Finance

The following is description of alternative ways any public or commercial entity can acquire desired facilities.

Obviously many ingredients are needed to make that happen. Here we addresses only those involved with the "facilities" ingredient and it’s twin ingredient "financing."

FACILITIES and FINANCING:

The two elements must be treated concurrently — as a binary set. Each element controls the other. Financing sought is a function of the facility desired. The facility that can be obtained is a function of financing. How one approaches obtaining the financing affects dramatically the facilities outcome. Many building projects, be they government, private, non-profit, commercial, religious, or whatever experience cost overruns, scaled-back work scopes and delayed completion because they were not structured optimally at the outset.

How does one structure a project optimally? First, it involves learning from the mistakes made by others and observing and following the success stories that do exist. It follows that it makes sense to avoid the obvious problems associated with the way the government frequently contracts for construction and it often makes sense to "break tradition" and adopt a non-traditional approach to obtaining desired facilities and the financing necessary thereto.

THE TRADITIONAL GOVERNMENT APPROACH:

The Typical Traditional Approach is sequential: It involves first hiring an architect, developing plans with the architect, obtaining the land and necessary financing somewhere along the way. At some point the architect and the owner put the plans out to bid and receive bids from whomever has been solicited. The bidders typically offer products of differing quality. The architect and the owner have difficulty evaluating the bids because they are seldom "apples to apples." The bids frequently exceed the architect’s / owner’s cost estimate -- thus precipitating a review of the design and the design / scope of work must be adjusted downward or a scramble is initiated to line up additional financing. In the meantime, considerable time is lost and additional cost is incurred by the architect and the owner.

In the typical approach, the construction contract is awarded to a General Contractor who then may or may not sub-contract much of the work to other sub-contractors (and perhaps suppliers of modular buildings if the design incorporates any portions of the building(s) being designed in modular or "component" fashion). Once actual construction is commenced disputes frequently arise between the General Contractor and the sub-contractors / modular building supplier as to who is responsible for what. The owner is then faced with paying the architect additional fees to monitor the General Contractor’s performance and adjudicate disputes. Frequently the disputes escalate to involve a dispute between the General Contractor and the architect as well, all of which results in lost time and increased cost to the owner.

Unless the design incorporates modular building design, the actual building process is lengthened because all site work / foundations must be completed before traditional "on-site / stick-built" construction is commenced on-site. Frequently, along the way, or at the outset, someone says: "We are not experts, we need to hire a Construction Manager." So additional funds are expended in this regard and additional layers are added to the management structure and the potential for disputes is further compounded by the addition of even a "fourth party." The ultimate end result is increased time and cost when one uses the typical approach compared to the WCR / ICG Better Approach.

THE BETTER APPROACH:

In the Better Approach many steps / tasks are done concurrently and with fewer participants: Securing financing (if need be) and developing the design of the facility are done concurrently. The facility is designed to the financing deemed available at the outset. A competent General Contractor is selected by the Owner at the outset and a Phase I "Design Contract" is entered into between the General Contractor and the Owner. The architect is part of the General Contractor’s team and the architect’s fee is built into the Phase I Design Contract. The architect and the contractor work together with the owner to design the facility to the owner’s desires within the financing that is known or estimated to be available. The Phase I design contract results in two products: 1) A set of plans and specifications for submission to the city / county for issuance of the building permit and; 2), A contract for the Phase II actual construction of the facility that sets forth the fixed price and terms and conditions for the actual construction.

The actual construction [if done by Innovative Components Group (ICG) as the General Contractor] incorporates "modular / component" building design from the outset. There is no separation between the General Contractor and the modular building supplier. There is no need for the architect to monitor the actions of the General Contractor or the modular building supplier — hence the potential for disputes is absent from the outset.

ICG is responsible for the entire project from start to finish and there is only one party for the owner to hold responsible — ICG. Site work is undertaken concurrently with the fabrication of the buildings by ICG in our Sacramento facility. Financing (if needed) is arranged for by ICG which minimizes the time and expense incurred by the Owner in securing financing. The end result is shortened time, less cost and almost no potential for disputes.

HOW DOES ONE PURSUE THE BETTER APPROACH?

First: A meeting is scheduled where our team (including our financing affiliate if need be) meets with the client to elaborate on our qualifications and to answer all questions relative to our "Better Approach." Assuming Client go-ahead, we then submit a "Phase I Design Contract" for client’s approval. The contract will be structured to contain several tasks if need be. Each task is "Fixed Priced" and will not cost more than several thousand dollars each. At each task completion juncture, progress is reviewed and decisions reached regarding proceeding to the next task. Payment is sequential so the Owner has control of the process.

Concurrently: During execution of the Phase I Design Contract, if need be, our financing affiliate works with the client to compile the entire financial application package. This concurrent process results in the facility being designed to fit the budget that is brought into focus as a product of the financial application process. Upon completion of the Phase I Design and the review of the Financial Application package, the Owner has the option of either proceeding or aborting the process. At this juncture, the Owner will own the Phase I design, will know what it will cost to build the facility as designed, and (if appropriate) will know on what terms and conditions the financing is available. Since the facility has by then been designed to fit the budget, the only real issue is the exact terms and conditions of the financing: i.e.: cost of money at the time, credit worthiness of the client at that point in time, and status of any existing or planned lease or purchase of land. (If appropriate, the financing can be structured to include the land purchase as well if that is a desired option). If the decision is to proceed into Phase II, the cost of the Phase I Design contract is subsumed in the Phase II construction contract. If the decision is to abort the process for whatever reason, the costs of the Phase I design contract are of course sunk costs on the Owner’s part and all parties simply part company presumably on good terms.

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