The Missing 2 ½ Floors
Abstract: The value of a performance-based building contract - and why narrative rules!
The client needed a new head office. They had the site and had analysed their space needs against task-related requirements. Certain floor layouts (for example, the placement of pillars) restrict the placement of furniture and fittings, so that what is actually available is less than the nationally used “BOMA usable” measures; this is referred to as the building loss factor. The client stipulated that they would accept a building loss factor of between 5% and 8% in the design, but not more.
The chosen designer planned to build the 27-storey office building using a steel framework, with 22” x 24” columns in the low-rise and thinner columns above. The contract was signed with delivery due in time for the client to move in on June 1st in two and a half years' time. The client’s current lease stipulated a penalty of $½m per day for each day past the contracted end date (June 1) that the tenant remained in the building, and this was built into the new construction contract.
Construction started, but the developers encountered a problem when the steel framework could not be made available in time. They chose to switch to concrete pillars instead*. This increased the 22” x 24” lower pillars to 60” x 72”, and the building loss factor rose well beyond the allowable 5-8%. In fact, the building loss was so great that accommodating the required allowance with the new construction technique meant adding an extra 2 and ½ floors. This resulted in a $US43m negotiation
Had the client expressed his requirements as a 27-story building, he might have had to bear the cost of the additional floors (or pay a penalty for the delay to his current landlord). However, the contract required a design that would provide the required level of accommodation - a performance-based contract! The negotiations were settled ‘out of court’. Gerald Davis, who designed the performance-based contract, says that he does not know what the legal outcome would be. “None of the performance-based contracts we have been involved in has ever gone to court. The information is too strong. They have all been settled out of court.”
* What better decision could the contractors have made?