So let's move into one of the examples. [COUGH] Lets say the differences of how risks are transferred. In a design-bid-build scenario, the project owner or In this slide's case, we call it the public sector. But the project owner doesn't have to be public, it could be private as well. It's not only responsible for the functionality requirement, defining what the need is and what function this asset will have. It's responsible for how the design will look at the very end. And if something does not end up to be to their satisfaction, they were the ones who defined that design. It's responsible for getting funding, and if the project costs more, they are responsible for funding that overrun. They're responsible for the maintenance. They're responsible for the life cycle. If this is a project that's supposed to last 40 years, or 50 years, or 100 years, depending on what the project is. Whereas the marketplace, or the contracting community, is mainly responsible to construct and meet the schedule expectations that were agreed upon between the owner and the contracting community. If we look at another delivery methodology, like in this case the, [INAUDIBLE], their responsibilities of the design now have been transferred to the contractor or the contracting entity. And what the project owners responsibility are now, there's one more step and it's that they have to define what are the specific output they want out of this project. How do you want this project to perform? How do they want this project to operate? How do they want this project [COUGH] to be at the very end, not from the scope point of view, but from the outcome point of view? So the design is with the private sector. The final scene of it, if the project goes more or less, as long as it meets the specifications that were defined by the owner, our responsibilities are the constructing community. Same with maintenance and life cycle and so forth. So, you see here how changing the agreements, and the type of delivery, you shift risks to two different parties. Now, let's go to a more detailed example than this. Now let's look at this other example where a landowner has a need, wants to develop a headquarters for their operations. And they have a need to relocate or co-locate 3,500 people of their employer because their business is growing and they need to be all operating in the same building. Now, [COUGH] they may not have the money liquid to do this development. But they have something that is very valuable, they own 20 acres of land in a downtown location, and they want to utilize that to develop this new building. [COUGH] They, in this case, have made the conscious decision to take half of the land, 10 acres of this 20 acre lot, and utilize it to get the funding to do their buildup and satisfy their particular need. Now, we'll explore two options that they have that they can do this building. And the first option is the traditional design design bid build. Now, in this particular option, the owner will take half of their land, ten acres sell it in the marketplace, get funding In liquid dollars, put it in the bank, engage a design consultant, work through their functionality needs to develop a 100% design. Once they are satisfied to this 100% design, this may have passed a year or more, then put a procurement process for the construction of this building and engage a contractor that will build that 100% design for a price. Now, they have had the money sitting in the bank. Now they have a contractor. They build it up. They compensate the contractor and the consultant for the design. They accept the project, and there we go. Alternatively, they could do a design-build finance scenario, with leveraging the marketplace, something that we call, an exchange partner. So, in this case, the owner does not sell their ten acre land to get liquid money to build. They instead define the functionality of their needs. They define what do they need for their headquarters to have. They want it to hold offices for 35,000 employees. There is going to be an open concept plan. It's going to have a very stable HVAC system, some rating on the lighting. It's going to have a cafeteria, a laboratory, parking garage. They're going to have a massive lobby. And it's going to have open areas and social areas and so forth. They also define, have to define, the quality they expect the building to have. And the facades are going to be out of stock or brick, and so forth. So they define that. Again, without selling the land. Now, they engage a entity to do the design, build, and finance the project for them. This entity will construct and turn over that project for this owner in exchange to the ownership of the other ten acre land. And that ten acre land now becomes land of this design build finance entity to develop, and pretty much profit from that. So that transaction becomes their method of payment. And the acceptance of the headquarter building has to meet not a 100% design because the owner didn't do 100%, it has to meet the performance, the functionality, and the quality that was defined at the very beginning. Now let's look at the pros and cons of the two transactions. because they're, at the end of the day, the owner will end up with a similar building. If they define the functionality, they will have covered their needs in both scenario. But what happened? In a traditional way, the pros are that the owner kept control of the design and they know exactly how the building is going to look at the end of their construction process. Now, the cons is that this building now takes a long time. Because you have to sell the land, you have to find a designer, you have to work with the designer. Accept the design, you have to find a construction company and work with a construction company, that's a long process. A serial process. Whereas in the other scenario, the pros are that we get a shorter overall duration because you're not designing, you're letting the contractor design. And while they're designing, they can start doing construction. And there is no transaction to sell that land upfront, that gets moved to the very last step. And its not permitting you to build, it allows you to move into this building much quicker than if you had to go through the process of selling the land. You also get the benefit that the private sector, or the design built entity, can bring innovation that you didn't know about. And they have leverage through their connection with the marketplace, their vendors and the technologies that they use to build the and configuration. And, [COUGH] more importantly, you can get more value for the 10 acre land. Because now, design build finance entities, not looking at the 10 acre land for its commercial value as land, it's looking at it from the commercial value of what it's going to become after they develop it. So, you may get more product out of the same value of the land. Now, there's some concept to that. And as an owner, you have to be conscious about it. You will keep up control over the design, meaning that you know the functionality, you know how the building is going to operate after it, but you don't know what the final design is going to look like unless it's very specifically defined. So therefore, your functionality and quality requirements have to be very well thought out and defined at the very beginning. And in case that you want to regain control, if you don't define the exterior of your building and you want to, later in the process, have a say of what that exterior will look like, regaining control becomes very costly. Because now you're not in a competitive environment, and the contractor is there for a commercial gain only. So it becomes very costly to regain control. Both are very practical in some instances. One approach is better than the other depending on the owner's objectives and needs at the very end. Now, that's when we look at risk and location towards the delivery method selection. But what happen when we look at risk when we're developing request for proposals of project agreements? In this scenario, you have already selected the product delivery method. And what you're explaining is, in a very clean way, who owns what risk and who is responsible for any changes that may happen on that particular category. And this is a typical risk allocation matrix that you will see in an RFP, request for proposal. And I wanted to talk very briefly about the ones that I have highlighted in red here. For instance, you could transfer to the contracting community, the acquisitions of permits. And any changes to the project that come from the requirements of that permit acquisition become a risk to the contractor. For instance, if when the contractor is applying for a building permit, the jurisdiction that provides that permit requires a betterment or a modification. The contractor will have to do that modification, find the solution, and find a way to pay for that solution within their own budget. On the other hand, changes initiated by the owner are kept as owner responsibility. So when the owner comes back and say, I don't want this building envelope to look like that but I want a different finish. Then, the owner becomes responsible for time, cost and any implications that that change may lead to. And the contractor will be able to claim on that. Another thing that you could transfer to the contractor will be the functionality of the design. Even though you may be advancing the design to a certain level in prescribing that the contractor follows that design to ultimately detail the sign-in, you can define that the ultimate design needs to meet this functionality. And the contractor will have to be responsible for that functionality, and being able to prove after it's constructed that the asset that was built performs that function. Regardless of how detail how they got to that point, they have to prove it. And if not, you as owner, can choose not to accept the asset, or accept it with some sort of settlement, or compensation, for not meeting that performance. So, these are the two opportunities that an owner or a contractor has for allocating risk to the supply chain. Either by delivery method selection or in the contract documents when they're doing the request for proposal for project agreement.
