When the Choice Is Between Innovation or Risk
Is risk management oversold? We know that some government regulation creates risk and that veering business cycles are a source of uncertainty for any designer or contractor. In construction, too, it's wise to vet contracts in case an untrusting customer slips a risk-shifting clause into Section 7, Subsection (c), Paragraph 4, of your agreement.
The ugly dispute between a developer and contractor over a modular tower in Brooklyn, N.Y., is a reminder that it is impossible to innovate without triggering unforeseen consequences.
Let's not throw out the smartphone with one unneeded app, so to speak. On balance, the industry has had more trouble, so far, with traditional disputes, such as error-laden designs or differing site conditions, than with any disputes specifically linked to the innovations listed above.
Two years ago, in a blog post, I asked why more green lawsuits had not materialized. After all, we had been warned about new sustainability requirements and practices. So far, there have been only a handful, although some observers have said more will be coming and that we should remain wary. I took the lack of green lawsuits to mean the industry was executing, without rancor, the new green construction agenda. In retrospect, perhaps one reason for the dearth of legal action is that, previously, the industry had been very thoroughly warned about potential liability issues and, since then, has done a good job of addressing them.
BIM processes, by the same token, are so widely used by top companies that there is a critical mass of data sufficient to show whether BIM is generating more disputes than harmony. As far as this writer has seen, BIM lawsuits have been outlier cases. In one, a contractor and designer were sued by an owner who said the standard of care required the use of BIM but that it was not used. In another lawsuit, a subcontractor said it was saddled with extra work and deprived of pay because the prime contractors' BIM system was not used in time to catch errors in the design drawings on which the sub based its estimate.
Discouraging Eruption
Recently, however, the construction industry has witnessed a very discouraging conflict over the ambitious Brooklyn apartment tower that is using modular construction. Its developer, Forest City Ratner Cos., and the project's at-risk construction manager, Skanska USA Building, are assembling a tower that, if it ever opens, would be the tallest modular apartment building ever constructed. In a business prospectus attesting to its special expertise in modular construction, Forest City showed its confidence by inviting a business partner onto the project: Skanska signed on as Forest City's partner on the modular construction plant, not far from the tower site. Earlier in the year as work fell behind schedule and costs climbed, all hell broke out between Forest City and Skanska. The project is still stalled; each company has sued the other.
In the end, we'll see that this dispute has been magnified but not caused by the modular nature of the construction and the Forest City-Skanska partnership on the factory. As attorney Kenneth Rubenstein pointed out at ENR's recent "Risk & Compliance Summit" in Atlanta, prefabrication and modular construction are not new and require a good deal of precision and planning. When things go haywire, the problems are harder to detect and more costly to fix.
Contractors know the upside is limited and the downside unlimited. Less project risk is always better. That opinion should be qualified by saying that less risk is always better, except when the end goal of a novel approach fits securely into your strategic plans or is aimed squarely at reducing risk in the long run. No one likes ill-considered business gambles—remember when Morrison Knudsen thought it saw gold in transit cars?—but the Brooklyn project isn't in that category. Construction is no business for the 100% risk-averse. Every innovation includes hard-to-assess risks, but risk-averse strategies without innovation are a dead end for construction.
Richard Korman, opinion editor of ENR and editor of the ENR RiskReview, programs ENR's Risk & Compliance Summit. He can be reached at richard.korman@mhfi.com.
