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Anticipating the legal implications of design-build methods of construction

Anticipating the legal implications of design-build methods of construction

A new method of construction delivery has developed to accommodate the needs of owners, designers and contractors. Traditional design-bid-build methods that have been the mainstay in construction are giving way to a design-build method. Lawyers practicing in the area of construction law must be aware of the legal implications this change creates for their clients.

Traditional Design-Bid-Build Method

Even lawyers who only dabble in construction law are familiar with the traditional design-bid-build method of construction delivery. In design-bid-build, the owner contracts separately with an architect/engineer (designer) and a contractor. The designer is hired to deliver complete design documents. The owner then solicits bids, based on the owner’s criteria, from contractors to perform the construction work. The key is that the design is created by one entity while the construction is performed by another, unrelated entity.

As such, the designer and the contractor bear no contractual obligation to one another. The owner warrants the sufficiency of the specs and design to the contractor, and the contractor is responsible to build the project as designed. The designer is responsible to design to the established professional standard of care. The owner is then responsible for any gaps between the specs and the owner’s requirements for performance.

Design-build develops as a new method

Under the increasingly popular design-build method, the owner hires a single entity to perform both design and construction. Instead of having one contract with the designer and another with the general contractor, the owner has only one contract with the entity or individual who both designs and builds the structure. The result is that owners eliminate the risk that exists under a design-bid-build method.

The designer builder is responsible to design and build the project to meet the performance standards set forth by the owner in the contract. This process is characterized by high levels of collaboration between the design and construction disciplines. Proponents of the design-build method point to the following benefits cited in a report from the Construction Industry Institute in conjunction with Penn State University:

  • reduction in change orders
  • lower overall cost
  • significantly increased construction speed

Comparing the two construction methods

In comparing the two methods of construction delivery, one might instantly determine that the design-build method is inherently faster, easier and more cost efficient but there are concerns for all parties involved. The owner no longer has the architect or engineer as a consultant who can call his attention to construction problems or concerns.

The designer is now partnered with the contractor in one entity to further the design-build team goals. The designer and contractor share profits and may lack incentives to review one another’s plans and cost estimates. This could be detrimental to the owner.

In addition, the owner will need to negotiate proper insurance coverage, bonding and indemnification because the standard contracts from the American Institute of Architects and from the Associated General Contractors of America don’t protect the owner in a design-build scenario.

There are also risks for the designer who may not be familiar with the insurance and bonding issues of construction work. The designer’s professional liability insurance would ordinarily exclude construction services. The standard of care may also be one with which the designer might not be familiar or accustomed to using. Normally, a design professional is only held responsible for the standard of care of a similarly situated peer, and would not be expected to guarantee the successful outcome of a project as would be occurring in a design-build method.

A contractor might be accustomed to guaranteeing the outcome of its work provided that the design over which it normally has little or no control is proper and correct. However, in a design-build format, the design-build contractor may have to warrant the entire project’s performance. The lack of a surety bond requirement in the standard contract from the AGC will undoubtedly be unacceptable to owners. It will be up to attorneys representing the parties in a design-build arrangement to negotiate insurance coverage and performance bonds into the contract.

For more information about construction delivery methods, construction law or construction litigation, contact Paul Steinhofer at McKenna Storer.

Categories Construction Litigation

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