Donald Kipnis – Development Service Solutions, LLC
- Broken by design
- Benefits to professional owner/Association representation and project management
- Replacing a contractor
- Bidding versus Best Value – is low bid the lowest cost???
- Contractor Insurance & bonding
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Paul: Hello everyone. Welcome back to the “Everything Building Envelope podcast.” This is your host Paul Beers with GCI Consultants. And I’m really excited about today’s guest, an old friend, Donald Kipnis. Welcome Donald.
Donald: Thank you Paul.
Paul: So Donald is the founder and CEO of Development Service Solutions, LLC, which otherwise known as DSS. I’ve worked with Donald a lot. I’ve known him for quite a long time. We’ve worked together on construction projects, existing buildings, things like that. Donald, maybe tell the audience a little bit about yourself.
Donald: Sure Paul. I have degrees in both science and building construction. My father was a mechanical engineer. And in 1982 I went to work with a local general contractor, and ended up purchasing the company in an LBO, a leveraged buyout in 1985. My partner and I ran the company until 2004 when I joined a local developer. After about two and a half years of facing the onset of a downward development cycle I started my consulting company, Development Service Solutions, with the goal of representing developers, hoteliers, and anyone else who would have me. I ran solo for many years but in the past three years have doubled the size of the company each year and I’m happy to say we’re now 16 people as of last week. Over half of our team has master’s degrees in architecture, but we actually don’t design. Two of our team members are attorneys but we don’t practice law. Two are general contractors but we don’t act as a contractor. And we actually have one individual who has a master’s degree in Real Estate Development, but we don’t develop properties, we support developers. And we have one professional quantity surveyor, and yes, we do verify values and quantity.
So now we’re in a position where we see projects from beginning to end through the entire acquisition, design, procurement, contracting, and development construction cycle and delivery, which puts us in a position to give specific input at different phases of the project and bring value to our clients.
Paul: And what are some of the kinds of projects that you are… You can name them or not, however you choose. What are some of the kind of projects that you’ve been working on the last few years?
Donald: We have been fortunate to work on projects such as The Surf Club and Surfside, The Carlton [SP] Betsy hotel on Ocean Drive. We were the owners rep for 1111 Lincoln Road, the Clevelander Hotel. We are currently on Ransom Everglades doing their STEM and La Brezza building. We’re working on the Cisneros property, which are luxury homes on Douglas Road. We’re in Wynnewood doing Wynnewood Park. We recently finished Eve, which is 195 units, a multi-family 62,000 feet of black box retail, and we did that job together. We’re on Lincoln Road doing retail, we finished 530 Lincoln Road. We’re on 800 Lincoln Road and we’re looking at Park Central Hotel, we’re working on that, which is a redevelopment of four buildings as well as the South Seas Hotel on 17th in Collins.
Paul: Yeah. So, I can see how things have been growing rapidly and doubling in size. Sounds like you’re keeping very busy. Let’s dive into the project management, and actually owner representation and… What would you call…I mean, if you were gonna give somebody the elevator pitch, what would you call it what you do?
Donald: We represent our clients’ best interests by adding value through proper design, procurement, and execution of their development project.
Paul: So let’s dive into the design part. I know we’ve talked about this before and one of your really cool terms I think you say it, things are broken by design. Can you talk about that a little?
Donald: Sure. This is something I’m passionate about because there’s so many places that go wrong in the development process. So we look at it as either broken in the design on the plans or broken in the relations between the parties, which is typically done by choosing the wrong team or in the contract documents themselves. And I’ll give examples of each of it. So something’s broken by design, a good example was 1111 Lincoln Road where a structural engineer came into town, was used to designing bridges and highly complex structures, made a structure that cost twice as much money as what we know how to build here, which is a reinforced concrete post-tension structure. When we converted the hybrid steel design to a typical structure for South Florida, reinforced concrete post-tension, we saved 50% on the cost of the building and several months on the timeline. But that’s a simple broken by design. And it can happen in air conditioning systems where we just had a very simple design [inaudible 00:06:12] with an HVAC engineer on a 36-storey building and he was putting in hot water for the cooling tower. And we said, “Well, why don’t you just use heat strips and heat pumps for cooling?” And we changed the design and saved a lot of money. So even if you low bid something which is designed extensively, it costs more than negotiating something which is designed efficiently and effectively. And that is a concept that we have been able to successfully communicate to our clients and we have many more case studies of that.
When we look at broken by contract it might be that there isn’t a proper termination clause dealing with a contractor or that the owner and its design agreements didn’t get their copyright use of the plans done properly in that provision and the architect owns the sole use of the design that the developer or owner has paid for. So that can create problems for the developer along the lines.
Paul: And then, how about the relationships?
Donald: So there are two ways to build. I think in the governmental section we find that everything is low bid and it becomes adversarial, and a contractor has to make his money through claims and change orders. And that’s the antithesis of what we wanna do. We try to build teams of people that wanna work together, that respect each other and respect the value of the other party. And by doing that, it’s a much more effective job. It typically cost less, you get better quality work, and it’s delivered faster with less claim.
Paul: So Donald, I think back to one of the early jobs that you and I worked in with DSS, Yacht Harbor in Coconut Grove. And that was way over-designed and you had a lot of things that you’re talking about. You went in and really brilliantly I think and got things sorted out. We were fortunate enough to be involved as well. And, you know, we took basically a project that was over budget and needed another money, and all this kind of stuff, and got it all sorted out and did a really good job with it. Brought contractors in, everybody was on the same team, you know, with relationships, all that. And ultimately they were delivered a really quality project that was affordable. You know, a really good example of all this.
Donald: Yeah, that was great for everyone involved. All of the relationships are intact with the team that was there. We were able to simply bipartite what was a contract with a major sub working under the contractor into two separate contracts with a cooperation provision in the contracts. So it was multiple prime with the association. And the initial general contractor removed his 10% mark-up on a $2 million subcontract and that simple mechanism of having two contracts saved the association $200,000. So it’s just knowing what to do and when to do it that results in great efficiencies.
Paul: And it worked beautifully.
Donald: It really worked well there. To say that there were no change orders, wouldn’t be the truth, but everything was managed well. In the rebid of that job we saved over a million dollars, and by the end of the job the condominium association was able to replace a million dollars of glass windows that they had never intended to replace. So that was a really wonderful outcome for the home owners who ultimately, you know, paid the bills for these condominium repairs.
Paul: So let’s talk a little bit how independent third party representation, the benefits that are passed on the professional owners or associations and project management.
Donald: We’re able to bundle the skills of analyzing logistics, business terms of contracts, scope of work, schedule analysis, how to optimize schedules, alternate schedules, scrutinize design, and create competitive RFPs, Request For Proposal for pricing, for design, for construction, all under one operation so that our clients get best value and the best product in the end. And we’ve done that by having expertise in our company. We have development expertise that runs pro-formas for financial analysis. I do contracts and design. We can take a simple item. I’m gonna give an example. And the project is Mirador on West Avenue where they designed a rail repair, a supplemental railing system that the fire department was requiring the association to put in their building; 4 stairwells 16 stories each. The architect designed them, it went out to competitive bid, and it came in at $135,000. Our team looked at that rail design and I gave them a challenge. I said, “How many ways can you design that railing in 10 minutes, that is more effective, more efficient than the way it’s designed now?” In 10 minutes we had about 6 different design, we picked a hybrid of a couple of them, we put it out to bid, and at the end of the day saved $60,000 and the building department and the fire department accepted the repair.
Paul: That’s some significant dollars.
Donald: For a simple item. And there are hundreds of these items throughout a job, hundreds.
Paul: Let’s dive into some of these things that you just mentioned, logistics. So what are some logistical type of things that you can do to benefit owners and associations?
Donald: It’s critical for an owner and a contractor and the design professionals to understand how a job is going to get built. Typically, we prepare phased logistic plans that show the use of sidewalks, easements, how cranes come on and off of the job, which towers or areas are repaired first, second, civil engineering work, underground work, so that there is a clear roadmap, a visual roadmap of how the project’s going to be built. Many times we do that ourselves and put it out in the RFP package to get feedback from the contractors and that help guide them to be more efficient in their pricing of the project, and that lowers the price and makes a job be delivered faster.
Paul: And time of course is…not only is it money, but if the building’s occupied then the disruption is shorter. So, you know, it’s a big benefit to the users or occupants to the building as well.
Donald: Well, it’s critical if you’re on a drop of balconies in an existing condominium. Now we’re on several Mirador, 9 Island Avenue, or doing Grove Isle, their sculpture decks. We’re out at Key Colony on their pool building or HOA lap pool building. And the residents want us out as fast as possible. So logistics, and manpower, and sequencing of the work is the critical factor in getting in and getting out, understanding it from the onset and managing it, being nimble as things sometimes change is fundamental to one of the aspects of what we do.
Paul: So something that seems kind of innocuous, you talk about contract. What can be done with contracts to help the process?
Donald: Contracts, to me, are like tools in a tool box and if you don’t have the right tools in the tool box you can’t build your project. There are times you need a hammer, there are times you need a screwdriver and there are times you need a razor knife. By understanding contract provisions and how they work and working carefully with the association or developers’ attorney, we craft documents that are very effective for our client that mitigate change orders that only allow the most appropriate types of change orders, not those for coordination that mitigate delay expenses, that allow an owner to make a change of a contractor when necessary and sometimes it’s necessary, or to supplement contractors’ resources. And all of this is very effective when dealing with design professionals and contractors because by it being there in and of itself, it’s a tool. It doesn’t have to be used. Everyone knows the tools that are in the tool box and tend to perform better knowing that they’re there.
Paul: Do you happen to see the same correctable issues happening over and over?
Donald: We do. And they can happen in a contract. One we see is ownership of documents, the other that we see is improper terminations for convenience clauses. We see owners allowing contractors to build on a schedule of values rather by invoices which are carefully checked. We see waterproofing detail problems, we see issues where someone just wants to clean a surface instead of take it down to, you know, the proper concrete level of finish. It’s remarkable how the same mistakes are made again and again, remarkable.
Paul: Yeah. And you’re the one that you’ve mentioned a couple times, ownership of documents. I mean, to me… So I don’t necessarily live in that world as much as you do, but to me that just seems like a no-brainer. I mean, if I’m paying for it, I don’t think actually that somebody else should own it.
Donald: Right, but the reason that architects wanna own it, is if they get in a dispute with their clients they have leverage. There should at least be co-ownership and to the extent that an architect is paid or an engineer that the party paying should have the right to use those documents and should collect them, should collect electronic and paper files, and when they finish the design-development phase, they should own all of those electric documents and have them in their possession.
Paul: Yep, makes perfect sense. So when things maybe aren’t going as well as we might like, maybe coming into an existing project that’s already got some players in place. But what happens when you have to replace a contractor? I mean, well, I guess we should ask this first. Do you ever have to replace contractors, and if yes, what happens?
Donald: Well, we’ve actually replaced the… We’ve administered the replacement of contractors, of engineers, of architects, because the reality is it doesn’t always work out perfectly. And I believe a lot of it is cooked into the structure initially of the deal. That’s back to broken by design. But when we’re brought on a job that is in trouble we look for the reasons why it’s in trouble and try to address what is dysfunctional. If a contract has proper provisions in it, it makes it easier to address either supplementing or changing an architect, engineer, or a contract. If it doesn’t, if there isn’t a proper termination for convenience, if the owner doesn’t own their documents, if they’ve overpaid and are upside down, if the job wasn’t bonded with payment and performance bonds, you have to get a lot more creative and it really depends on the exact circumstances to craft an appropriate solution. And it takes working with the developer or the ownership entity, their construction attorney and ourselves, and candidly whoever party, whichever party or parties is troubling on the job, you end up working with them also.
Paul: So, are there alternatives to replacing a contractor of, you know…I mean, can these things sometimes be worked out or maybe sometimes you just can’t replace them.
Donald: Yes. We just started a project where we actually supplemented the contractor’s staff with appropriate staff so that the contractor could perform better. And the contractor recognized the issue but was unable to cure it themselves and welcomed the help.
Paul: Are you seeing more issues like that now that things are so busy in South Florida?
Donald: I think there will be more issues on a sub-contractor level than on a contractor level. And that sub-contractor default insurance and payment and performance bonds at both the contractor and sub-contractor level are critical for a developer. A developer can’t have SDI insurance on a contractor level, but they can add payment and performance bonds. And for the cost which may be a point of the construction cost or a half a point of the development cost, it is money well spent.
Paul: Are you seeing contractors or subs these days that are having labor issues as far as, you know, not just body counts, but getting qualified folks to do what needs to be done?
Donald: Yeah. Miami is still growing. And even though projects like Brickell City Center are finished and the condominium boom has somewhat cooled off, the multi-family is booming, there’s retail being built, and other types of projects, the remediation business has taken off like wildfire. So there’s always, I believe in Miami, going to be a stress on the available resources.
Paul: And hurricane Irma, there’s a lot of work going on as a result of that. And I was in the Florida Keys last week and roofing contractor… Well, I was looking into a project that had some damage and the owner was telling me that the roofing contractor wasn’t having the best of days. He spilled something in the parking lot, had to clean it up, and then he said he had to call the police to have half of his workforce removed. So, obviously, there’s…in that business, have a really hard time getting people. You know, they’re doing body counts and it’s not working out so well.
Donald: Oh I agree. When we did work for Andrew, which is many years ago, we brought in roofers from Georgia, and we bought the roofing products directly by the semi-load and was able to solve the issue. That way we bought labor separately from materials, we join them together, everything came from out of state. So there are resourceful ways to deal with it. We are having issues. We’re on several projects and simply having issues getting them adjusted.
Paul: Yeah. That’s a whole another topic with the property insurers and how they’re handling claims which the reputation is not good at this point. And I think it’s deserved. Let’s talk about bidding versus best value. Is the low bid necessarily the lowest cost?
Donald: Well, a great example was earlier in this podcast when I talked about the railing. The key to getting best value is to have the best design, and the best design really isn’t done in a vacuum, it’s done collectively through having an open mind and looking at different alternatives to solve the same problem. We’re doing a job on [inaudible 00:24:50] with architect Hanukah, [SP] and they showed a very large cantilever, and we had a discussion about it, and they came up with a very creative solution by hiding some columns in sculpture and in the store front, which effectively made the cantilever go away structurally, but looked like a cantilever. And it’s based on having these great conversations with creative people, identifying the issue, and then solving the problem on paper. Now when that goes out to bid, it will be best value, had it have been designed as originally conceived if no one said anything. Even though it was a low bid, it would have cost easily a million dollars more. But they…architect Hanukah was so great to work with to solve the problem, it was effortless. Design’s critical.
Paul: Yeah. So, let’s walk through that a little bit. So what got you to that point? You know, when were you guys involved and, you know, what stage was the project? So how did that opportunity present itself, I guess is what I’m trying to say?
Donald: We were hired at the onset which is actually the best time to engage us, and during Schematic design while we were running with the developer financial pro-formas, we were looking at floor plans, elevations, and sections of the building. When we looked at the elevation with a particular section… And remember, this is very preliminary, they’re stick drawings. We noticed this significant cantilever, raised the issue, and architect Hanukah came out with a design solution right away that was accepted by the owner. It became a feature.
Paul: At what point would it have been too late had you not been involved as early?
Donald: I think once you start the construction documents, it’s too late to change design. Value analysis or value engineering needs to take place first in schematic design and at the latest during design development, because when you’re in CDs you’re gonna be changed in the knobs on the cabinet doors or the cabinets, but you’re not gonna be making fundamental changes to the engineering of a structure or the systems of the building. It’s too late.
Paul: Well, so many times you see these projects though where, you know, they go to the whole design phase, they get into, you know, bidding, or final pricing, or whatever. Then they’ve suddenly back in the value engineering because, you know, they’ve blown the budget.
Donald: Well, you know, that’s interesting because we believe there are two ways to approach a project. You either build to a design, you budget to the design, or you design to a budget. Now our clients like a project that’s designed to budget because they have to financially work. So we establish a realistic budget that works with their pro-forma, with their investment and yield, and we validate that budget for with a schematic RFC. We actually take the dream plans and put them out to several contractors who respond, and as a result the budget is validated, adjusted if necessary, a contractor is selected out of that group and engaged under a pre-construction agreement to work to keep the project in budget, with your dollars well spent. And typically, when that contractor builds the project in budget, the owner is rebated the pre-construction fees that it was initially charged during the pre-construction phase by the contractor. It’s a win-win.
Paul: Yeah, because, you know…I mean, my spin on this is that after the fact…nothing good happens with after the fact value engineering. We work on projects early on and you get to the end and all of a sudden they’re taking out, say the fluid, applying waterproofing on the exterior walls that they’re gonna save $80,000. And they make…generally make stupid decisions in the quest to save money and, you know, and probably make the project viable with the resources that they have.
Donald: Yeah, but what happens is to make that repair later on could be $500,000.
Paul: No, no. That’s exactly right. I mean, that’s pay me now or pay me a lot more later. I think is basically what that boils down to.
Donald: Yes, so our goal is to design to budget. That is the song we sing and the life we live and we are pleased to bring that message to everyone and participate in it.
Paul: So let’s talk a little bit more about contractor and, you know, big, big issue these days on sites and… Well, it’s always been, but even still I think it probably gets more and more difficult sometimes is insurance and bonding. What’s going on with that these days?
Donald: So an owner needs to protect themselves through insurance policies and there are two basic areas to deal with. One are payment and performance bonds, which is the world of surety and that protects the title of the property, that’s the payment bond, and the performance bond insures the terms and conditions of the contract. And the surety which is an insurance company of type is essentially guaranteeing that it will finish the job on behalf of the contractor if the contractor fails, if the contractor is declared in default. So obviously, the default language in a contract is critical and works hand in glove with having a performance bond. The insurance for a project covers multiple layers, the owner’s liability, the contractor’s liability, the design professionals, need both, general liability access, and professional liability, you can get what are called Wrap policies, they’re expensive, that cover everyone. I don’t recommend a Wrap worker comp policies, but we’ve found that Wrap general liability policies called OCIPs, an Owner Controlled Insurance Program, is very effective in saving money and mitigating liability for an owner. And it provides in many cases a 10-year tail-end covered for an owner, which is a great feature. So we wanna make sure that there is automobile insurance by the contractor and the sub, and that the waiver of subrogation which is a simple concept is implemented throughout the levels of the project, benefit of the owner.
Paul: OCIP is something that I see a lot of times and I involve an expert witness and whatnot, the OCIP guy shows up and he’s always the big player because he seems like he’s representing most of the people in the room if there’s a lot of parties. So it helps the owner obviously stabilize their risks. Does it help the contractor and the subs as well?
Donald: Candidly, it’s somewhat of a pain for the contractor because it requires them to administer with an OCIP administrator who typically works for the party that sold the OCIP program to the owner like Wells Fargo, for example, might sell a Zurich policy and they have an administrator, but the contractor has to help administer it. So contractors think it’s a little bit of a pain, but on the other hand it protects the contractor because by contract, the owner is saying that they’re taking on the liability…
Paul: To me that seems like a win.
Donald: That’s a win. And I think it’s a little bit a pain to get out of a lot of liability for a contractor and for the enrolled sub-contractors. It’s a win for them too. And the quid pro quo is that the contractor and the subcontractors give back money, and because they’re buying liability insurance in little pieces, their rate is higher than the owner buying it collectively as a big purchase, and the owner saves money, the premium is lower, and they get better coverage. They get Wrapped coverage.
Paul: So speaking of wins, you know, we look at everything we’ve talked about today and I don’t…it’s a really interesting and good way to approach and to look at projects. I know, I’ve been impressed and a fan of what you’re doing for quite a while, and, you know, getting everything kind of all under one roof and having, you know, a team that can address all the issues, not just some of them, that’s where the problems happen, I think is, obviously, you know, you’ve demonstrated the benefit of that.
Donald: Well, thank you Paul. We’ve spent many years growing together in this industry and we all bring in valuable knowledge to our client with the goal of bringing extra value to the work that we perform to the services we provide.
Paul: And it’s fun being involved with a good team. It really is. If people wanna learn about Development Service Solutions, where do they find that?
Donald: We have a website, it’s www.dssconsultants.com or they can actually call me on my cell phone. Dare I give my cell phone number?
Paul: Oh yeah.
Donald: 786-201-2870. And we’d be happy to have a conversation or to meet and discuss what we do and how we do it and how we can apply it to your project and your success.
Paul: Great. Well, really interesting conversation Donald. Thank you so much for coming on and sharing your wisdom with the listeners today.
Donald: All right, thank you Paul. And candidly, we are passionate about what we do. We love what we do. And so, you know, getting paid for it is almost like icing on the cake because every project we’re involved in is fascinating, it’s rewarding, we enjoy working with a variety of different people. It’s just a lot of fun doing that, and need I say more.
Paul: No. No, and that’s really great. It’s really great. So that’s what makes it fun, is actually as you say being passionate about it and not just going through the motions and obviously that passion, you know, shows through on the other side with the customer and the project team getting best value.
So I guess that concludes this episode. I thank everyone for listening to “Everything Building Envelope.” Please tell your friends about it at www.everythingbuildingenvelope.com and also listen on iTunes or Stitcher. Before I say goodbye, the opportunity to give a small plug for my company, GCI Consultants. I’ve got a bunch of new videos out regarding hurricane Irma, water infiltration, and things like that. So you can find them on our website, gciconsultants.com and also on YouTube, the GCI Consultants YouTube channel. So check them out.
And with that, until next time, this is Paul Beers saying so long.