Pros and cons of design-build contracts

From an owner's perspective, the design-build contract provides a single source of responsibility. The contractor has singular responsibility for both construction and design defects. Thus the owner can recover directly from the contractor for deficiencies in either design or construction of the project, without initially determining whether a defect was caused by an error in design or in construction. In a more traditional contract, this issue must be resolved so that the owner can determine whether the design professional or the contractor is at fault. Another feature favorable to the owner is that the contractor bears any additional costs that may occur as a result of using defective or inadequate plans prepared by his engineer. In a typical construction contract, the owner warrants the sufficiency of the plans so he is liable for any increased costs because of defective or inadequate plans. In a design/build contract, the contractor is responsible for design as well as construction and agrees to meet the owner's performance specifications rather than merely build the structure. If the plans are inadequately designed, the contractor is then unable to look to the owner for additional compensation. A third advantage of a design-build contract is that the project can often be completed within a shorter period of time than with the traditional three-party arrangement, since the construction can begin before the entire plans and specifications are completed. This time-savings results from designing the project in phases so that the contractor can begin work on the initial phase of the project while the later phases are designed. No corresponding time-savings occur in a three-party contract because the contractor often does not even bid, much less begin work, until the design professional has finalized the plans. The contractor's increased control over a design-build project also may result in lower overall costs. Since a design-build project can be designed and constructed in phases, the contractor is able to order necessary materials for subsequent phases ahead of time, perhaps at a reduced cost. Control over design details allows the contractor to use familiar methods and processes, resulting in much more efficient construction. These savings ultimately benefit the owner. Although the need for independent professional representation may be greatly reduced under a design/build scenario, the possibility of eliminating third-party 'quality control' by the owner may be dangerous, as the party now responsible for completing the work as quickly and 'cheaply' as possible (the design-build contractor) would otherwise have control over the passing of the quality and quantity of the work. The responsibility for meeting all local controls, bylaws and legislation can be placed firmly with the design-build contractor, and usually will result in more efficiency in this critical function. Also, even though the price of the design-build contract is likely to be relatively certain, great care is required if cost increases are contemplated in the contract, since abuses in this type of situation will be more difficult to detect by the owner, and control will be far more difficult than in any traditional contract. From the owner's perspective, it is often difficult to effectively compare the various preliminary design proposals submitted by contractors in a design-build situation. The designs will probably not be uniform because there are usually many different methods of satisfying the owner's general needs and performance specifications. In addition, the owner's input on the detailed design of the structure will be limited because the contractor, rather than the owner, is responsible for furnishing the design work. As a result, the finished structure may not be exactly as the owner envisioned. This can lead to disputes, but the owner may be able to alleviate the situation by selecting a preliminary design. If the structure's appearance and detail are of prime importance, the owner may wish to forego a design-build arrangement and hire a professional to do the design work separately. Another disadvantage is that the owner may not obtain the lowest cost for the project, since the design-build contract is usually entered into by negotiation rather than competitive bidding. The owner may also find it difficult to induce contractors to produce preliminary designs unless they are compensated for their costs. To guard against the danger of not receiving any payment if the owner does not accept the proposal, a design-build contractor will often require that a formal payment arrangement be agreed upon before submitting a preliminary design. It is almost impossible to make any genuine assessment or comparison of prices between design-build contractors where their designs differ. If this is attempted, for example, by putting a project out to tender with the owner's outline requirements specified, the result is a competition in under-designing, with considerations of long-term life, quality and simplicity of maintenance sacrificed to offering an attractive immediate price. This under-design will frequently not be detectable by such professional advisors as the owner may have available. In general, at least as much professional time and expertise is needed to check another person's calculations and design criteria as to design from scratch. For the same reason, if detailed checking of the design and specification is attempted, the basic saving in cost of the whole arrangement is likely to prove illusory. The long-term cost of tendering is greatly reduced by the contractor's own consultants or other design costs on unsuccessful tendered designs, which must be recouped from successful tenders. Satisfactory standard forms for design-build contracts are not available in any jurisdiction. Hardly a substantive provision of a traditional building contract does not require radical change in a design-build or turnkey situation. For example, provisions for variations or changes need very sophisticated draftsmanship, since the contractor will need to have the right, subject to safeguards, to vary the specification or drawings should this be necessary to achieve satisfactory permanent work. On the other hand, he will need a power to object, for the same reason, to variations called for by the owner. Again, when considering the provisions for interim payment, installments payable at fixed stages are really the only satisfactory solution. Satisfactory long-term contractual protection with regard to the suitability of the work and its design is rarely if ever offered in the design-build situation, and bonding or insurance of such an obligation is likely to be either commercially unobtainable or prohibitively expensive. It will be important to the owner to understand the extent of coverage provided by the design-builder's liability insurance (that is, both the contractor's and the design professional's insurance). Even if the owner can prove that an imperfection in the finished product resulted from a design or contractor defect, he or she may be unable to recover anything if neither the contractor's assets nor its insurance coverage is sufficient to compensate the owner for the resulting damage. The same holds true for the design professional. In a design-build contract, the contractor is liable for both design and construction (workmanship and installation), so most contractors carry comprehensive general-liability insurance to cover any damage claims resulting from their negligence. An important consideration for the owner is that almost all contractors' general-liability insurance policies do not cover property damage to the structure itself that is caused by defective designs, plans and specifications prepared by design professionals. On the other side of the coin, most if not all professional-liability policies purporting to cover engineers in design-build operations do not cover damage caused by defective or deficient labor, materials or equipment incorporated into the work by the contractor during the course of the construction. As far as warranties are concerned, what is often offered by the design-build contractor in these arrangements is a warranty for a limited period based on a concept of professional negligence. However, since the design-build contractor, unlike a true consultant, is under commercial and financial pressures to 'design down' as far as possible, subsequent failures of the building are inherently more likely, and with such a limited warranty are likely to produce litigation in which the issue will be whether the economy of the design exceeded the limits of professional responsibility at the time, often a highly controversial question of fact. What most owners look for in this situation is a warranty guaranteeing the suitability of the building for its known purpose, and independent of fault. independent of fault.