Rewiring The Contract
Construction is a risky, complex business in which too often projects are delayed or exceed budgets due to revised or unforeseen design, construction or site conditions. Studies show that about 20% of construction projects run over schedule and a staggering 80% run over budget, resulting in lower margins and frustrated owners.
But, how many times are project delays caused by a slow or disorganized agreement process?
To the surprise of many, conventional paper-based document agreement workflows cost owners and project teams significant time and money. According to research commissioned by DocuSign, organizations waste about $36 per agreement waiting for agreements to be completed. Authors of the report stated: “If it takes you days—or worse, weeks—to do what someone else can do in hours or minutes, you have a problem.”
Progressive contractors and owners agree and are already drawing on increasingly connected, more collaborative and data-driven workflows to reshape the conventional System of Agreement process. These emerging solutions build on the foundation of e-signatures as a first step to automate the contract process. But that’s just the beginning. The true value of a modern System of Agreement is the deployment of the smart contract workflow—an approach that relies on intelligence to automatically execute contracts— including payments—per pre-defined stipulations.
The following paper outlines where the construction industry is heading in terms of adopting a modern System of Agreement—a system that automates and connects contract workflows end-to-end.
The range of documents that must be developed, reviewed and approved to move a pro- ject from start to finish is staggering. These agreements range from RFPs, RFIs and bid forms to insurance forms, contractor/subcontractor agreements, purchase orders, vendor contracts, invoice and expense forms, change orders and submittals to name a few.
Every organization—whether owner, architect, engineer, contractors, supplier, vendor or other project service contributor—has a system to manage the preparation, signing, enactment and management of those documents. For many, the System of Agreement process is paper-driven, requiring faxes, emails, scans and signatures that can take days or even weeks to complete. Legacy Systems of Agreement are typically fraught with manual rekeying of information into various systems from project management to accounting.
Since these documents are commonly stored on file servers, in filing cabinets or on someone’s hard drive, finding and sharing documents in case of arbitration or litigation can also be a challenge.
The electronic edge
E-signature verification/authentication technology has helped replace and automate some of that paper-driven process. In the U.S., the use of electronic signatures for interstate and foreign commerce was enabled in 2000 by the U.S Federal Electronic Signature (ES-IGN) Act.
Just one example of how the construction industry has applied e-signatures is the Federal Highway Administration (FHWA)/American Association of State Highway and Transportation Officials (AASHTO) Every Day Counts 3 (eDC-3) Innovation Initiative that began in 2015. The goal of this initiative was to help state transportation agencies implement a paperless construction administration and delivery process. The process, known as e-Construction, is essentially a digital highway to reduce the amount of hard copy documentation needed for highway construction projects. Key in the initiative is the promotion of a central document management system that facilitates the electronic submission of all construction documentation, electronic document routing and approvals (e-signatures), and the real-time management of all documents in a secure digital environment accessible to all stakeholders through mobile devices and web-based platforms.
According to FHWA, the documented 7-year e-Construction return on investment for construction management, project collaboration, mobile devices, and electronic bidding tools ranges from 200 to more than 700 percent. The federal agency found that e-Construction time savings have averaged 1.78 hours per day and per inspector. Meanwhile, inspectors have collected up to 2.75 times more data. In addition, cost savings have been reported at about $40,000 per construction project, per year. eDC-4 (follow-on to EDC-3) continues to educate transportation agencies and construction professionals about the value of a digital highway through this year.
As owners and project teams are increasingly leveraging more collaborative contracts such as integrated project delivery (IPD) and design-build, they adopt processes enabled by technology such as e-signature to accelerate the approval and execution of agreements.
The cornerstone of today’s more collaborative, integrated project deliveries is building information modeling (BIM). BIM execution plans outline the protocols and procedures for developing and approving models, specifications, schedules, etc. Note, a BIM Project Execution Planning Guide was released in 2010 as part of a buildingSMART alliance project. Increasingly, these collaborative processes incorporate e-signature and e-payments capabilities..
Similarly, general contractors are adopting electronic contracting workflows. For instance, Reed Construction is putting an electronic System of Agreement process to work within its organization to accelerate and simplify their contracting process and reduce bottlenecks. The Chicago-based contractor, in business since 1893, is best known for its work in the corporate, retail, healthcare, higher education, government, hospitality, and infrastructure markets. The firm currently uses an e-signature workflow for owner contracts, subcontractor agreements, and close-out procedures. With the digital workflow, subcontract agreements are completed in a matter of hours rather than the weeks it used to take, and Reed staff is getting more work done, bringing in more business and managing projects more efficiently.
To learn more about how Reed Construction digitized their process, watch this short video.
Looking forward: building a modern System of Agreement
A modern System of Agreement is a platform that automates and streamlines the end-to-end lifecycle of an agreement, from preparation to signature, execution and management.
Smart agreements will be at the center of such a system. Going beyond the simple, static PDF contracts we know today, agreements in the future will be connected, self-enforcing, trustworthy and responsive.
Indeed, smart contract workflows will build on an if-then principle, using logic to generate, customize and execute contracts based on predetermined and agreed-on clauses. For instance, a general contractor might use a smart contract workflow to capture jobsite progress, submit RFIs, get change orders approved within a few hours, get the BIM model updated accordingly, update the project specifications and estimates, and trigger new work orders to the subcontractors while linking to the master schedule. In that example, project managers and inspection teams might use their mobile devices to verify the quality of a system installed, triggering the generation of lien waivers and the payment of both the subcontractor and the supplier.
Taking this example at scale, every job across a project could get automatically triggered as a result of the previous job being completed and approved, with all project data associated with a central schedule that updates in real time every system of record to trigger invoices, payments, insurance forms, lien waivers, new purchase orders and any other form required to move the project forward.
Think that’s too futuristic? It’s not. Many construction companies have already integrated their electronic signature solution into their construction project management applications and we are seeing great adoption of payments solutions integrated into e-signature platforms.
For these companies, a ‘Modern’ System of Agreement helps minimize one of the subcontractors’ greatest challenges—speedy and on-time payment.
Indeed, general contractors typically take 60 to 90 days to make payments, thus requiring subcontractors to bankroll jobs. Slow payments weaken a subcontractor’s ability to fund backlogs and manage cash flow effectively. On the flip side, general contractors deploying a modern System of Agreement are experiencing strengthened relationships with their subcontractors while minimizing disputes and litigations.
The construction industry is rapidly digitizing its processes and adopting a modern System of Agreement.
The following outlines how such a system streamlines and automates the four key stages of the agreement lifecycle.
The modern platform
Business runs on agreements. Govern integrating with your existing construction project management solutions, a modern System of Agreement platform removes paper-driven roadblocks and accelerates the delivery of construction projects, avoiding errors associated with rekeying information across different systems and delivering an easily accessible and searchable repository of agreements.
A modern System of Agreement platform helps manage and integrate the four stages of every agreement life cycle: preparation, signature, action and management.
The foundation of a modern System of Agreement is the electronic signature.
Prepare and collaborate
While electronic signature is the foundation of a modern System of Agreement platform, the agreement lifecycle starts with digitizing and accelerating the generation of an agreement. To that end, a modern System of Agreement platform allows users to initiate a contract directly from a project management software and get the commitment details automatically pre-filled based on information such as project-related specifications, BIM data, stored contract templates, supplier pre-qualification data, contacts pulled from an active directory, pre-negotiated terms and conditions, etc.
After an agreement is signed, a modern System of Agreement removes the need to manually rekey data by automatically updating other systems, and triggering processes like billing and payments.
Finally, completed agreements are managed digitally in a centralized, highly secure environment. It becomes easy to search and retrieve every agreement and their audit trail, which is critical in an industry that has the legal obligation to store construction documents for several years. Leveraging daily data feeds, basic analytics of the e-signature workflow provides insights into the areas of the agreement lifecycle that need improvement. For example, such insights help identify which agreement types get completed below the average time and what compound effect this may have on a project budget and timelines. Technologies such as Seal Software go further by applying Artificial Intelligence to help find specific elements of a contract across large amounts of documents.
In an industry where disputes and litigations are all too common, this is the antidote to a situation where agreements just go where they go and are difficult to find, or even account for later.
Leveraged for Success
The e-signature process is proven from technological, security and legal perspectives. For most construction companies that are starting to embark on their digitization journey, simply automating the signature process saves considerable time and money while delivering an automated archive. Most often, this is the easiest place to start as e-signature solutions are easy to adopt and deploy. Time to value is measured in weeks.
For AEC companies looking to further digitize their processes and build upon their e-signature foundation, a modern System of Agreement platform makes it possible to simplify, streamline, and automate the contract process from project initiation to close out. Integrated with project and document management solutions, a modern System of Agreement will enable better collaboration across all project stakeholders, mitigate risk by bringing more transparency, and accelerate construction projects by connecting systems and triggering post- agreement actions such as jobs sequencing, billing and payments. For more information about how you can revolutionize how agreements are prepared, signed, enacted and managed, call 1 (800) 379-9973.