Design-build contracts

By Dennis Brand

Perhaps the best way of describing ‘design-build’ is to describe what it is not.
The traditional ‘design-bid-build’ method of construction is a sequential process in which the owner or developer first contracts with a design professional to prepare a concept or basic design, then a detailed design for construction. This includes specifications to solicit competitive bids for construction, and finally the award of a construction contract to the lowest bidder.

In ‘design-build’, one entity performs both design and construction under a single contract. Often the ‘design-build’ contract is awarded by some process other than competitive bidding; thus ‘design-build’ differs from traditional ‘design-bid-build’ in two ways. First, the design and construction components are packaged into a single contract and, second, the single contract is not necessarily awarded to the lowest bidder after competitive bidding.

POTENTIAL
Why ‘design-build’? ‘Design-build’ has the potential to reduce overall project costs because the ‘design-build’ contractor performing the design has a better feel and appreciation for the construction costs of the various alternatives, and can therefore produce a design that is less expensive to build and has an incentive to do so.

Another way to look at this advantage is that it moves value engineering from after contract award, with the contractor proposing cost-reduction ideas and sharing the savings with the owner, to pre-award (with the owner enjoying most of the cost-savings).

‘Design-build’ may result in earlier completion and occupancy of the project because there is no downtime between completion of design and start of construction. Furthermore, the ‘design-build’ contractor can begin construction of early phases of the project – for example, grading foundations, etc. – before design of later phases (building envelope, interior partitions, electrics, etc.) is complete. This process is sometimes referred to as ‘fast-track’.

It eliminates the traditional liability gap which one finds with the design being produced by the design professional under his contract and the contractor constructing the design under his construction contract. Design professionals can obtain insurance coverage only for professional liability insurance, which covers negligence, error and omissions, and virtually all design contracts limit the designer’s liability to this.

However, there can be non-negligent errors and omissions on the part of the designer which cost the owner money, but for which the designer is not liable. An example of this is where the designer undertakes reasonable subsurface investigations, but fails to detect a rocky outcrop that will require additional work on the part of the construction contractor.

In the traditional ‘design-bid-build’ approach, the owner warrants the correctness of the plans and specifications to the construction contractor. In the event of an error where the construction contractor incurs additional costs, that cost is met by the owner with little prospect of recovery from the designer. ‘Design-build’ eliminates this gap because the designer-builder has no one but himself to blame for defective plans, specifications or differing site conditions.

Where the designer designs the project around current-generation products, any proposed substitution of new or alternative products after bidding can require revisions to the structure and/or mechanical or electrical components to accommodate the new product. In such an event, the question arises as to who is going to pay for the resulting charges? ‘Design-build’ solves this problem; the ‘design-build’ entity selects the equipment and then designs the building around the selected equipment, which seems a more logical way to proceed.

The traditional ‘design-bid-build’ method of contracting can suffer from under-optimisation when individual project participants seek to optimise their own positions – for example, the total cost to the owner of the steel frame of a building includes the cost of the engineering to determine the required steel sections plus the cost of the steel.

The designer has little incentive to achieve the minimum amount of structural steel, his concern being to spend only sufficient design time necessary to ensure there is enough steel to meet both gravity and seismic loads.
 

INCENTIVE
With ‘design-build’, the entity has an incentive to use the optimum amount of engineering in order to achieve the optimum amount of steel required for the structure. This is not to say that the ‘design-build’ results in unsafe structures; rather, it reduces unnecessary quantities of steel and concrete, etc. which do not necessarily add to the robustness of the structure.

‘Design-build’ may reduce the administrative burden on the owner because there is one award and one contract to administer. The total cost of the project becomes apparent earlier with ‘design-build’. In traditional ‘design-bid-build’ construction, costs are not known until bid opening, and it is possible to spend money on a design that the owner may not be able to build.

Frequently construction bids exceed the project budget, which results in the project having to be redesigned to bring it to within budget, thus delaying completion.

What is the risk? Under the traditional ‘design-bid-build’ contract arrangement, the owner has full control over the details of the plans and specifications, and does not publish them for bids until it is satisfied that they reflect the owner’s requirements. With ‘design-build’ the owner gives up some of this control.

Moreover, the owner must confirm its requirements much earlier. With traditional ‘design-bid-build’, if the owner is at all indecisive as to its requirements, it can clarify them during the design phase after it sees where the designer is heading. With ‘design-build’, such changes can be very expensive and disruptive, impacting on both costs and completion.

 CW