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Clear documentation and open communication can prevent expensive delays

and litigation in large airport construction projects. taking the time to negotiate

agreements that reflect a shared understanding of the goals of a project and the

responsibilities of each party will save time, money and trouble in the long run.

An excellent example of this is the construction of terminal A at Boston Logan

international.

By David Y. Bannard

The original Terminal A at Logan airport was completed in 1970, and by the late 1990s it was in need of replacement.To replace Terminal A, the Massachusetts Port Authority (Massport), the owner of Logan airport, partnered with Delta Air Lines. Before any work was done on the project, however, a small team of negotiators from Delta and Massport spent many hours carefully negotiating the documen-tation that would govern the project.

Terminal A was completed ahead of schedule and under budget — despite Delta filing for bankruptcy protection before final completion of the project. And there was no construction litigation generated by the project. How was this unusual feat achieved? The following are among the main reasons:

n Documentation that clearly allocated respon-sibilities

n A shared understanding of the goals of the project and of the relevant documentation

n Regular communication among dedicated on-site staff representing each of the stakeholders

n Incentives for achieving goals coupled with penalties for failure to perform

DocumentationThe foundational element of this successful project was the negotiation of clear, well-understood agreements, including a development agreement, lease and a guaranteed maximum price (GMP) construction contract. Although these negotiations

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How to Save Money and Prevent Litigation:Boston Logan Terminal A Provides a Model

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took considerable effort, the result was a shared understanding of the scope of the project and of the responsibilities of the various parties. This upfront work ultimately saved a significant amount of time and money.

Massport and Delta painstakingly developed design guidelines that represented their mutually understood minimum acceptable standards for the project and that addressed review and approval of plans, specifications, schedule and costs, and change orders. They included a detailed description of the project that included the over-all concept — a main terminal and satellite facility joined by an underground walkway — and more mundane mat-ters such as minimum restroom requirements and ticket counter positions.

The guidelines also included certain assumptions that were to be taken into account in developing the design, such as load factors, and the percentages of passengers seat-ed and standing in holdrooms. In addition, they specified materials standards and requirements for elements as varied as airside pavement, sustainability and concessions space.

Finally, the design guidelines provided for a design review process. When the lease was signed on Aug. 16, 2001, the design of Terminal A was fairly well devel-oped. After the tragic events of Sept. 11, however, the project underwent a radical redesign both to incorpo-rate additional security features and reduce costs. The design guidelines provided a flexible, shared vision of the

underlying requirements for the project that expe-dited the redesign process.

Delta entered into a GMP contract with construc-tion services company Skanska USA for delivery of the project that required Delta, Skanska and the major subcontractors to meet no less than weekly to coordinate the work. The GMP contract also helped to ensure compliance with federal grant require-ments and helped to coordinate the project with airport operations and other work at the airport.

Shared Understanding A second critical element was the parties’ shared

understanding of their roles and responsibilities. The parties spent a significant amount of time considering the elements of the project and negotiating documentation that allocated their roles and responsibilities, as well as the risks and the rewards. By working through these issues and reducing them to writing, the parties ensured that their vision for the new Terminal A would be realized.

In many large projects, once construction is underway the underlying contracts often are ignored. In the case of the Terminal A project, however, the opposite was true.

All senior members of the construction team carried reduced-size copies of the GMP contract with them. Frequently, when a dispute arose, the team members would refer to the contract to resolve the matter. In addi-tion, counsel often attended the weekly coordination meetings. When disputes were brought to those meet-ings, they generally were resolved promptly. The primary stakeholders developed a familiarity with the agreements that allowed them to refer to the applicable provisions and resolve disputed matters promptly. This led to a much smoother project and helped avoid any post-con-struction litigation.

Consistent CommunicationA third critical element was regular communication among the stakeholders. Massport and Delta each

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appointed a project manager who served as the central point of contact for all major issues. Skanska appointed both an overall project leader and managers for each of five sub-projects. The project managers met informally almost every day, in addition to the formal weekly meetings mandated by the GMP contract. Through the daily meetings, the project managers developed a level of comfort and trust that allowed them to resolve differences informally but effectively. Minor problems were addressed promptly and not left to fester, and larger problems were identified and resolved among the parties without resorting to time-consuming arbitration or litigation.

Risk and RewardFinally, the fourth crucial element that led to an on-time, below-budget project delivery was a GMP contract that combined both “carrots” and “sticks.”

In addition to Skanska’s GMP fee, Delta agreed to pay additional lump sum incentive payments for satisfactory completion of elements of the project on or before certain milestones. These lump sum pay-ments totaled nearly $400 million.

Further, the contract provided that the work had to reach comple-tion within a specified number of days from the notice to proceed,

and allowed slippage only for specified events that were beyond the control and not the fault of Skanska. It also provided for assess-ing penalties against Skanska for failure to complete the project with-in the contractual timeframe.

This structure created a powerful incentive for Skanska to meet the contract’s schedule requirements. Skanska staffed the project from the start in a manner designed to qualify for the incentives, and Skanska earned each one. Nevertheless, the project came in under budget, due in part to an efficient use of forces and little or no increased costs due to delays.

Lessons LearnedThe agreements that were negotiated relating to the redevelopment of Terminal A saved the parties involved time and money, even though the negotiating process itself was lengthy and complex. By identifying the parties’ concerns, understanding the details of the project, working through the details and allocating risks and responsibilities clearly, the parties were able either to foresee and reach agreement on the issues of importance, or to establish a clear process for resolving later issues as they arose.

But a carefully drafted agreement

will not achieve the goals of timely and cost-effective project delivery if nobody pays attention to it. All parties engaged in the project became very familiar with the governing docu-ments, and through a process of shared understanding and open and frequent communication, differences were resolved informally and in a timely manner. Finally, the agreements were structured to create incentives that aligned with each of the parties’ goals — resulting in shared objectives and a project delivered ahead of schedule and under budget.

What is the take-away from the Terminal A project? Take the time to carefully and clearly document the parties’ understanding before com-mencing the work, but provide for flexibility within that framework; ensure that everyone involved in the project understands what has been agreed upon; maintain continuous communication throughout the proj-ect; and craft a structure that aligns all parties’ goals. By taking the time up front, significant time and money can be saved in the long run. A

David Y. Bannard is a partner with Foley &

Lardner LLP. He is the former deputy chief

legal counsel of the Massachusetts Port

Authority, during which time he oversaw the

negotiation, financing and development of

several terminal construction projects. He may

be reached at dbannard@foley.com.