Design-Build contract tools
Much has been made of the virtues of design-build project delivery. More than a few dry research papers have analyzed and demonstrated that a design-build project can take less time to complete for perhaps less money, than traditional design-bid-build. Design-build is particularly adept at controlling the growth of costs and schedule over the life of a project.
There are many factors that make this possible. Critical among them are how the parties structure their relationships and how they promote the best practices that can achieve time and cost savings. The right contract form and language alone will not guarantee the desired outcomes, but it can put the design-builder, designer and owner in a position to succeed. The ConsensusDocs family of design-build standard contract documents is one highly effective tool for the job. Developed by a coalition of industry associations, the ConsensusDocs seek to advance the best interests of the project as a whole, and not any one constituency.
When Does the Design-Builder Enter the Picture? A staple of many construction industry presentations is the graph depicting the increasing impact of design changes and the decreasing ability of project participants to positively impact project costs and performance over the course of a construction project. The parties’ ability to control overall project costs is highest in the feasibility and conceptual planning stages, and decreases as the project evolves. At the same time, the cost of design changes is lowest in those stages and increases significantly as the project progresses through design drawings, construction drawings and into the construction phase. The earlier the design-builder – wedding design and construction expertise – is involved in the project, the greater the possibility to realize cost savings and control.
The ConsensusDocs provide for the earliest possible involvement of the design-builder in the development of the project. The ConsensusDocs 400 Preliminary Design-Build Agreement engages the design-builder to develop design through schematics so that an owner can make a go/no go decision on the project. The design-builder can assist with the development of the owner’s project and project criteria, providing information and concepts that can positively impact the cost and time of construction. ConsensusDocs 410, the full design-build agreement between owner and design-builder, can accomplish the same.
Design Development and Management. In a design-build project, the owner gives up a certain amount of control once it has established its program for the design builder. The design professional, in many cases, gives up its direct contract with the owner and instead subcontracts with the design builder. The design-builder gives up the protection from design liability it enjoyed under the traditional approach to construction. To make these new relationships work, the parties must approach the project as a team. If a design-build project team is serious about managing the development of design and controlling project costs, it will insist upon clear and robust communication.
As the project design evolves from schematics through design development documents and to construction documents, the ConsensusDocs employ a progressive sign-off with owner approval required at each level of design, and each level of documents becoming by definition Contract Documents. Critically, at each level of design, the ConsensusDocs 400 agreement requires the design-builder to “identify in writing all material changes and deviations” that have taken place from the prior level of design reviewed with and approved by the owner. This approach not only ensures that the owner’s original objectives are met, but promotes a comprehensive exchange of ideas, concerns, and a discussion of design and construction approaches that best achieve time and cost savings. The better the quality of these communications, the better the opportunities for realizing project success.
When Price is Set. Project owners strive for cost certainty, at least as much as that is possible on any construction project. Project budgets are but part of a company’s broader corporate concerns and mission. The owner’s project representatives often must answer to company leaders and boards. In design-build, the owner feels the pressure, and in turn pressures the design-builder, to establish a guaranteed maximum price as early as possible. At the same time, the design-builder wants to have the design and scope of work sufficiently developed before it commits to a final GMP or price. In the ConsensusDocs 410, the design-builder prepares and submits a GMP proposal “[a]t such time as the Owner and Design-Builder jointly agree”. In contrast, other industry standard design-build forms establish a more fixed benchmark for the GMP proposal. What the ConsensusDocs approach hopes to achieve is both a balancing of the owner’s and design-builder’s interests. What the approach promotes is a discussion between the two of exactly when design, scope and cost estimates have been developed to the agreed point that the time is right to set a GMP. That discussion provides yet another opportunity to identify issues and opportunities for cost and time savings and controls.
Contingencies. A useful tool in controlling unforeseen project costs are contingencies. In ConsensusDocs 410, the design-builder’s GMP proposal includes contingencies for “further development of the Design-Build Documents consistent with Owner’s Program. Such further development does not include changes in scope, systems, kinds and quality of materials, finishes, or equipment, all of which, if required, shall be incorporated by Change Order.”
In addition, the GMP Proposal includes a separate Design-Builder’s Contingency. This contingency is “a sum mutually agreed upon and monitored by Design-Builder and Owner to cover costs which are properly reimbursable as a Cost of the Work, but are not the basis for a Change Order.” The Design-Builder’s Contingency is not to be used “for changes in scope or for any item that would be the basis for an increase in the GMP.” The design-builder controls this contingency, but provides the Owner with a monthly accounting of charges with each payment application. These contingencies provide the means to address the kinds of issues that invariably arise on construction projects without negatively impacting the GMP.
“The right tool for the right job.” That adage is just as true when deciding upon the right contract form to use. The right contract language can be an effective tool in achieving time and cost savings and overall project success. Choose the right tool and use it well.
Kevin Peartree is a partner with Ernstrom & Dreste, LLP, which focuses its practice in construction law, contract risk management and surety law. He can be reached at [email protected]