ConstructionPro Week, Volume: 2 - Issue: 11 - 03/15/2013

Can Fixed-Price Design-Build Contracts be Fairly Priced?

By Bruce Jervis


Project owners are drawn to the design-build method of construction procurement for good reasons. A single source of design and construction allows fast-tracking of projects -- commencement of early phases of construction before design details have been completed for later phases. A compressed construction schedule reduces administrative and financing costs.


Owners perceive another advantage to design-build over the traditional design-bid-construct method of procurement. The perception is a reduction in contractor claims and change orders. A single source provider is less likely to complain to the owner of errors, omissions or ambiguities in the design documents. Claims are possible, however, even on a design-build project.


On a recent fixed-price design-build endeavor in Nevada, the federal government included project-specific design criteria which took precedence over all other standards referenced in the contract. The government also incorporated a set of general facilities specifications into the contract. The government then attempted, unsuccessfully, to impose the more stringent requirements of the facilities specifications on the design-build contractor.


Are fixed-price design-build contracts fair to contractors? Can the scope of work be adequately defined to allow for realistic pricing? If the contract documents reference multiple sets of design criteria, standard specifications, codes and ordinances, does the contractor really know what it will be required to design and construct? I welcome your comments.



Yes Fixed Price DB contracts are fair as long as the DB contractor understnads the risks and manages the contract correctly. The Key is communication and development of design including the owner. The PM for the DBC must ensure that the owner's statement of requirements are detailed enough to ensure the "multiple sets of desgin criteria" are consolidated into one project specification. This is done through progressive elaboration with the enitre team to establish and document the client's expectations with regrad to what the team is expected to deliver. Managinf the clinet's expectations and getting sing offs at critical design stages will manage the process fairly and efficiently.
Posted by: Marc Ferguson - Friday, March 15, 2013 10:49 AM

Here in the UK there has been a proliferation of fixed price D&B contract tenders recently, we have assisted a Contractor with the definition and costing of several over the past 2 years.

I think we have been too good at our job because we have made sure that all aspects are covered but have not won any of them. The firms that have won seem to have done so not by having cheaper labour and materials but by missing things out.

Now that may be good for the Clients in the short term but we think there is going to be some messy disputes in the next 2 years as these projects come towards completion and contractors try to recoup their losses, or go bust.
Posted by: Barry Shambrook - Friday, March 15, 2013 10:57 AM

I've worked on both the design-build contractor and owner sides, and believe these contracts can be fairly priced. However, the owner must provide an adequate design basis and do a significant amount of front end work before soliciting design-build proposals. My experiences are based on private sector, heavy industry (e.g. oil+gas, mining and manufacturing); the owners and contractors were reasonably sophisticated. Owners that are willing to do enough preliminary engineering, properly assess site conditions and clearly define their project objectives can successfully use the design-build delivery method. The owner must ensure the design criteria, standard specs, codes, etc. used in a design-build contract are properly coordinated. Contractors pursuing this type of work must have some level of in-house design capability to properly manage this element, must have strong conceptual estimating skills along with strong project controls. Owners and contractors lacking the prerequisite capabilities and experience need to stay away from design-build.
Posted by: Chris Gypton - Friday, March 15, 2013 11:02 AM

Even in design-build contracts there can be errors, misinterpretations and ambiguities in the contracts signed between the Owner and the service provider. Client or consultant induced changes, once the contract documents have been firmed up, can still cause confusion and delay execution. An overall environment of trust will help resolve all issues pertaining to the grey areas in such cases. Even in Ahmedabad, India where I am part of a team that is responsible for the construction of a large township the future points to a risk share method of contracting between all stakeholders.
Posted by: Sunil Manjeri - Friday, March 15, 2013 11:04 AM

Chris Gypton raises excellent points. I would add that that, no matter how well-prepared the owner and the contractor may be, they are well-advised to ensure that adequate documentation, reflective of the design-build relationship, is in place at all subordinate levels (first tier subcontractors, second tier, supply chain, etc.). All too often, downstream participants new to design-build are shown to have been unaware of the change in requirements, responsibilities, and exposure. Their use of subcontract, purchase order, scheduling, and release forms that are designed for design-bid-construct projects will create confusion and gaps that can lead to ambiguities. Focusing on the documentation at the outset helps to avoid disconnects that can derail the best preparations and prevent expensive issues from arising in the course of the project.
Posted by: Carol L. O'Riordan - Friday, March 15, 2013 11:50 AM

Did I read in the opening article that the government, who would have been the Owner/client in this case, tried to impose more stringent requirements on the project being built for the Owner/client and was unsuccessful? To me that reads that the Design-Build team failed to meet their clients requirements and expectations!

I also read in one of the responses one insinuating that the Owner/client “must ensure” Codes and ordinances used in the DB contract are properly coordinated. While I will totally agree that for many industrial applications where the result is almost totally function and form is strictly the result of the function and such Owner/client is regularly involved in the Codes and ordinances related to his proposed project, DB contracts may be the preferred. But where form is an issue and the Owner/client is NOT knowledgeable in Code and ordinances it is and must be the design professionals responsibility to ‘ensure’ (dangerous word to use) these items. And when this is the situation I have found that the safest, usually most economical and most often least stressful program for the Owner/client….is the design-bid program.

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