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By Ronald Williams, Attorney at Fox Rothschild LLP
Whether building a grow facility or a retail shop, the owner of a cannabis business must develop a comprehensive plan for design and construction that includes certain key components, developed by a team that will oversee the project through design and construction. The team must understand the goals of timely, quality construction and delivering the project on budget. Moreover, the team must understand the steps necessary to achieve those goals so that the project will achieve success by any objective measure. Most importantly, the project must have a leader with certain characteristics and focus, who if correctly identified and empowered by the owner, can ensure the project is delivered successfully.
The team leader’s skills should include the ability to effectively communicate with others in both written and oral fashion. They must have a complete understanding of the big picture and be able to focus, in a timely fashion, on all key details, efficiently and effectively. Hopping on virtual meetings and having regularly scheduled calls requires discipline and endurance. Inevitably, details will need to be prioritized. Further, the leader must have the inherent ability to make decisions for the owner as well as the confidence to convey effective decision-making on a timely basis. That will heighten the likelihood of achieving the owner’s goals for the project.
The leader must develop a complete understanding of key project participants, including design and construction professionals, as well as other professionals in essential disciplines. Each of these professionals needs to possess the requisite industry knowledge. Each professional must also understand the role of each participant in the project, and a willingness to work and collaborate effectively to achieve the owner’s goals.
The leader must understand the budget for the project, which involves having a full grasp of both necessary soft and hard costs, as well as construction market conditions. An understanding of the sources of financing for the project budget and cash flow allows for smooth and effective payment of expected costs and contributes to a positive atmosphere for the project. Moreover, a comprehensive understanding of project finances provides for effective and timely handling of requested changes during the early stages of design. If the leader does not understand the budget and cash flows, payments to the project participants can become an issue. When payments become an issue, frequently, the success of a project can be undermined.
The leader must also understand the importance of the project’s design and construction schedule. By understanding the schedule for design and construction, the leader can keep all members of the ownership team informed as well as lead the project participants in performing their respective duties. Having the capacity to drive design and relate the design to construction allows for cost-effective design as well as meaningful engineering. This quality enables the evaluation of design options to keep design and construction on schedule without delays and cost overruns.
The leader must understand the importance of necessary contract documents. The negotiation, drafting and execution of these documents requires attention to detail and timely consultation with all team members. The entire team must understand the interplay of these documents and make sure that all key terms have been addressed. With respect to contract negotiations, the leader must determine in advance, with the appropriate consultation, which terms are most important. The leader must articulate the philosophy of the organization and the values of the organization during negotiations and understand the entity they are negotiating with, and its litigation history. Determining whether to involve counsel and when to involve counsel can set the tone, for better or worse. If an attorney is engaged, counsel’s role requires thought and strategic involvement. Will counsel negotiate directly or indirectly? Will counsel offer different options for language or simply serve as a scrivener? Counsel must know the cannabis industry and also serve as an extension of the team, exhibiting identical values.
A leader should approach negotiations with a “win – win” attitude” throughout. The leader must maintain control of the drafting of documents and revisions, and understand not only the base contract but also all key exhibits. Frequently, too little attention is paid to the exhibits, which necessarily become part of the contract. Practically speaking, the leader must communicate with the project participants to maximize the likelihood of success of contract negotiations, contract administration and project completion. Once the contract documents have been established, the project participants should be empowered to undertake their respective roles, keeping the leader informed about all design and construction matters in a timely fashion. The leader should ensure a timely and effective flow of information through proper sharing of all documents, which will increase the probability of keeping design and construction on track.
Owners, who frequently lack design and construction experience, often view design and construction as sequential and perceive that design will constitute the complete manual for construction when in fact, that is rarely the case. A successful construction project requires the design team and the construction team to work effectively together in a dynamic process. Through that dynamic process, design and construction can proceed on a timely basis, adhering to budget requirements and scheduling goals. When the design team and construction team work effectively together, they can easily anticipate long lead-time items and potential supply chain issues, and ultimately make timely decisions and begin construction promptly. Again, this takes a leader with the requisite skillset.
By setting a realistic schedule, the owner, through its leader can anticipate cash flow requirements needed to make timely payments to design professionals, construction professionals and other project participants. If an unforeseen condition or event takes place, assembling the project participants in a solution-oriented manner increases the probability of a timely, cost-effective solution, while minimizing the impact of a dispute. If a dispute develops, the parties must understand the best approach to finding a resolution to keep the project on track. Inherently, the project participants must possess a level of trust in each other so they can sit down, preferably in person, and consider all options. Through constructive discussions, while maintaining emotional maturity, project participants can arrive at effective solutions. Ultimately, participants in such discussions should not make assumptions or ignore matters that need to be discussed, vetted and ultimately resolved. After taking these steps, the leader, or some designee can memorialize the solution and incorporate it into the contract documents. Here again, timely communication with internal finance personnel, as well as any external finance people must occur comprehensively and effectively.
As a project approaches completion, the leader must anticipate effective project close-out so that operations can begin on a timely basis. An understanding of all the logistical steps is a must. After all, the individuals who ultimately work and operate within the new facility need to have access to it without interfering with the design and construction participants. Proper closeout also includes determining what needs to be done to properly open a facility, as well as what can be completed after the facility is open. The project leader should determine who will require training as to sophisticated components of a facility and what operational steps must be undertaken. Gathering documents that include but are not limited to warranties requires discipline and an understanding of importance of such documents.
Achieving successful construction in the cannabis industry is no small feat because the business requires specialized knowledge of a relatively new industry that is highly regulated. Taking the time to select the right leader and team will increase the prospects for a successful project. Making sure that leader is empowered to then identify the appropriate project participants constitutes an important step. Understanding the need for effective contract documents and utilizing them to drive design and construction heightens the likelihood that the project will succeed. Ultimately the leader must be ready to anticipate challenges as they arise and effectively address them to maintain the project budget, schedule and quality. Successful construction in the cannabis industry can and should be achieved through this approach.
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