Contract Basics for Contractors: Contract Differences in Delivery Methods

By Susan Van Bell, Esq., Consultant, AIA Contract Documents

February 7, 2024

In this article, we will discuss the major construction delivery methods and how the contract relationships are different in each of them. While it is beyond the scope of this article to go into all of the ramifications of these selections at length, this will provide you with a basic understanding of how entering into each of these delivery methods affects the contract relationships.

The most prevalent delivery method is design-bid-build, sometime also referred to as “conventional.” In this method, the owner retains an architect. The architect and its consultants prepare drawings and specifications, and the architect assists the owner in obtaining construction bids or proposals. The owner usually awards the contract to the lowest responsive bidder or negotiated price. The contractor and its surety provide the owner with bid, performance, and payment bonds as may be required. The contractor and it subcontractors perform the construction. The architect often performs contract administration functions, administering the contract between the owner and the contractor by performing evaluations of the work, reviewing and certifying payment applications, reviewing submittals, preparing change orders, and determining when the project is complete.

In a design-bid-build project, then, the owner has separate contracts with the architect and the contractor, but those agreements will include provisions that delineate the role of the architect in the contract administration. In this type of project, generally speaking, the contractor is not responsible for the design itself and the contractor’s warranty is limited to the quality of the materials and equipment used and that the work conforms to the requirements of the contract documents and is free from defects.

If, by contrast, the design-build method is used, the owner enters into a contract with only one entity, the design-builder, rather than separate contracts with the architect and contractor. A design-builder provides both the design services and the construction of the project. Design-builders are often contractors, although it is important to note that the design-builder can take on many forms, e.g. contractor, developer, architect, or joint venture. Because of the potential variety, the contracts used in such projects may have substantial variation. Here, the owner communicates directly with the design-builder about both the design and construction aspects of the project. Some owners find this to be an attractive feature of this method.

If you are a contractor and are interested in functioning as a design-builder, you need to understand that you will have responsibility for the design aspect of the project, unlike in a design-bid-build project where your responsibility is limited to construction. This is because the architectural services are provided by you, whether in-house or through contract with an architect, as opposed to when the owner has a direct contract with the architect. Therefore, it is critically important that you understand the scope of the additional risk you are taking on and that you consult with your attorney and your insurance professional to understand and make sure you have whatever protection you need, through contract provisions and insurance. For example, you will likely need professional liability insurance, which you typically would not need in a design-bid-build project. In addition, your jurisdiction may have additional licensing or other requirements with which you will need to be in compliance.

Another delivery method that has substantial use is construction management. This may take two forms: where the construction manager performs the construction of the project (CMc) and where the construction manager serves in an advisory capacity to the owner (CMa). In both of these instances, the construction manager is retained to perform preconstruction services that are specified in the agreement. After preconstruction, the construction manager may go on to perform the construction or, if remaining in the construction phase as an advisor, may perform a coordination role when the owner has contracts with multiple prime contractors.  In both of these instances, the construction manager may take on some of the responsibilities that the architect has in a design-bid-build project, including scheduling, cost estimating, and constructability review.

CMc is often called CM at Risk, where the construction manager agrees to perform the construction for a guaranteed maximum price (GMP); that is, a specific maximum amount that will not be exceeded except for certain reasons that will be specified in the agreement. The construction manager is “at risk” if the construction cost exceeds the GMP.

In CMc and CMa projects, the owner has a direct contract with the construction manager and also with the architect. As in design-bid-build, in CMc the construction manager and its subcontractors perform the construction. The construction manager’s construction phase responsibilities are generally the same as in a design-bid-build project. In CMa, the owner has one or more contracts with contractors to perform the construction. The CMa provides coordination and administration services in the construction phase, some of which may be different than those provided by the architect and some of which may be performed together with the architect.

Finally, we will briefly discuss another method, Integrated Project Delivery (IPD), This method is not widely used and is geared for use in large complex projects. The intent is to provide a high degree of collaboration between the parties to try to achieve project goals and avoid disputes. The contracts may take varying forms, from separate but coordinated agreements to multi-party agreements to formation of a business entity by the parties for the purpose of constructing the project. This method is complex and often involves issues such as waivers of claims between the parties and other areas that require a sophisticated knowledge of how to structure the agreements and how to understand them. These projects should be taken on by experienced parties.

The type of delivery method to be used should be considered consistent with the size and complexity of the project. You can see that the type of delivery method you chose will determine contract relationships, including scope and risk. It is important to carefully consider which type of method you will use and consult your attorney and insurance advisor to be sure you understand what you are agreeing to and have adequate protection as required.

Susan Van Bell, Esq. was Senior Director of Content for AIA Contract Documents for over ten years. She is currently a consultant.

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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.