03 Jun Legal Considerations of Partnering with a Design-Build Firm
In the DDD Insight series, we have covered some key aspects of the Design-Build method. Here we discuss the legal considerations to take into account when partnering with a design-build firm, noting the immense benefits that can be had by owners of projects of any size in Puerto Rico.
Exploring the 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.
The Case for the Design-Build Method
Under the extremely efficient 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 then responsible for the design and construction of 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:
- reduction in change orders
- lower overall cost
- significantly increased construction speed
Comparing the two 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.
What to do?
If you are unsure of how to proceed in the solicitation process, give us a call. The DDD Management Consulting team can provide key insights to owners with a variety of needs, and lend a hand with this and other aspects of project management. Meanwhile, our skilled design-build force can provide services that are complete, compliant and based on deep expertise. Rest assured that the DDD team goes well beyond the expectations of our clients, as we effectively address the aforementioned scenarios and much, much more.