, have you found inspiration or examples from IPD overseas? Because there are things that are done in Europe that are along the same lines or is typically their legal system so different it doesn't help.
[00:10:03] Brian Perlberg: Interesting question Hugh. And I didn't expect you to ask that. When we came out with the 300 agreement, there was some inspiration with Alliance contracting, which had more prevalence in Australia. There is different mentalities in the energy sector that they've deal with a lot of risk and some more unknowns earlier in the process while they're still trying to move the project.
I think a lot of the thinking about IPD, the seeds of that came from overseas and some of the power sector. But I think when it got down to brass tacks, No, we, it kinda got to a certain level, and then we worked with groups in particular, the Lean Construction Institute, which is part of ConsensusDocs.
And Will Lichtig was eventually in my rewrite, the co-chair of the IPD agreement that we revised, that we vastly improved upon the original. And so I think that there's a body of knowledge that, sure there's information sharing across the seas. Even in Canada and the P3's, we've done a P3 agreement that's different, which you could argue is a different project delivery method. But I think with LCI and working with our ConsensusDocs 300, which is, a version so to speak of Will Lichtig original integrated form of agreement. That I feel like we kind of took it to the next level from the body of knowledge and evolution of experiences that we had with IPD in the United States after it got going.
[00:11:40] Hugh Seaton: Yeah. That makes sense. And how much have contractors been part and I'm a little bit focused on IPD here. Cause it is emerging and you know, you try things out and you realize, okay, that did or didn't work, or we could have tightened that up.
How much have you partnered with contractors? I mention DPR as an example, who talk about IPD, at least in my experience, a lot more than some others. And maybe that may be someone else, but how much again, how much have contractor's been part of that discussion?
[00:12:06] Brian Perlberg: Well, so like quick backdrop of the 41 groups that are part of ConsensusDocs, and there are actually hundreds of thousands of construction companies and owners, but I would say primarily builders and subcontractors who make up that representation. I mean, we have hundreds of thousands. So you have AGC, you have ABC that's over 60,000 contractors right there in those two umbrellas, uh, we have NUCA and we have a collection of NECA and MCAA and SMACNA again, I mean, you're talking to tens of thousands of builders each.
We have a lot of specialty contractors. American subcontractors association has been extremely active and helpful. LCI has grown. So definitely builders and contractors, especially playing off of the AGC and ABC connection, has been a huge strength for us and we're able to draw from the best, brightest and most experience from that sector.
And that we've have establish some great owner relationships because we have the three largest owner organizations that are part of the ConsensusDocs coalition. I would call out COAA in particular that they have been, you mentioned how some owners, not all COAA are huge, but I really been impressed how they are always aspiring to come up with better ways of doing business as owners.
And they were actually created as an organization originally out of frustration with contracts and used to create their own contracts. And their contract documents committee, and that organization folded their contracts like AGC into ConsensusDocs. So to answer your question, contractors have been a strength.
People like Joel Derrington from DPR actually was my co-chair of the latest round of the lean, addendum we did for Design-Build. He is counsel at DPR for contracts. And it’s he and Will really co-wrote the first IFOA and he's a wealth of knowledge and a go-to source for sure.
[00:14:19] Hugh Seaton: I love that. And it really speaks the way you just described, without even working too hard, you rattled off this, group of diverse people that go into the process. And so how does that process work? Do you guys create committees? Do you have things out for review?How do you marshal all of that.
[00:14:42] Brian Perlberg: I used to joke about that when we were, I was going across the country and rolling ConsensusDocs out and was traveling a lot.
And I would have a picture of herding cats with a horse. And I used to say that I hate acronyms. And it's funny how you, I appreciate you saying that they roll off the tongue. I guess I've gotten used to it because they have become second nature to me. But yeah, we have a huge group, we have each group has the ability to nominate two people for a central steering committee that is the council or steering council that makes sure that our general terms and conditions are best practice and consistent. And then for groups, we just came out with the industry's first prefabricated construction document.
And so we create working groups for that. So rather than we're not going to get our normal people to write a prefab group, we get the people who know prefabrication. Who are experts in that industry, along with experts in risk management and construction contracts. And then we say, Hey, who wants to be a part of this?
Pre-COVID We were still doing all virtual meetings for those working groups. The steering committee meets in person when we do our major updates of our main contracts, once every five years with our general terms and conditions. But yeah, we meet by a working group and we do that with groups like prefab.
We just did it with performance and payment bonds, and that's a really great way of getting the best and the brightest and engaging with them at a more personal level in their areas of expertise.
[00:16:17] Hugh Seaton: And along the way, obviously, you really get to road test things a little bit and, and have people who do this a lot, each little narrow piece, really tell you what's going to matter and what's not.
And how did, when you did the prefab piece, how did that differ? I mean, obviously a lot, but what are some learnings that you might've found because the timing of payment is different than… need is different for money. You know what I mean? Like you need to have more upfront and you get paid later than you wish.
How did, how did you guys, what did you learn from that process?
[00:16:52] Brian Perlberg: Well, I'll start by saying that writing an industry first standard document is a little bit daunting. Yeah, I remember we just did one for design assist, before the pre-fab and people are like, well, how are you going to write a contract for that?
People don't even know how to define design assist. And it takes a bit of getting the group together and talking philosophically for about usually three months of, what is the topic? What do we want to do? What are the resources that we need? What are white papers that we need to look at?
What's been done in the past? Usually it's "can you give me an example of a contract?" And it often becomes when it's an industry first one, show me your bad contracts so we know what not to do. And a lot of times it's like, well, they took a sub contract and they said it was for prefab and that's we know what the starting point is.
So for that contract, you know, we usually look at ConsensusDocs language as a base. We did look at our purchase order and our subcontractor agreement and start redlining it from there, after taking a bunch of time for the philosophical and getting the white paper type of resources.
And then it gets hard… It gets hard. It gets, I tell you my role. And usually my chair and vice-chair of a working group is we just sometimes have to put pen to paper and we circulate it around in word and we give it to people. And we say, look at this and give me your comments. It's so much easier to react to something that somebody else has done, because it's hard to imagine what it looks like and we don't get it right at first.
And it changes and, and it can be scary at times. And sometimes we're like walking the plank and we think, is this, the right approach? Do I really? you know, but it works. And then we update our documents. You know, we were the first to come out with an IPD and BIM documents and then we revised them a few, seven years later, or five years later.
And usually we hit the mark pretty good. And then we try to get better. I think one of our competitive advantages in ConsensusDocs that I'm proud of is that we're active listeners. Yeah. I will never, Hugh, make a perfect contract. I will always aspire to run that rock up the hill, but I know that I will, we'll never get there and there's not one perfect standard contract document for everyone anyway.
[00:19:17] Hugh Seaton: Well, I think the key thing is that you're giving people a starting point, right? I mean, otherwise it's just a disaster because then you've got, you know, legal counsel in a co in a contractor, who's got a thousand things going on and they have to think about all these implications that they don't, they're not trained for.
So at least you're, you've gone through that three months or however long it was where you were thinking at various levels of kind of abstraction and, and thinking about it in a way that corporate counsel could never do. At least they wouldn't, no one would let them, you know what I mean?
[00:19:47] Brian Perlberg: It's not their goal.
[00:19:48] Hugh Seaton: That's right.
[00:19:48] Brian Perlberg: I often asked when I was in person with people, I'd say how many people here are proud of the contracts that you use or proud of the contracts that you receive. And I asked that question a lot and I have gotten only like half handed raised in the air answers from like three people. Most people think their contracts suck, and they're not happy with the contracts that they get, but we don't know any different. That's why we had to change. We tried to change the game with ConsensusDocs on the designing a better mouse trap.
[00:20:21] Hugh Seaton: Yeah. I love that. And I could hear from, again, talking about the breadth of that coalition, that just the thesis of the company is in response to the fact that sometimes contracts are put out by one party.
And of course, they're going to privilege that party to some degree, otherwise they wouldn't be doing it. So the fact that it comes from a coalition as kind of a founding thesis, I think is really cool.
As the industry continues to change and you've got more technology than may have been the case... I mean, it hasn't been that long, but you're definitely seeing waves of it now, is that changing how you think of that coalition? Are you thinking, okay, we should include more folks in the software side. Or actually, no, that doesn't matter or more folks on the manufacturing side, certainly for the prefab piece, but does it change a little bit how you think of that coalition so that you're, you're making sure to include folks that are going to have a stake.
[00:21:16] Brian Perlberg: Well, we've grown from 20 organizations when we launched in 2007 to now over 40. MBI, which is the leading prefabricated construction association, modular building Institute, became the 31st with that prefab doc. So they came to us and said well, actually no, I was in a group and they were in that and they liked the idea and I saw the idea for it, but we try to be on the cusp of emerging trends.
I don't think differently of the coalition itself as a result of technology as to how, how the coalition operates and technology doesn't necessarily change the coalition. What technology does is it's impacting everything we do in construction. It's impacting how we use contracts, touch them, and interact with them.
And one of the things that we might get to in this conversation is the future of contracts. And I see technology as appropriately disrupting how we use contracts. People are interested in getting more efficient. They're looking for more integration. They're looking for more collaboration, right and communications.
And sometimes the contract stops that and creates contractual silos, which I dislike. But the technology is saying what's the life cycle management of the contract? Who has it? How long have they had it? What system do we have to track this? Where is it after it's signed? How does that work with, with facilities maintenance.
But more importantly, it's changing what's in your contract. There could be alterations and substitutions, a clause library, all of those things that's, what's really going to impact. And then from my perspective, we have a micro-business of people subscribing to the documents so they can use them on commercial projects and the technology and how to deliver them is always changing and getting better, less expensive in some ways. And then the last but not least is there's going to be major disruptions in evaluating contracts and writing contracts. And I think one of the ways that you and I got connected was with Document Crunch, being the first and leading company that is doing artificial intelligence in evaluating construction contracts and we've partnered with them. That is going to totally change the nature of the game. And I'm having conversations with them about putting some real metrics on understanding what is market for fairness in a construction contract? How can we distill that information and how can we get smarter?
So we can backflow that information, so people don't have to waste time trying to negotiate unfair terms and come back to somebody and say, Hey, look, you have this indemnification provision, but no one's going to accept that. And if they are going to sign it, they're not worth their salt.
[00:24:12] Hugh Seaton: That's really interesting.
Yeah, we did connect via, Josh at Document Crunch. And that actually leads me to another question as we get to the end here. Josh and I did a paper on how to think about risk for models and scans and so on, but it really, one of the things it got me thinking about as well. And of course, we netted out saying, look, there's some case law, but most of this is about writing good contracts at the end of the day. If you know you're going to be using a lot of scanning, write in your contract that you have certain indemnifications and rights and so on. And you can protect yourself more than more than the law necessarily will. Cause it's just to fine a point. But one of the things that came out of that is ownership of IP.
And I spend a lot of time in construction data. So, you know, one of the questions is how are you seeing in your, either in the contracts or as something you're thinking about who owns what? So if, and as an example, if a subcontractor does a scan, but it's on a job where they're being paid by, you know, an ultimately an owner, but a GC first, does the owner own that or does the subcontractor own that?
And how does that get treated?
[00:25:26] Brian Perlberg: Well, I'll start by saying back all the way back in June of 2008, we were the first to publish a building information modeling document and well, intellectual property rights was one of the heart issues. And when we updated that document in 2016, we updated that section dramatically as well.
What we came up initially was something innovative of, anybody who is contributing intellectual property be it a trade contractor. If they're adding those details to the model. They own the certain copy, unique copyrights to that addition to the model. And that was a first of a kind approach. If you write it, you have some authorship to it.
Now you can change copyright by contract, but generally, if you are the author of copyright, then you own, you're the author of that. And then you give somebody a license to use it for that project. And maybe for renovations of that project. I will say that in our owner architect or design professional agreement, the ConsensusDocs 240 is our long form.
And the 245 is our short form. We have provisions that are different than you're used to seeing in other standard contracts, in which it calls out intellectual property rights of the design. And it spells out, rather than use the design documents as hostage for any potential dispute. It puts the project first and it allocates that unless there's non-payment that there are some rights to, for the project to go forward with the design documents and then gives the owner and the design professional, a fill point to instruct them to negotiate if they have rights to use for other projects, if it's say like a big box store, that's repetitively using the same design and the owner wants to use that design, they would have to indemnify the architect if they didn't want to use them, that architect on the next project, but they do have some, they can negotiate some of those rights for future projects, but it's an important point.
And I think we've been pretty innovative in that. And we've been, again, trying to focus on what's best for the project, with a mind to the owner, I think on those issues.
[00:27:51] Hugh Seaton: That's great. And again, the best you can do is a really solid starting point... contract and project conditions change. I mean, an easy example of where that might require further thinking is if, if I own a machine, if I'm a subcontractor and I own a machine and the machine is producing data that I could use.
And so could the, the owner, and so could the GC. Do you know what I mean? Like now it isn't really something, a human author, but it's something produced by the machine that I'm using. And I think as you see robots and you see more and more technology inside of hardware inside of tools and so on, that'll be an interesting one, you know, is that that because data, it's inexhaustible so everyone could have access to it.
And that question about who owns the data and what does owning it even mean? You know, does that mean I can use it? Yes. But does that mean I can train them a model or does that mean I can share it? It's definitely interesting. And I would imagine that isn't something that gets talked about too much yet, except in what in somewhat abstract.
[00:28:51] Brian Perlberg: And then sometimes it becomes academic as to who owns it and who has access to it and a license to use it. I know that's important in say like Facebook, but usually right now on a construction project, I'm not saying that it's academic, but sometimes not everything's unique, not all parts of a design are so unique that it's even copyrightable as something that's not... a lot of things in the BIM model are almost standard. So some of it is unique and copyrightable and some of it really isn't.
[00:29:22] Hugh Seaton: Yeah, well like example there's a bit of software called eVolveMEP. It's more than a bit it's actually quite a cool system, but they're doing detailing.
And part of the point is that you're creating the same thing 50 times. So you don't have to literally go in and do something 50 different times. So then again, illustrates your point that it's pretty tough to copyright something when you have basically told the machine to replicate something 40 times.
Brian, this has been really fantastic. I'd love to just end with any final thoughts you have about where you see contracts going and kind of the future of all this?
[00:29:59] Brian Perlberg: Well, I think there's a burning desire for better results in the design and construction industry.
I think even owners out there get frustrated with efficiency and sometimes they even consider being their own general contractors.
The industry has to change and the contracts have to change with it. I see the future is better integration, both on the projects, but with our software, with our technology, will ConsensusDocs be part of other solution providers to come up with a more holistic solution that has your contracts, that has your change order management that does your facilities management. How does that all integrate? It's going to get to the point where some people, they just need to be more efficient and they need a one-stop shop.
So I envision trying the next generation of, again, being more integrated. We've developed some good relationships in the technology sector. We are open to having others. And I, I see further evolution of how everything kind of flashes together. Maybe not unlike a BIM model flashes together with different elements.
So I hope that all contributes to building a better mouse trap in the next generation.
[00:31:10] Hugh Seaton: What a cool vision for where it can all go.Brian, thank you for being on the podcast.
[00:31:16] Brian Perlberg: Thanks for having me and have a great rest of your day.