Advisor | Indiana's BOT Statute and How Public-Private Partnerships Work for Cities and Towns-এর সম্পূর্ণ প্রতিলিপি

approve that project at X cost. ⁓ There is truly nothing more frustrating in the world. And I think I can speak for all elected officials when I say this, then when that project comes in at X plus anything, it doesn't matter if it's a dollar or if it's X times two, right? Yes, there's levels of frustration there. Some are more tolerable than others. But certainly having to pay more. And I can even imagine that the staff person having to come back and say, know I told you this is going to be a million bucks, but now it's 1.2 and now we got to find something else. And in the public world, we often see this. We see this happen a lot in the design bid build scenarios for a lot of different reasons. But we often also see that there's one of two things that happens. Either they go find the additional money from some other. pot or bucket or, you know, rainy day fund or wherever they're getting it from. And as long as it's legal to move that money, they'll do that to cover that overage because that's the project they still want. Or they have to then re-engage their design team to re-engineer, redesign ⁓ the product, whatever it is, which means they're often not getting some piece or primary component of what they thought they were getting. so now if that's been released to the public. Now they're trying to also have a PR issue on their hands of, Hey, you know, we told you we're going to get this amazing aquatic center for this dollar. It's not going to, now you're not going to actually get a pool, right? It's just going to be a splash, whatever it is. I'm making that up. But this idea of, of saving public face in the market, does this statute help lend to that? If this is done properly through the scoping period? absolutely. mean, depending on how. We're navigating the scoping period, how that's contracted or if it is contracted through that design process and through that, call it competitive bidding process. There's no risk. We've not agreed to, we, the municipality have not agreed or signed on the dotted line for any of this. Right. So if we get to the end of the scoping period and we're a million dollars over budget or $50,000 over budget, we painted the picture and set the expectation with that team that it's. an X million dollar project or it's an X dollar project and it includes this scope. If we've not achieved that by the time we get to bidding, well, we've found there's been some misstep before we get there. I don't know that we've ever done a project where we've gotten to a guaranteed maximum price that doesn't fit within the budget, but that process is done at no risk to the client to get to a, cause at the end of the day, the developer's signing on on the dotted line to deliver. with all of that inherent risk in the project for a guaranteed maximum price. there is a more judicious process to make sure that the numbers are accurate and get to a budget. But at the same time, we're working with that developer and the client to the point of going back to a board or a council to say, we end up being, we're over budget even after the process starts, right? with the risk of ⁓ projects without a GMP, there's the opportunity to have to go back and ask for more money. If we have accounted for all of our risks, if we've added additional owner contingency within the BOT to navigate whatever challenges may come up, if we've got to move doors or there's a change of plan, we've got dollars within the BOT agreement ⁓ for the municipality to use. One other thing to add. ⁓ we advocate that those are taxpayer dollars. And let me ask you that question. I want you to answer this specifically, because I think this is where I was going with this is, um, let's talk about contingencies because this is where we have seen you and I collectively over the last 20 years of, of, um, of working in this industry and this market, uh, 15 years now here at Veridus for me, and I think seven or eight for you. Um, we've, we've managed a lot of projects built under five 23. One of the conversations that always comes up is contingency and how these contingencies are set to begin with, right? Should be a conversation between the contractor and the owner consistently to make sure we're covering our basis. So we are truly getting a guaranteed maximum price. ⁓ I always find it a little humorous. ⁓ don't know, humorous is probably not the right word. A little frustrating maybe when I've been told that I have a guaranteed maximum price, but I see 14 allowances over here for a client. And like, that's not really. a guaranteed maximum price, because if they choose something that we need to have those selections done way sooner, so that we're actually now allowances on things that we can't discover that's different, but things that we know flooring. Interiors furniture, you know, FF and E whatever those things need to be figured out before we get to a GMP. That's my opinion. But the contingency piece is interesting because we have, we have worked with these, these projects with, with dozens of clients, ⁓ as well as dozens of different developers, maybe, and, and contractors for sure. And designers for sure. How do we recommend handling contingency at the end of the project? well, at the end of the project, well, actually... Throughout the project. Throughout the project, ⁓ our perspective as owner's representatives is that any contingency dollars are taxpayer dollars. They're the client's dollars at the end of the day and are there to manage and mitigate potential owner risks that still exist within the project. ⁓ We advocate for... even in the contracting process through either a BOT or even CMC, because we navigate a lot of contingency discussions in CMC, that ⁓ generally speaking, the industry wants to say that that contingency is for the exclusive use of the contractor. ⁓ We advocate for control. I would say we, there it is, advocate for the client's control of that contingency. ⁓ Not to say that ⁓ there could be a misuse

of contingency. just creates the more transparency of the process. There is definitely the opportunity for misuse to cover ⁓ scope errors because contracts still going to spell out that the client's not at risk for negligence of the developer, negligence of the constructor, or negligence of the architect. So there's some mechanisms that we're already putting in place in the contract Let's do a, instance, or for example, so for example, ⁓ if I have, if I'm an owner of a project ⁓ and my, ⁓ my contractor, my construction manager, whoever it that we've selected for the team, ⁓ which we've selected because we trust them, right? There has be a level of trust there in order to do the work. We believe they can do the work. We've liked their team. ⁓ but something comes up on the site and we've all had this happen before, ⁓ right? Where they're going to now. ⁓ There's two ways to handle this. As you just said, that the general way of the industry is that the CM or the construction manager just gets to choose whether that gets pulled out of contingency or not. The other way that we advocate for within our contracts and for our clients is that the client is at the bare minimum involved in that conversation and at best gets final approving authority. Right. And so what this does in our opinion is it allows a secondary level of oversight of what those funds are being used for. The point you made earlier is very well taken, which is those are still, those are not the contractor's dollars. They're not part of their agreement to be spent, right? Automatically they are taxpayer dollars. And so if we're there to protect the taxpayer, which is what the 523 statute does in many ways. And they come up with something that we believe from an owner's perspective was discoverable or was, or could have been figured out ahead of time, but the CM either didn't put the work into it or maybe their subcontractor missed something or whatever. we believe there at least needs to be a discussion about that money being spent from contingency before it's just automatically committed and spent. That's our stance. What we often see is our CM partners on a lot of these things have just baked their agreements that they get to choose their professional knowledge skill ⁓ if that's an appropriate use of dollars. And to your point earlier, all that does is create an opportunity should something arise that ⁓ maybe was questionable. ⁓ What we often see is our CM partners on a lot of these things have just baked their agreements that they get to choose their professional knowledge skill ⁓ if that's an appropriate use of dollars. And to your point earlier, all that does is create an opportunity should something arise that ⁓ maybe was questionable. ⁓ that they just get to spend the money on and forget about and move on when in fact it needs to be something that the owner is aware of because it needs to be discussed as a project as a whole. that they just get to spend the money on and forget about and move on when in fact it needs to be something that the owner is aware of because it needs to be discussed as a project as a whole. Right. So ⁓ let's fast forward. ⁓ now that's, that's through construction at the end. What happens with whatever's left in contingency? If there's anything left. If there's anything left, ⁓ usually there is, well, I would say from, off of our experience, are dollars ⁓ in contingency. ⁓ Ultimately, at the end of the day, our clients are navigating a deductive change order to the BOT agreement to reduce the overall contract by the value of the remaining contingency dollars. So those dollars are returned to the municipality, just go unspent in the contract. what do most, most of the contracts we read, what was their first request from a construction manager? ⁓ We get a lot of requests for shared savings. So. ⁓ Again, we don't feel like that's a great incentive or should be an incentive for public works projects. ⁓ If we've set an expectation of shared savings at the beginning of the project, I guarantee you they're going to be savings to share. We've created a mechanism for the opportunity for additional ⁓ profiting. It's really no different. mean, we can look at, that's the carrot that people want to offer. But if we also look at a... stick mechanism like liquidated damages for municipalities. There's not always a great case to even suggest liquidated damages, but if we tell them we're going to pay for liquidated damages, it's going to be in the ⁓ GMP at the end of the day. we kind of advocate for no shared savings. Those are municipal dollars, but it also helps for the judicious use of contingency with owner oversight. Yeah. So I agree with the same thing. I also, allowances is another one that we've always struggled with. I know I had a project in the past where we were doing just a public bid construction manager project, but it was design, build. And the CM actually put into the bid documents that most of these major contracts, which I think there were six or seven of them at the time, were all to include a hundred thousand dollar allowance. because they just, weren't sure on certain details and they just want to be able to spend it if they needed it. And I mean, that ended up being $600,000 that we, we carved out of the project. Now we might've, we spent some of that in contingency as we kind of thought through it, but because there were things that weren't necessarily clear or maybe you need to come up and be fixed or gaps in scope or something like that that happened, but it wasn't $600,000. And I'll tell you, my experience is that whenever you give a contractor the ability, to spend $100,000 above and beyond his bid, he's likely going to find a way to spend most of it. I don't know if he'll spend all of it, but he's gonna be like, well, it's there. I know they had budgeted for it. by the way, this was extra and this was extra and this was extra and they're just gonna keep doing it. And the way that

contract was tried to be written was that the CM had the exclusive right to make that decision or not. And we just pulled the whole thing out. We didn't even want decisions. We just said, no, don't make them live to their bid. And if they have issues on top of that, we'll address it with contingency. should the need arise, but that led us to help to have a conversation about everything that was coming our way. And that's one of the reasons that I think our role is important, especially for cities and towns, because when you take this level of oversight, it takes time and effort and energy to sort through the noise that's there and create that space for the owner to end up with a great project on time and on budget as part of it. And oftentimes didn't even know what took to get there. ⁓ but. there's so much stuff happening in the background and there's a lot of really good construction managers and designers out there that are all working together. ⁓ Most of them, would say that we've come across over the years are their intent is to do great things and build great projects. But every now and then the details get in the way and finger pointing starts to happen and something goes wrong. And it's just good to have for the owner to have somebody there that they can trust that's solely on their side of kind of digging through this. So now we are. into construction. We've given the guaranteed maximum price back in this statute here. We've given the guaranteed maximum price. We're going to move into construction. Well, one quick caveat, probably one of the most important milestones is the public hearing to approve the BOT agreement. So as you've gone through scoping, you've been working with legal counsel and with the developers council to develop the BOT agreement. spelling out how we're going to use contingency, where the dollars are coming from, how we're invoicing, all the fun stuff that shows up in contracts, termination, all that stuff. You've negotiated that in the background as you've come along and gotten your GNP, and then the ⁓ developer presents to the municipality the guaranteed maximum price in the BOT agreement. ⁓ State statute requires that there is a public hearing to ⁓ A review the documentation, make the documents available to the public, but then a formal ⁓ public hearing and approval of the BOT agreement. This requires a legal notice. ⁓ So we go through that process, make the documents available, approve it in a public hearing and sign on the dotted line. On the scoping side of things, there are some people want to get to that BOT agreement right out of the gate and do the public hearing. kind of advocate. against that because I don't know what's in it, right? But it could be as simple as it's a $10 million fire station that's approximately X many square feet, but that really, you've now taken on more risk if you do it too early. So we advocate for doing that public hearing towards the end. So we're under contract, we're ready to put shovels in the ground. Generally speaking, if the developer doesn't own the land, there is a ⁓ construction access easement placed over the property where the development is going to occur. then moving forward, it feels very much like any other, ⁓ construction manager at risk process. So not to interrupt you completely, but I do want to pause on this because I think you said something important. One of the questions we often get is what if I own the land, but I have a developer building on my land, right? That's a common question. You said an easement. Can you explain that real quickly? What that covers? So this. ⁓ easement ultimately gives them grants them access to do the improvements on the site, but it also shifts the liability of the risk of that activity onto the developer versus onto the property holder. ⁓ yeah, so it's typically a blanket easement. it's, the, if the site's too big, obviously you can identify an area, but it's going to encompass all of the construction, all the way down, anything that could come into as part of this project, which basically gives that developer access. to utilize that site to build the project that they're building. They don't own the land, you're not selling it to them, you're not getting it back, right? There's this piece that goes into it. So now we're in construction. And construction feels just like normal. Just like normal, right? We're ⁓ going through the process, we're gonna have our owner architect contractor meetings at a regular cadence, the invoicing process. ultimately is going to feel the same it would as any other project delivery method. There's a process of ⁓ pay applications and pencil copies and architecture review. With one exception probably is that you're only paying one person. We're only paying one person. Or one company. Yeah, we're paying the developer, unless the architect's outside of the agreement. So it's one pay application. ⁓ And we set an expectation of transparency as to what we expect in that pay application for our purposes to make sure that that the invoicing is appropriate, that it coincides with the level of construction and that we're documentation is complete. That documentation is complete. That recommendation comes from after the architect is signed off on a pencil copy. That recommendation is made to the municipality to review and approve and pay that pay application. So that process ⁓ is very similar. Now, in regards to how the BOT is structured, And the mechanism of funding, right? If the municipality is paying for it out of general obligation or lease rental bonds or some other funding mechanism that they have cash available, they're just going to pay it like they would in any other ⁓ construction process or CMC. If the developer is funding it, then it's going to probably look a little bit different, right? There's still going to be transparency in regards to that process. that We as the city's representative or municipalities representative see that

they're not ⁓ heading down the wrong direction, even with their own lender. ⁓ And then ultimately there's going to be an installment payment or a transfer of debt at the end of the project. we'll pause over that just for a second, but I think that's a whole nother conversation that I'd probably rather have with ⁓ financial people at the table, ⁓ including maybe a developer, we can get one in here to have that conversation, maybe even a financial advisor to kind of talk about that. But what you just said is important in that as we've seen these kind of develop over the last eight years more consistently, these BOT projects is there are really two ways to finance. One is kind of your traditional way that you would either finance anything as a city or town. whether it's cash on hand or if it's a bond or if it's some other kind of fee that you've collected over time or whatever you want to pledge against it. So you could do that. Um, or the second way is to actually have the developer finance it. Now would say when I, this is my personal experience, when I saw these first happening, beginning to become more popular, probably back in 2017 and 18, um, I would say they were being more developer financed at the time. So they would have a relationship with the lending institution that they would kind of walk through this process. Yeah. Which is a little bit different obviously than if we're funding it from our own resources and or bonding capacity. ⁓ I would say now, I think that the way it started is much more rare. Right. That developers are financing on their own. think that is, it's probably happening, but not on the projects we're talking about. Most of the ones that we've been involved in the last five years, probably four years have been certainly more financed directly by the municipality or the county or whoever it is themselves. And then through their normal financing methods, whether it's their bond council and their financial advisors are working on all those things. And then bringing those funds to bear on behalf of the project itself. And I think there's reasons for that. Obviously, if you're paying a developer to finance it, you're going to pay their carrying costs. And we've seen some RFPs that have been responded to where developers actually talk about another interest, know, point of interest on top of what their bank is charging. So they're making money on their money. type thing. so kind of working through those details is pretty important. But I would say for the purpose of our audience now is that most of the projects, not 95 plus percent are now being again, not financed by the developer, but finance in the traditional way of financing from the municipal government. to that point, rewinding the tape, we talked about engaging your legal counsel at the beginning of this process. Also very much so you need to be engaging your bond counsel. and financial advisor as to how the project's being funded. And it's important to know that going even into the RFP process. So yeah, absolutely. Those parties play an invaluable role