By AIA Contract Documents
Design-build methods are an integral part of the nation’s procurement options, preferred especially when speed is of the essence.
The Design-Build Institute of America (DBIA) and FMI Design-Build Utilization Update, published in 2021, forecasts that design-build will account for $1.7 trillion of construction spending over the 2021-2025 forecast period. And even more telling, nearly half (47%) of America’s construction dollars will be spent on design-build projects by 2025.
The reason for the growth and success is in part because design-build procurement succeeds through collaboration, at least in theory. The owner has just one single point of responsibility, the design-build entity, and the designer and contractor work together to meet the owner’s schedule and budget—and therein lies a potential stumbling block to a successful project delivery.
While there are many different types of design-build projects—from cookie-cutter warehouses to sophisticated public-private partnerships that build billion dollar infrastructure assets—one of the biggest pinch points is often pricing.
Price too early, the team might have to adjust down the road to account for unexpected conditions, which can create conflicting priorities for the team. Design-build entities are typically reluctant to submit a change order to the owner. Most would rather pinch the internal teams, which can create dissent.
The earlier a design-build entity sets the price, the more contingencies you will need for issues such as design adjustments, market fluctuations or uncertain site conditions. Just as importantly, the team needs to define who gets discretion to use the contingency. Is monies from a contingency accounted in a big bucket? If it’s a design contingency bucket, where does the money go if it’s not used? These are questions that must be asked in advance.
Dissent within a design-build team typically arise due to lack of clarity in costs.
One of the reasons for the emergence of progressive design-build procurement is the budget unpredictability. One of the key differentiators, according to DBIA, is that with progressive design-build the owner “progresses” towards a design and contract price with the team versus traditional design-build which is typically a firm fixed-price (lump sum) or GMP. Progressive design-build is a way for owners to have greater involvement and oversight in a project design. One of the biggest differences is that the final price is not finalized until the guaranteed maximum price (GMP) is set, which occurs after substantial design has occurred. This allows the owner and design-builder to have a more informed agreement on scope, cost and schedule.
Fortunately, the unifying purpose of the design-build or progressive design-build procurement method is to maintain control of budget and schedule, thus facilitating a timely project. Successful design-build teams have been able to answer these questions and many more with help from technology. The very nature of design-build as a collaboration between the architect and the contractor along with building information modeling (BIM) and similar tools have significantly raised awareness of potential problems and provided the vehicle for resolution. When work begins, field-based solutions are able to gather data quickly to support real-time decision making, minimizing the chance of budget busting events.
Don’t let uncertainty and unpredictability limit the success of your design-build partnership. Set the terms and conditions early.
AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.