Construction Risk Management : It's a Risky Business!

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By Ted Bumgardner

You would be hard pressed to find a riskier business than real estate development and construction. It is virtually impossible to list all of the risks associated with the building of a unique, multi-million dollar structure with unforeseen—and unforeseeable—conditions in a complex regulatory environment using the lowest bidders in a highly competitive market, who all perform their work at the mercy of the elements in a process that takes years and is heavily affected by market conditions that are usually quite different by the time the product comes to market than when the idea was hatched in the first place. Then there’s the fact that all parties involved in the venture make every effort to pass their respective risks on to all the other parties in the venture in perhaps the most litigious environment in the country. “Risky” is a major understatement. And the process is getting more challenging every day.

The fact is that all of the easy properties have already been developed, the regulations keep getting more and more arduous, and the products and systems utilized in the construction are getting more and more complicated. It is no surprise that 42 out of 57 condominium projects built in downtown San Diego in the past 10 years have been in litigation. (By the way, Xpera had experts in 75% of those cases.) Those projects that have not been in litigation are still well within statute and have just not litigated yet.

Unfortunately, the disputes that inevitably occur in our industry are frequently resolved in costly litigation, in which all the parties hire expensive lawyers and experts to recreate and debate the the history of the project through a very complex litigation process.

Property owners, developers and contractors all need substantial teams of technical specialists to navigate the multifaceted issues of development and construction. Technical consultants in our industry have a tendency to see only from the perspective of their narrow specialty. They often tend to be myopic and not recognize that their “solutions” aren’t solutions at all when they have the effect of creating other problems for the project. At their worst, technical consultants will spend the client’s money to minimize the consultant’s risk with little regard for the overall project objectives.

The industry needs a resource with a comprehensive team of specialists that can efficiently serve the development and construction process from concept to completion, a resource that understands the overall process and, more importantly, understands the overall goals and objectives of the developers and constructors.

Xpera Group has evolved to become that resource. We set out initially to assemble the best and most experienced forensic construction experts to help sort out the considerable construction litigation that followed the last building boom. As this new wave of development and construction has emerged, we have put all of that experience and knowledge to work helping our developer and constructor clients avoid the problems of the past cycles. The best and most elegant solution to any technical problem is the solution that furthers the overall objective. A waterproofing solution, for example, that is extremely expensive and adversely affects the project schedule may solve one problem while creating another set of problems for the project. The most elegant solutions are the solutions that solve several problems simultaneously and that actually mitigate a risk, not just move the risk around.

Xpera sees the project from a holistic perspective. By having the understanding and capability to be involved each stage of a project—from the point of market study and economic analysis, to entitlement and permitting, through all aspects of technical consulting, building envelope consulting, quality assurance, mechanical and plumbing consulting, building commissioning, and overall construction management—Xpera certainly understands the big picture. It is through this rare—and yet invaluable—big-picture perspective that Xpera is able to deliver the best solutions to developers and builders throughout California and beyond.

Topics: Specialty Experts, Real Estate Development, Ted Bumgardner, Risk Management, Construction Consultant, Litigation


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