Design and build contracts are becoming more popular in the region as the amount of work underway continues to rise, but what do they involve? Dennis Brand explains the concept and how they compare to the traditional design-bid-build alternative.
Perhaps the best way to describe design and build contracts is to explain what they are not. The traditional design-bid-build contract is a sequential process of phases or stages in which the owner or developer first contracts with a design professional to prepare a concept or basic design, then later a detailed design that is suitable for construction. This will include plans and specifications that when complete will be used to solicit competitive bids and finally the award of a construction contract to the lowest bidder.
In design and build contracts, one entity performs both the design and construction under a single contract. Often the contract is awarded by some process other than competitive bidding, thus it differs from traditional design-bid-build in two ways. First, the design and construction components are packaged into a single contract; second, it is not necessarily awarded to the lowest bidder after competitive bidding.
Why use design and build?
Design and build contracts have the potential to reduce the overall project costs as the contractor performing the design has a better appreciation of the construction costs of the various alternatives. They can therefore produce a design that is less expensive to build and they have an incentive to do so.
Another way to look at this advantage is that it moves value engineering from after the contract award, where the contractor proposes cost reduction ideas and shares the savings with the owner, to pre-award, where the owner enjoys most of the savings.
Design and build contracts may also result in the earlier completion and occupancy of a project as there is no downtime between the completion of a design and start of construction. Furthermore, the contractor can begin construction of early phases of the project, such as grading and foundations, before the design of later phases like the building envelope and MEP systems are complete.
This process is sometimes referred to as fast-track. It eliminates the traditional liability gap that can occur when the design is produced by a consultant and the contractor constructs the design under a separate contract. Design professionals can obtain insurance coverage for professional liability insurance only, which covers negligence, error and omissions. Virtually all design contracts limit their liability to this.
However, there can be non-negligent errors and omissions on the part of the designer that cost the owner money, but for which the designer is not liable. One 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 contractor incurs additional costs, these are met by the owner with little prospect of recovery from the designer. Design and build contracts eliminate this gap because the is solely responsible for defective plans, specifications or differing site conditions.
When a project is designed around current generation products, any proposed substitution of new or alternative items following bidding may require revisions to the structure, mechanical or electrical components to accommodate the new design. In such occasions the question arises: who will pay for the resulting charges? Design and build contracts solve this problem: the contractor selects the equipment then designs the building around this, 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 a building's steel frame includes the cost of the engineering to determine the required steel sections plus that of the steel. The designer has little incentive to minimise the amount of structural steel, their concern is only to spend sufficient design time to ensure that there is enough steel to meet both gravity and seismic loads.
With design and build contracts, the contractor has an incentive to use additional engineering in order to achieve the optimum amount of steel required for the structure. That is not to say that this type of contract results in unsafe or less efficient structures, rather that it reduces unnecessary quantities of materials and equipment that do not necessarily add to the robustness of the structure.
Design and build contracts may reduce the administrative burden on the owner as there is one award and one contract to administer. The total cost of the project becomes apparent earlier. In traditional design-bid-build jobs, 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 it having to be redesigned, thus delaying completion.
The risk factors
Under a traditional design-bid-build contract arrangement the owner has full control over the details of the plans and specifications. It does not publish them for bids until it is satisfied that they reflect their requirements. With design and build contracts the owner gives up some of this control.
Moreover, the owner must confirm its needs much earlier. With traditional design-bid-build contracts, if the owner is indecisive on its needs, it can clarify them during the design phase. With design and build projects, however such changes can be very expensive and disruptive, impacting on both costs and completion.
To summarise, if the owner is not certain what they want, due to the expense in making changes after contracts are awarded, the more traditional design-bid-build method may be the best choice.
Dennis Brand is senior legal advisor with Berrymans Lace Mawer.
Tel: +971 4 359 9939