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Inside the complicated legal terrain of the design-build delivery method

Collaboration between architect and contractor from the very beginning of a project — where is the harm in that? That's the goal of the design-build project delivery method, which proponents say allows for collaboration by all stakeholders from the outset of a project, improving communication to the point that the need for change orders during the course of a job is greatly reduced. 

In fact, design-build projects have proven themselves schedule-and budget-friendly. According to a 1999 Penn State study, design-build's production schedule was 33% faster than the traditional design-bid-build. When researchers compared costs, they discovered that design-build came in 6% cheaper than design-bid-build as well.

With benefits like these, it might be assumed that states have long been on board with the design-build concept. However, that isn't the case, as officials have pushed back due to what they consider a lack of historical data around the method and a lack of transparency.

State-by-state obstacles

Currently, about half of all U.S. states allow design-build with no limitations, according to Richard Thomas, director of state and local legislative affairs for Design-Build institute of America. Three states have no provisions for the delivery method, and others are a mixed bag in which some agencies allow it but not others.

Citing the old adage of "all politics are local," Thomas said there are a few common threads as to why some agencies still don't permit design-build. Midwest states tend to have the most limitations, he said, with many contractors laboring under the assumption that more design-build projects will somehow result in an influx of construction teams from outside the area racing in to monopolize available work — an assumption that Thomas said was false.

However, he noted that the biggest issue is typically labor. "Unions are very powerful special interests, particularly public employee unions," he said. On the other hand, Thomas added that some trade unions are supportive, although it varies depending on the region of the country. In fact, that also seems to be the rule of thumb when it comes to dealing with design-build laws around the country.

The complex regulations of New York

In New York for example, not only are there laws preventing state and local agencies from engaging in design-build, but it is the only state in the union that also has regulations in effect that prevent design-build in the private sector. It's a New York State Education Department law, according to John Patrick Curran, partner at Sive, Paget & Riesel in New York, that makes New York the outlier in the private design-build world.

"There is a tension between the education law, which says only licensed design professionals can perform and be compensated for design services, and the ruling by the court of appeals in the Charlebois case that said (design-build is permitted) as long as a contractor has a contract with a design professional, and the contractor has a contract saying that," Curran said. Nevertheless, he said the Education Department maintains that design-build is not lawful.

Adding to the confusion, the state passed a 2014 law, with the support of the governor, allowing certain state agencies to enter into design-build contracts, according to Curran. That new regulation did nothing to change the Education Department's law, and, further, some interpreted the new state measure "as a tacit acknowledgment by the legislature that it was still unlawful" in the majority of circumstances.

The design-build environment in California and Texas

Things are simpler in California, where the design-build laws are broadening, according to Lisa Dal Gallo, partner at Hanson Bridgett. "It's becoming very available," she said. The design-build process in California must be contractor-led because contractors are inherently better equipped to manage costs and schedules, she noted. 

The architect is still the architect of record, but the actual contract with a public agency must be with the contractor. State agencies are increasingly adopting design-build because "design-bid-build doesn't work" and is fraught with "delays, overruns and change orders," she said.

"You're paying a designer to design something you may or not be able to bid," Dal Gallo said. There's no way to come up with firm costs until the project is put it out to bid, and when those numbers come back, the owner is either stuck with the lowest responsible bidder or has to pay the architect to go back to the drawing board. "It's a vicious cycle," she said.

In Texas, Thomas said it seems that public agencies only want to use design-build for megaprojects, whereas in Florida, one is likely to see a multitude of design-build projects done every day for projects of all sizes.

He added that some architects are skittish about design-build for fear that the design-build team will usurp the relationships they have built with owners. For example, in Missouri — a state that took years to hammer out full authority for design-build — architecture industry representatives were fine with design-build being authorized for use on transportation projects over $1 million, but were more comfortable with a minimum contract amount of $7 million for buildings.

This, Thomas said, kept the possibility of design-build out of the typical architect's territory of customers. "It's important for us to try to get the whole industry in each state to collaborate and come up with a solution that works for everyone," he said.

Why the design-build method is on the rise

However, Thomas added that there is a new trend among architecture and design firms "to become integrated" and take on construction work as well as the design responsibilities. This is evident, particularly on the engineering side, he said, where designer-led water projects have grown dramatically in the last 10 years.

A boon for the design-build cause was the federal stimulus package introduced in 2009, resulting in tremendous upticks in design-build transportation laws. "If you look at January 2009 and December of 2009, (it's like) night and day," Thomas said. After the stimulus initiatives, federal agencies began to prioritize schedule speed and turned to the benefits of design-build, he noted.

The federal "nudge" toward design-build continues to this day. Design-build is put into the same category as HOV lanes and safety improvements, helping a state project to qualify for maximum funding, according to Thomas.

However, even in the private sector, the design-build process has its hurdles, according to Shawn Goetzinger, partner and director of development at Phoenix design-build company Form Third. Owners sometimes believe that design-build will actually prevent some of the things that design-build delivers best — transparency and competition.

In design-build, the owner is part of the entire design and construction process, unlike other delivery methods, and is able to see various bids from each subcontractor, which typically eases the fear of being taken advantage of by overcharging, according to Goetzinger. In addition, he said the design-build process "breaks down the legal walls" between architect and contractor that can often leave the owner managing the conflict by "pulling on opposite ends of the rope."

What's next for design-build

As for the future of design-build? Goetzinger said he believes that as agencies and private owners begin to "recognize the benefits and reduced hassle" of design-build, its popularity will continue to grow.

Dal Gallo said that technology like building information modeling (BIM) will further propel state agencies to take advantage of design-build so that they can reap the full benefits of a collaborative BIM model. In addition, she said modern construction practices like Lean are most effective in a design-build environment.

As for Thomas, he'll keep going state to state, advocating for what he believes is the most efficient and productive delivery method available, even though it won't always be a smooth road. "Change is hard and not everybody is going to embrace it quickly," he said.

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Filed Under: Commercial Building Infrastructure Legal/Regulation
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