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ConstructionPro Week, Volume: Construction Advisor Today - Issue: 55 - 05/13/2010

Design Build Contacting and the Allocation of Risk

The expanded use of the design/build method of construction procurement reflects a widespread belief that it offers significant advantages to the project owner. With a single source of responsibility for both design and construction, there is less of the reciprocal finger pointing common in the more traditional design/bid/construct format. Public project owners in particular are convinced that the design/build method reduces claims during the construction phase.

 

 

 

Design/build presents a different allocation of risk, however. This is illustrated in a standard federal contract clause used in soliciting fixed-price bids for design and construction. The contractor’s proposal is incorporated into the contract, but only to the extent the proposal meets or exceeds the government’s project description and design requirements. If the proposal fails to meet the requirements, the contractor must upgrade the project at no additional cost to the government. But if the proposal exceeds the requirements, the contractor must honor both its proposal and its fixed price. From the government’s standpoint, it’s “heads I win, tails you lose.”

 

 

 

I welcome your comments on design/build contracting. Do you feel the allocation of risk and responsibility is appropriate? Or does the allocation favor the project owner and expand the cost risk of contractors? If the solicitation contained sufficient design detail to insist on upgrading even minor aspects of the project, why didn’t the owner just put that design out to bid?

 

Featured in next week's Construction Claims Advisor:

  • Delay Disclaimer Not Enforced – Contractors Recover for Lost Productivity
  • Contractor Forced to Comply with Specified Dewatering Method
  • Agency Did Not Waive Order Limitation Clause in Requirements Contract

 

Bruce Jervis, Editor
Construction Claims Advisor

 

Comments

Design build is wonderful for a very sophisticated Owner with well established overview and oversight capabilities. For any other type of Owner, there is no one in the Design/Build mix protecting the Owner's interests, a role traditionally played by the Architect. In design/build the architect is either in thrall to the contractor, or at the least party to the contractor's profit line and therefore not concerned, or as concerned, with the Owner's interests.

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Having bid and managed many design-build projects, I would generally agree with Jon Edelbaum's comments, although my company takes on the role of protecting the owner in such cases. There are many factors to weigh in choosing this form of procurement, such as project complexity, contractor experience with the building type and project schedule. I don't think any one system meets all needs.

 

With regard to fairness, If a bidder proposes to exceed the written project requirements, one can only assume that the bidder did so knowingly and for the purpose of competitive advantage. Why wouldn't the owner hold the bidder to his proposal?

If the process is well managed and a appropriate for the project, the risks for all the parties should actually be reduced.

Any government contract spells out the requirements proposers are expected to meet. Design Build contracts are normally run under a Best Value Source Selection type of solicitation. The RFP describes the minimum acceptable and contractors can offer enhancements to increase the value of their proposal. The choice is theirs. The Government is not forcing the contractors to bid but if they do they must follow the contract. If they feel they can't make a profit then they shouldn't send in a proposal.

 

Risk allocation in Design-Build is a tenuous slope. If the Owner produces a well-planned and informative bridging document,risks can be mitigated for the entire team, including the Owner. In the absence of a good bridging document, the Owner's risk (yes, Owners should bear some of the project risk) is transferred to the D-B team, and the proposal costs mount quickly. If the proposal does not produce a winning result, the D-B team is out the cost of creating an overly expensive proposal, which must include the creation of designs be bid from. So, if 5 D-B teams are proposing for one design-build project lacking good bridging documents, 4 teams our out the proposal costs. The D-B community should insist on descriptive bridging documents that minimize D-B teams' up-front financial risks.

 

Ken:
You make an interesting point; however, the upfront costs in proposing are present regardless of the type of contract.

 

 

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