Kenneth R. Baker is a Professional Engineer and licensed General Contractor with a practice in construction and real estate consulting and claims. With knowledge on construction regulations based all over the globe, he speaks with Lawyer Monthly about how the field is developing, where construction can go wrong and what investors in real estate can do to avoid rising costs.
How has real estate risk changed over the years in California? Have regulations become tighter, and if so, what has been the effect of this?
California is a progressive state in terms of technology, politics, natural resources and it is the largest state with the largest population, so it has unique challenges; there are a lot of regulations in place to protect these resources, so builders and workers that come from outside of California are often surprised by the degree to which the process is regulated by the government and third parties. You can’t come in and just build what you want, as California has very specific sets of requirements that don’t exist in other places. For example, hospital construction in California has its own regulatory agency called OSHPD and their regulations are quite unique. Most people who get involved with hospital projects discover the process is very slow; review and analysis is very robust so there are a lot of things that may be done in terms of construction details and the way the hospital is laid out.
There are also regulations that consider California’s long coastline – there is a public governmental Coastal commission regulating what can be built miles within the coastline. That’s a special regularity review which developers and agencies must know. They are aimed at protecting and enhancing the assets that California has; many complain it is very expensive and these regulations add further expense, but they are there for protection. California is not a cheap place to live or do business in that matter.
What are the most common reasons to why construction goes wrong and thus results in legal disputes? What could be done to avoid this?
Different owners have different needs that drives the project, so many times projects go wrong for different reasons. If you’re in the business long enough, you get an idea to what could be going better and if people could alter the way they do projects. In infrastructure projects, public agencies are often involved and as a result the agencies are susceptible to disputes, due to budgets and funding constraints. Money affects how projects are delivered and in many cases these constraints result in alternative delivery methods, where the design is partially done by the owner/agency and then the rest of the design is completed by the contractor they retain. The contractor, instead of just building has to finish the design which can cause problems. Agencies may not be happy with the design, so then the project agency gets involved and try to change and adapt the design that the contractor has developed. Many construction projects agencies have poor management practices like so, which causes legal disputes.
Projects also run into their own problems just because the field is unpredictable. In construction, you can’t control all the variables; for example, regarding foundations and underground work, you have to know the rock and soil and their conditions. You devise reports on what you suspect is underground, but you really don’t know what is underground until you start building. These ‘surprises’ are built into the construction world and you find out later down the line the foundation you thought was perfectly fine, actually is not; everything following cannot go on until the foundation is changed, which delays everything else.
What are the most vital things that clients need during real estate asset investigations?
What is growing fast is capital programmes and risk assessments. Capital programmes are for big companies and governmental agencies that have capital spending on an annual basis. The way in which they deliver projects in this programme often needs updating and could benefit from observing what others are doing, so our services are aimed at helping clients treat their real estate assets to do more with less money and do more with money they have. The services are aimed at how you deploy your capital most efficiently and what aspects are causing problems. A factor business people address is money – they need to get money at an attractive rate and need to know how and when to spend that money. However, technical areas they don't deal with everyday are: external factors - evaluating restrictions on entitlement and regulations when buying property -, and internal factors that affect real estate development, for example building suitable foundations and assessing soil conditions. This expertise is needed; our company has that expertise in all the different areas. You can always short cut some of these costs, but you find out during construction that this can cause more problems in the long run, thus higher costs. Even natural disasters such as earthquakes, can affect building constructions and regulations, as constructions obviously need to be stronger. If you are going to be a smart investor or builder, you want to get the best people on your team who are aware of these little things.
With a denser population and with America being a developed country, how do you see engineering and construction developing? What problems do you see along the way and what changes do you think will be made to adapt to this?
The urban environment and where jobs are have changed. Cities have grown and rural areas have shrunk and advancements in technology have allowed the traditional office-based role to change. Companies are lot more flexible, so offices designs have developed; people are often more global and better accommodated, sometimes working from home. All these developments have changed the way in which construction has progressed, including transportation and travel, due to changes in movements, especially in suburban areas. There are still needs for infrastructure - roads and the energy system are constant in need of updating. Rather than a decrease in commercial construction, we see different types of buildings now and a changed planning mindset and model.
How often is analysis poor, which results in problems in the long run for businesses and corporations? What could be done to avoid this?
Our business focuses on a fact-based analysis, which is driven so our clients make the best decisions. The thing which affects our ability to do our best work is poor budgets. Clients do not always want to spend realistically on things they need. A poor analysis also involves a poor investigation into looking at the things that need to increase the liability. We have adapted ways to help clients to not spend maximum amount of money; the ways in which we do this involves a phased analysis where we tackle the bigger issues and spend money progressively and in stages. We look at the fundamentals, what they’re strong in and the challenges they will have so the money is used to maximum benefit. Business people who are trying to spend their money wisely need to know if their investment is worth it and so we become their trusted advisers and take on the ability to try put ourselves in their shoes. Many people go into a lawsuit due to attitudes and opinions that have been shaped by the project and not objectively trying to see if it is a reputable and economically wise move.
How do you ensure you remain neutral during disputes?
One of the core services we provide is dispute resolution support for our clients, whether they are public agency clients or private owners, contractors, designers - people part of the construction process. My mission is to seek the truth and this serves both sides of the dispute. I try to advise and council clients if they have vulnerable aspects in their claim, but I cannot stray from the truth. I am independent and neutral and not an advocate; as an expert I perceive my role as if I am working for the judge. I try to get to the bottom of the cause and the effects of the project and staying objective is what drives our success in this business. We evaluate the facts, contracts and law and we present that knowing the third party, the judge and arbitration panel will evaluate both sides and make a fair decision.
