Creating an Industry-First Standard Contract for Modular/Prefabrication w/ ConsensusDocs [podcast transcript]

Welcome everyone. My name is John McMullen and I'm the Marketing Director here at MBI. Today I'm talking with Brian Perlberg, Executive Director and Senior Counsel at ConsensusDocs. Brian is here to talk about the new contract ConsensusDocs has created for modular projects, how it was developed, and all the benefits that it can provide for modular project stakeholders. Brian, thanks for being here.

Brian Perlberg

John, thanks for having me. I appreciate it.

John McMullen

My pleasure. For those who aren't familiar with ConsensusDocs, who are you guys? What do you do? How did you get started?

Brian Perlberg

Well, ConsensusDocs has been around since September of 2007 and we publish best practice, standard construction contract documents. If you're not familiar, contract documents, standard ones that associations identify, draft and publish, play a really important role in setting the rules, the playbook for the designing construction industry. Standard documents have been around for over 100 years and it's almost like private legislation because it's not like there's a one size fits all approach. Again, what's in the contracts usually represents roles, responsibilities, and what you kind of expect from general ground rules on a project, the do's and the do nots often. One of the things I like to say is, you cannot say general contractor without saying the words contract. You can't say the word subcontractor without saying the words contract. Contracts matter. The studies prove it. And we're really happy that we're all about changing and improving the industry, and to set a better foundation contractually on how to build both from a legal point of view, but also best practices.

John McMullen

So what's the scope of your services? What kind of contracts you offer? How many do you offer?

Brian Perlberg

Yeah, and so I should mention that ConsensusDocs is the Docs in the docs has a double meaning by the way. It stands for designers, owners, contractors, and subcontractors. What that is intended is that we are trying to bring the entire industry together to figure out a better way to build. One of the ways we do that is while we publish, so to speak, just standard contract documents, there's a lot of them. They again, play a really important role. We address all major project delivery methods. By that I mean the traditional method of design, bid, build, which you're probably most familiar with, that is still the most prevalent way of designing and contracting. We also address design build, which is a pretty substantial way of delivering projects, cm at risk, as well as cm agency, as well as we were the first to come out with a standard integrated project delivery document. In addition to that, we have a lot of other agreements like sub contracts that support those main project delivery methods, as well as particular emerging issues like building information modeling. We’ll get into it later, but like the first to publish a prefabrication construction contract document. So the answer is I kind of liken it to the commercial. It's a little while now. Maybe I'm dating myself, but remember the one for Prego spaghetti sauce? If you need a contract document, it's in there in our contract catalog. Just like the spaghetti sauce had all the main ingredients that you need for a great meal.

John McMullen

So, tell me about the coalition that you guys have put together. You alluded to it earlier. MBI is a member, proud to be one, but why is it so important to bring all these voices to the table?

Brian Perlberg

Well, it goes back to the history of how a standard contract document. Historically, one association writes a contract document and publishes it. A standard document is probably going to be more fair than something written what's called bespoke, or a manuscript, a document, which is a one off, or maybe it's even a public agency that's writing it for themselves. Those documents sometimes are what I call Frankenstein contracts; in the sense that they're sewn together from the dead body parts of all failed projects. They usually have a risk allocation profile of shifting all of the risk from one party to another. That's not good and that's one of the reasons why our industry struggles with efficiency is because proper risk allocation is that the party who is in the best position to manage and mitigate risk, should be allocated that risk. Globally, you can take an IPD approach and try to manage risk holistically at the project level, and everybody managing and mitigating that risk. Here's the thing, if one association writes a contract document, who do you think people are going to think that it's bias towards? If the American Institute of Architects, AIA, writes a contract document do you think it's going to be advantageous to the owner? Do you think it's going to be advantageous to the contract? No, you're going to think it's going to favor the AIA membership, which is their mission is to further the interests of their professional society. That's all fine and good, but the problem is standard contract documents set the ground rules. It works a lot better when you have predictability in your terms from one contract to another rather than people taking one standard, 40 page contract document and saying, this doesn't benefit me, I'm going to delete almost every single word in this contract. I'm going to make it so it's biased towards me. Then you're playing game and ship where you're trying to figure out, gotcha, contract, gotcha how you're going to get the short end of the stick in the contract.

So ConsensusDocs came around. The concept was, okay, we get it. If it's written by one association, even if it is fair, people are going to perceive it as bias toward that group. So let's get rid of this Gordian knot problem by a bias, and we're going to get everybody an equal seat at the drafting table. So we invited everybody. Owners, contractors, subcontractors, design professionals. I’ll admit, initially the design professionals, because they've had an outside role in controlling the terms and conditions and their professional authority in the process, were reluctant to participate. It's taken a lot of effort to get their perspective to the table and adequately representative, which I think we have. The point is, everybody has an equal stay at the drafting table. The end product is geared towards having a better contract document that someone at the project level can take from the national level, take it off the shelf and pretty much put the project specific information in and feel like they have balanced the risk in a way that's designed to do one thing, get better project results. We do it in a way that's really innovative, where we've gotten everybody into this mindset and we've been able to take a leadership role on addressing emerging issues that are impacting our industry for the better. I can't think of a better example than the prefabrication contract document, but we've done that in lots of areas.

John McMullen

Well, that's a fantastic lead up to my next question. Thank you so much. So about the prefab contract, MBI worked with ConsensusDocs for two years, helping to create this new contract. I was wondering if you could tell me about that development process.

Brian Perlberg

Sure. The conversation started because a member in AGC, who is a very active participant in the ConsensusDocs coalition, Sue Cloans who was with Gil Bane, was the chair of a working group. I believe it was for offsite modular or prefabrication group about improving the industry and I'm getting the name wrong. Tom Hardiman was on that group and actually was the vice chair when Sue was the chair and later became the chair. She asked me to come in and talk about contract documents because I'm sort of the go to person for contract documents in the construction space. We started a conversation of this is really important. This is a way of improving the industry. One of the ways that I think ConsensusDocs, our competitive advantage is we're active listeners. We haven't been doing this for 100 years. We have a good track record, but we're open to new ideas and we want to do new things.

Tom and I got to speaking and I think that after getting introduced from this offsite group, I think it was a process improvement for the industry that also included Nibs. I think maybe Nibs was staffing it. I think that there was a meeting with MBI and basically, we created this concept of, let's address prefabrication construction. We took that idea that the ConsensusDocs Drafting Council, and there are representatives from 40 groups. MBI became the 41st group so now I can say 40 plus organizations. The concept was approved enthusiastically. Then what we did is we worked with folks through MBI, through Nibs, and through the ConsensusDocs coalition. I would actually say that this was one where ABC in particular was great at getting us volunteers. We sent this open invitation to a lot of people who are knowledgeable, not just in contract documents, but are knowledgeable about prefabricated, modular construction and different aspects of that. We had lawyers, we had people who were very knowledgeable of the industry, and we got them together. First, we talked about concepts and philosophy. We talked a lot about what are we seeing in the industry that are gaps? What are the problems, usually, when we try to write an industry first document? There's a dearth of, of examples and the examples we get usually are not examples that we want to emulate. They're usually horror stories in which people talk about how I can't believe I worked on this project. This is what we had to deal with and this was not the right fit. So, it takes a while to figure it out and I can go into a little bit more detail about our process, but let me pause there to make sure that I'm answering your question.

John McMullen

No, you did. It was a great answer. Thank you.

Brian Perlberg

Sure. So we start the process and it did take about two years to write a contract document. I bet your listeners are probably thinking, wow, that's a long time to write a contract. We do have a pretty exhaustive process, because we start big and then we narrow it down. Like I mentioned before, there's sort of a philosophical approach and then there's getting down to brass tacks. We had an all-star cast, a really complimentary focus group that really was of the mindset of how do we figure this out to make the industry better? It was really interesting. This issue was particularly interesting because of some legal precedents of dealing with manufactured goods versus common law. That's governed by the UCC, or the Uniform Commercial Code, and then there's a whole host of common law issues that are more typically governing construction contracts, and the design and construction of something that is a one off. So we spent a lot of time thinking about, what do we want? How do we want to handle this? Is it more of a manufacturing process? Is it more like construction and a subcontract? That's why it took a bit of time. Then we started getting down to model language.

It was really interesting because it was the philosophy then it was the language. We had so many pivot points to make because prefab presents some novel issues. The biggest one is the UCC versus common law and how that plays out on things like prepayment or paying a payment of the goods before they're made and warranty issues. It is fascinating and it takes a while but the two years was well worth it, because after some fits, starts and going down not rabbit holes, but maybe going down one hole and then trying to verify if that's the right way to go. And not sure of yourself because it's an industry first document and there's not a lot of examples out there. We were able to get some good feedback from folks who have the general contractor's perspective, the pre fabricator perspective who is more like a manufacturer, distributors and things of that and end users and lawyers. It really was a good process. Then there's the ConsensusDocs process; we're not going to just publish a document. We have the working group and then it goes through the ConsensusDocs Council that makes sure that the terms and conditions are consistent with our other documents. There, we're allowed to have particular issues that are addressed differently for a specific issue, but we also want to be consistent. So there's a balancing act. The roster of the Council of ConsensusDocs also reviews that separately from the working group. Then we have to publish and edit the documents, put it in our system and make sure that all of that sort of value-added things that we do to make sure the documents work in our system. They automatically renumber if you make revisions, and where the blanks are, where you have project specific information. Then we even publish a guidebook that are ways of trying to think through some of the risk allocation issues that may vary from one project to another. Lo and behold, we got through all of that. We got through the approvals, we got through the logistics of publishing the document, then the rollout marketing effort. We're real happy that the two year process was successful and led to a really good document. The document is the ConsensusDocs 753, the standard agreement between constructor and pre fabricator. That is our standard document for prefabrication.

John McMullen

Well, that's awesome. I know a ton of work went into it. I know Tom's proud of the work that he did, that MBI did. I was wondering if you could help me just so everyone understands: if I'm an MBI member, a manufacturer, or a design professional... how does this new contract benefit me?

Brian Perlberg

Well, the first thing is it helps put prefabrication and modular construction on the map. I said before, you can't say the word general contractor without the word contract. Some people say, how do we identify? Oh, it's so unique. Everybody who does prefabrication does it differently and that's true, but there are some commonalities. There's the you don't want to have to start from scratch, kind of like prefabrication, you want to have some standardization, and you want to be able to build off of that. You want to be able to build it off of a standard contract template. So we have identified the most common way where we think that offsite modular and prefabricated construction is going to be designed, procured and contracted for on a project. If we didn't use the subcontract model, it's going to be procured through the general contractor. We can talk a little bit about some of our future plans on making some other variations that are maybe less common types, but still widely accepted ways of procuring prefabrication.

The first rule is that putting a standard document on it is something that is an industry standard that everybody can point to and think through. It's something that you can react to and you can identify, okay, this is the example of how ConsensusDocs describes the process contractually, and even beyond that of prefabrication. Now it's a reference point in education materials for the industry, lawyers can use this in reference points, and then it kind of becomes a little bit of a buzz. Well, this must be important if it's in a standard construction contract too. Maybe this is something that I should be looking at. ConsensusDocs is saying that there's a lot of advantages using contracting for prefabrication. Since they're saying it, maybe I should be looking into this for my next project.

The other thing that benefits MBI is that they are recognized they had an equal voice at the table. They've become a ConsensusDocs coalition member. All MBI members get a 20% discount on purchasing the contracts for use on projects. Then there's guidebook comments that MBI contributed to. They get to be part of the official guidelines of how you need to think through some of those risk allocation issues on a project specific level. Then the future is open. I mean, this is not an endpoint. This is a destination along a longer journey of addressing prefabrication in construction.

John McMullen

So this contract is still very new. Have you gotten any feedback yet from anyone who's used it?

Brian Perlberg

We've gotten tremendous feedback. I should mention some of the folks who were involved. The chair of the group is a good friend of mine who is really active in ConsensusDocs and his name is Ron Ciotti. He had a lot of clients who had asked him to, before the standard document was written, help them work through their contract issues. Either as the prefabricating being the client or someone who was an owner or general contractor who wanted to use prefabrication. He would have to work on those from scratch and he took that knowledge. We took the ConsensusDocs 750 long form subcontract as the basis for thinking through and making modifications for something for prefabrication. Ron was instrumental MBI was instrumental and Nibs was instrumental. Ron has been very active in this area and I've gotten great feedback of it, but he's actually done a lot of in person presentations and virtual through MBI, through other groups and there's been a lot of notice of this document.

One is that there's a thirst for addressing this issue contractually, because a lot of times legal issues become a reason not to do something. People will be interested in using, say prefabrication. If they don't have an answer, the lawyers are often in the position of saying, well, that's a great idea, but I think we need to put the brakes on this because we don't have this question answered. So now that we have a standard document, there's been a lot of reception for it. It's been very well received both the fact that it's the first standard document and then how we addressed some of these issues that had not been addressed before. We've gotten tremendous feedback that it's got a lot of notice, particularly in the modular and prefab area, obviously.

John McMullen

So what's next for ConsensusDocs? Are there other modular friendly projects in the pipeline? You said that this is a starting point for you guys. Do you have sort of a roadmap ahead?

Brian Perlberg

So, we have over 110 standard contract documents and as important as prefabrication is, right now we're in the midst of something pretty important to us. About every five years, we update our standard terms and conditions that are embedded into most of our agreements. For those of you who are familiar in the contract documents world, the AIA 201, is updated once every 10 years and that's a separate document. That's their terms and conditions. We integrate our terms, conditions and agreements into one document. So we're in the process, that affects a lot of our contracts, of looking at our terms and conditions and thinking through. Okay, in the last five years, is there anything that has changed in the industry? Have we gotten any feedback? Are there any new case law? Is there any new legislation that we need to revise our documents to make sure that they reflect best practices, not just in today's construction, but in the near term future?

So we're going through that process and that will have impacts for all of our agreements. An example would be, what is the language that you use to address say consequential damages and liquidated damages? That's one of the issues that we're going to explore whether we want to make some fine point refinements to the language we have in our terms and conditions. Let me put a period there and say, yes, we have other plans. Consecutive with that process, is creating different versions of the 753 Prefabricated Construction Addendum. We would make those that have different numbers be different documents. But they would reflect different ways of the general process of off site modular and storing the materials off site. But in a particular place in the same site as the prefabrication site. There are different models and scenarios that do raise other legal aspects. There could be more integration potentially, of the prefabrication facility and the project is one scenario. There could be less integrated approaches, where you have multiple sites that are storing the materials, some of those issues, change the legal requirements that you want to address, or you need to address in your contracts. And so we were thinking of creating different versions and to address different scenarios for pre fabricators and purchaser of prefabrication. In in their contracts, so that would be creating a getting the gang back together, creating a working group. that's similar to The all-star cast that we had, and then going through the ConsensusDocs process again. But it would be this time we'd be starting from the 753. And just making modifications to it, based upon industry feedback based upon usage. And based upon these different scenarios that we would then publish, instead of just one contract document addressing prefabrication, we'd probably have a total of four different versions.

John McMullen

I'm sure those be well received and I'm sure Tom would be excited to get back with everyone who worked on 753. Again, I know he was he was proud of that and excited that it's finally been released. Thanks so much for your time today, Brian 753 contracts sounds like a great addition to the ConsensusDocs portfolio. I really appreciate your time today.

Brian Perlberg

Thanks so much for having me. If I can be of any assistance, feel free to reach out to contact me at Bpearlburg@consensusdocs.org. We have a lot of free resources on our website, you can actually get a free sample copy of the 753 by registering on our website and requesting a sample. If you need help, we have an 800 number as well. I think this is a great opportunity for the MBI members to have an additional resource and hopefully it will be a reference in your convention materials and education sessions that you have for years to come.

John McMullen

I just wanted to remind our listeners before we go, MBI members are eligible for a 20% discount as Brian mentioned earlier. Just contact us here at MBI for details. Brian, thanks again.

Brian Perlberg

Thank you John. Have a great day.

John McMullen

You too. My name is John McMullen and this has been another episode of Inside Modular: The Podcast of Commercial Modular Construction. Until next time.