FAQs: C195™-2008, Standard Form Single Purpose Entity Agreement for Integrated Project Delivery

What is a Single Purpose Entity or SPE?

The AIA’s Single Purpose Entity agreements for IPD establish a limited liability company for the single purpose of planning, designing, constructing, and commissioning a project. This single-purpose entity (SPE) does not own any real property. The owner, architect, and construction manager are the initial members of the SPE, which is called the “Company”.

 

Who can be a member of the SPE?

C195-2008 contemplates that the owner, architect, and construction manager are the initial members, although it is possible that other project participants may be initial members if their role on a particular project is significant enough to warrant their involvement as a member. After the formation of the SPE, C195–2008 provides a mechanism for adding additional members. Through a decision of the LLC’s Governance Board, the members can permit other project participants, such as engineers, or specialty trade contractors, to join.

 

What does it cost to join the SPE?

SPE members are expected to contribute Capital Contributions to cover the SPE’s expenses. Under C195-2008, each member’s capital contribution may be nominal, as the expenses the SPE incurs to design and construct the Project are actual costs that the Owner is required to fund pursuant to a separate agreement with the SPE.

 

What is the significance of an SPE Member’s Percentage Interest?

SPE members share in profits or losses depending upon their percentage interest in the SPE. C195-2008, however, intends that the SPE will not have any profits or losses.

 

Who manages the SPE?

The SPE is managed by its members through a Governance Board. The Governance Board consists of representatives from each member. Except for decisions that the members specifically identified in the agreement, the Governance Board makes all decisions by unanimous vote.

 

Who is on the Governance Board?

The Governance Board consists of representatives from each of the members.  Each non-owner member appoints one representative to the Governance Board. The Owner appoints a number of representatives to the Governance Board so that the total number of Owner representatives on the Governance Board will be one more than the total number of non-owner representatives.

 

How does the SPE’s Governance Board make decisions?

Except as specifically agreed otherwise in C195–2008, all authorizations, approvals, or other actions of the Governance Board shall require the unanimous affirmative vote of the Board Members. At the time the members enter into C195–2008 they can agree that certain decisions may be made by a majority vote of the Board Members. Accordingly, only for those decisions specifically identified in the C195–2008, the Governance Board can take action with less than a unanimous vote of the Board Members. Therefore, given the fact that the Owner always has one more representative on the Governance Board, the Owner can retain control over any decisions that may be decided by majority vote.

 

Do the architect and construction manager get paid through the SPE?

SPE members are not paid for their participation as members but are paid for their services through their respective contracts. Therefore, the SPE pays the architect and construction manager for services rendered in accordance with the terms and conditions set forth in the architect and construction managers’ respective agreements with the SPE. The SPE receives the funds to pay the architect and construction manager from the owner.

 

How does the SPE get the project built?

The SPE builds the projects through construction agreements it enters into directly with general or trade contractors.

 

Under the SPE, how is the Project funded?

The owner is required to enter into a separate agreement with the SPE, pursuant to which it is required to provide funding for the project. Pursuant to the owner’s agreement with the SPE, the Owner is required to fund the SPE as necessary to develop a Target Cost. Upon the establishment of the Target Cost, the members will develop a funding schedule for the remainder of the Project, which will become part of the owner’s agreement with the SPE. After the establishment of the Target Cost, the owner is required to fund the SPE in accordance with the agreed-upon funding schedule.

 

Why do the initial SPE members include a construction manager and not a general contractor?

The SPE could add a general contractor, by agreement of the members. However, under traditional general contracts, the contractor earns a profit by marking up the labor and material that others provide. The SPE follows a very different model that motivates its members to earn profit by achieving mutually-agreed project goals through the performance of superior design and construction management services, not by marking up amounts paid to others. 

Allowing one member to control individual profit through mark-ups would jeopardize the success of the SPE. A specialty trade contractor provides labor and material in a business model that is similar to a services provider and thus is a more likely candidate for SPE membership. General contractors, serving not as SPE members but working under lump sum or GMP contracts with the SPE, may earn normal, competitive profit under those contracts.

 

How are risks and rewards handled under the SPE agreement?  

C195–2008 provides incentives for the architect and construction manager to perform in the best interest of the Project. The architect and construction manager are required to provide their services at cost with any potential profit tied to the achievement of project-related goals that the members mutually establish. The first form of potential profit is tied to the Target Cost. If the Actual Cost of the project as delivered by the architect and construction manager is below the Target Cost, any savings are shared between them in accordance with the terms of their respective contracts with the SPE. The second form of potential profit is tied to specific Project Goals the members agree upon at the time the Target Cost is established. If the members achieve any of the Project Goals, they are entitled to receive compensation as negotiated. If any Project Goal is not achieved, regardless of who was at fault, the members do not receive any compensation related to that Project Goal.

 

Under the SPE agreement, what is the “Target Cost”?

The Target Cost is the estimate of all costs the SPE may incur to plan, design, construct and commission the project. The members establish the Target Cost no later than at the conclusion of the Criteria Design Phase. The Target Cost is set forth in the Target Cost Amendment to C195–2008. C196–2008 and C197–2008 both incorporate C195-2008, including the executed Target Cost Amendment.

 

What is the Target Cost Amendment?

The Target Cost Amendment is an amendment to C195–2008, incorporated into C196–2008 and C197–2008. It is executed at the time the Target Cost is identified and established.  The Target Cost Amendment itself consists of six exhibits. 

    • The first exhibit is the Target Cost Breakdown, which allows the members to set forth the various elements of the Target Cost in detail.
    • The second exhibit is the Project Definition, which allows the members to state the Project Definition upon which the Target Cost is based.
    • The third exhibit is Project Goals. In this exhibit, the members identify and define the mutually agreed-upon Project Goals. The Project Goals exhibit also allows the members to identify how the non-owner members will be compensated for the achievement of such goals.
    • The fourth exhibit is the Integrated Scope of Service matrix. This exhibit consists of an extensive matrix of services that allows the members to allocate responsibility for each such service throughout the project.
    • The fifth exhibit is the Project Schedule, which allows the members to identify the schedule upon which the project will be completed. 
    • The sixth and final exhibit is the Digital Data Protocol Document. This exhibit will allow the parties to identify how electronic data will be used and exchanged on the Project.

 

What happens if the Actual Cost exceeds the Target Cost?

If the Actual Cost exceeds the Target Cost, the architect and construction manager are required to continue performing but are not entitled to compensation for services beyond the Target Cost.

 

Under the SPE agreement, what happens if the Actual Cost is less than the Target Cost?

If the Actual Costs are less than the Target Costs, the members share in any savings in accordance with the terms of their respective agreements with the SPE.

 

Why deliver a project using C195–2008, Standard Form Single Purpose Entity Agreement for Integrated Project Delivery?

C195–2008 utilizes the principles of Integrated Project Delivery (IPD) which will appeal to an experienced and sophisticated project owner who is looking for a way to avoid claims on projects and to achieve project-specific goals that are more important than the lowest first cost. Such goals are more likely to be achieved by a high degree of collaboration and information sharing among project participants.

 

How does the SPE handle dispute resolution?

All members waive claims against each other and against the SPE and agree to resolve their disputes under the SPE’s dispute resolution procedure. The members are required to endeavor to resolve all disputes amicably and through mutual consensus. Any member having a dispute with the SPE or another member is required to hold a meeting with the representatives of all affected members in an attempt to reach a mutual resolution. In the event a mutual resolution cannot be achieved, the matter is presented to the Governance Board for resolution. The Governance Board is required to render a mutually agreed-upon decision within thirty (30) days of receipt of written notice of the claim or dispute.

If the Governance Board is unable to resolve the dispute, the matter shall be subject to arbitration through a Dispute Resolution Committee for final resolution. The Dispute Resolution Committee consists of the chief executive of each member and a Neutral identified in the C195–2008.  If the Dispute Resolution Committee is unable to resolve the dispute, the Neutral shall decide the matter. The Dispute Resolution Committee’s decision (or the Neutral’s decision) is final and binding and any member may seek entry of judgment on behalf of the SPE in accordance with applicable law in any court having jurisdiction thereof.

 

What kinds of disputes are resolved under the SPE’s dispute resolution procedures?

Any and all disputes between members, and between members and the SPE related to their respective agreements with the SPE are subject to the dispute resolution process set forth in the C195–2008 SPE agreement. Members are required to assign any claims they have with contractors and consultants outside of the company to the SPE, so that all disputes may be resolved under the same process.

 

For more information see the summary »

For instructions »

To purchase »

Was this article helpful?
0 out of 0 found this helpful
Have more questions?
Submit a request