The design-build project delivery method, in which design and construction are covered under a single agreement, is becoming increasingly widespread in the U.S., as it has the potential to shorten delivery times, and to streamline the process from design to construction for owners by providing them with a single point of contact. But a design-build contract can present some challenges for contractors, leading to situations in which the risks borne by each party are not well-established.
Thus, before entering into a design build agreement, construction firms should ensure that the terms are carefully formulated, and do not burden the contractor with an undue amount of risk.
In the traditional project delivery system of design-bid-build, the owner enters into separate contracts with a design —usually an architect or engineer—and a contractor. The designer must deliver the complete design documents before the owner puts out a call for bids from contractors to perform the construction work. Under a design-build contract, designers and builders collaborate to produce construction drawings and establish the construction sequence.
By combining the two aspects of project delivery under a single agreement, the owner works with a single entity who both designs and builds the project, and is responsible for meeting the performance standards set forth in the contract. The design-builder may be a design-build joint venture, an architect, a construction contractor, a developer, or any individual or entity legally permitted to do business as a design builder in the jurisdiction of the project.
However, whereas in the design-bid build project delivery model contractors and designers understand their distinct responsibilities and the associated risks, in the design-build model, these roles can blur, making resolving liability issues and claims more difficult. To better define these relationships, the parties can use a number of standard form agreements for design-build projects,including those issued by the American Institute of Architects (AIA) or the Associated General Contractors of America (AGC). These contracts can be modified to meet the specific requirements of a given project.
While the terms of design-build project agreements can vary widely, it is essential that they provide clarity on certain key issues, and that all subcontractor agreements reflect the requirements stated in the prime agreement. It is also important to draft the agreement in accordance with all relevant trade and licensing laws, which vary by state.
The scope of services defined in the agreement should be unambiguous, outlining the services that will or will not be performed, the fees associated with performing these services, and the procedures for requesting and approving any additional services. In addition, the contract should include a date for the substantial completion of the project,as well as provisions that address phased completion and other milestone dates, and the amount of damages due in case of delays. Moreover, each agreement should define the payment schedule and billing cycles, and stipulate the interest and penalties in case of late payment.
The contract should also include an indemnification clause that allocates risk for claims of loss or damage between the parties to the contract. To the extent possible, design-builders should seek to limit their responsibilities to items they can control, and for which they can be insured against. If design-builders are using subcontractors, they are responsible for securing their own indemnification against claims from these subcontractors.
The binding dispute resolution terms in the contract generally require the parties to agree to arbitration, litigation, a dispute resolution board, or another method of resolving potential conflicts. The time limits for legal action should be consistent across the prime agreement and subcontractor agreements to ensure that liability is shared in case of litigation. The copyright and ownership of plans and specifications, as well as any confidentiality requirements or nondisclosure agreements, should be clearly defined in the agreement.