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DESIGN-BUILD CONTRACTING
…excellent tool, when wisely used
By Frank A. McDonough, PE
McDonough Bolyard Peck
Many construction owners and contractors have experienced the worst of relationships when their construction projects ran into trouble. Cost overruns, schedule delays and unfulfilled quality expectations can lead to disputes that are tough to resolve. It is not surprising that innovative concepts have emerged which can dramatically benefit both parties.
DESIGN-BUILD (D-B) is one such innovation which, when applied in the right conditions, provides major benefits in risk management and time savings to a construction owner and more project control to the contractor. While many types and sizes of projects are feasible with D-B, there are important factors necessary for its success.
This paper highlights the essentials of the Design-Build method and some pitfalls
to avoid.
What it is
D-B is a form of contract which holds the contractor responsible for design as well as construction. Instead of the Owner carrying design responsibility through its architect or engineer, in the traditional "design-bid-build" format, the contract assigns much of the design to the contractor, who is selected on the combined evaluation of technical (design) proposal and price. Commonly, the owner provides the initial design concept with its Request for Proposal, for purposes of project definition, contractor selection and award.
How it's done
First the Owner has to define the "performance" features of the project, laying out important guidelines on:
- performance specifications: how the building or facility is to function,
- measurable criteria to confirm compliance with performance requirements,
Second, procurement process includes: the selection of qualified proposers; preparation of the Request for Proposals; evaluation of the proposals; and the award/administration of the contract.
During performance, the basic construction resources and procedures are similar to those of conventional contracting. However, the roles of the parties are entirely different.
Parties entrenched in the traditional form of contract are sometimes resistant to the changes in relationships and responsibilities introduced by Design-Build, but this resistance is often converted to strong belief by project experience of the mutual benefits.
Owner Benefits
Less risk--- since the design is the contractor's responsibility, any design problems which arise usually become "Contractor-problems" to resolve and pay for, a major relief for Owners who are used to paying for errors and/or design changes.
Earlier cost definition--- since the contract price is determined before the design is completed the Owner can make go/no go decisions earlier.
Earlier completion--- overlapping the design with construction results in major time savings (see graphic comparing delivery timelines).
Fewer Change Orders----the Owner defines functional requirements in the procurement phase and is less likely to change the project during construction.
DELIVERY TIMELINES COMPARED
Contractor Benefits
Increased Control--- the contractor can better control time and cost due to its increased responsibility for the project and its ability to innovate.
Increased Understanding---due to the dialog with the Owner in the procurement phase, and the design integration, the contractor is better informed as to mutual expectations with fewer surprises.
Increased Profitability---while the contractor takes on more responsibility, the potential profit margin is justifiably greater in D-B contracts.
Of course to achieve these benefits, the Design-Build contract must be managed to good effect.
KEYS TO DESIGN-BUILD SUCCESS
- Identifying the "right" project--- all jobs aren't suitable for DB (see "when not to use" below).
- Effective Preaward ---the major challenges to Owners are:
- Prescribing the functional needs of the facility in a way which allows flexibility together with the assurance of quality compliance.
- Selecting the DB contractor based on evaluation of technical and price proposals, and executing a strong, equitable contract.
- Checks and Balances---the construction process itself is little different from conventional construction…provided there's a good of system of contract administration and project control. A well-organized design review/approval system is needed so that both parties stay current on the evolving design. An independent check of in-place quality will minimize errors and major rework due to late discovery. Similarly, if the facility Owner is not fully apprised of the final design, there may be major disappointments when it is too late to change.
- The "Right" Design-Build Project
A project is right for D-B when the Owner can answer 'yes' to the following important questions:
- Do we have, or can we get, sufficient knowledge of required building/agency function to resolve and specify the project performance criteria?
- Is there an experienced pool of interested D-B contractors?
- Do we have enough flexibility to allow innovation?
- Do we have in-house, or can we get outside consultant expertise in D-B procurement and implementation?
- Effective Pre-award
The Owner has significant new responsibilities in D-B in
the pre-award phase of the contract including the following:
- The Request for Qualifications (RFQ). After the initial advertisement and/or industry meeting to publicize the job, the RFQ process shortlists the qualified bidders, two to five firms who will be invited to submit D-B Proposals. The RFQ usually includes the basic project information, the overall budget and time frame desired, any stipend to be provided to the D-B proposers, the required minimum qualifications, past experience, financial information, insurance and bonding requirements, in addition to any special instructions the Owner may have in its solicitation.
- The Request for Proposals (RFP). The RFP actually becomes a contract document because it defines the performance criteria to be met in the contract. Included in the RFP are: the proposal submittal requirements, the weighted scoring process for technical and price evaluation, the performance specifications for the facility, the general conditions of contract, the insurance and bonding requirements, the submittal/review/approval process for the final design, and the required Quality Control/Assurance requirements.
- Strong Contract. No matter what form of contract, the following provisions are critical to successful construction implementation: the Changes clauses (in D-B contracts, it is vitally important to establish the procedure and timing for submitting to and obtaining approval by the Owner for changes made by the Design-Builder); the Time Extension clauses; and the CPM Scheduling specifications including submittal, review, frequency of updates, method of delay analysis.
- Checks and Balances
The greatest concern Owners usually express in the D-B process is the perceived loss of Quality Control and Assurance, when the design and the construction are turned over to the contractor. The Owner's expectations in the area of QC/QA must therefore be addressed in the RFP since it becomes part of the contract. There must also be a clear and adequate means of verifying that the Owner is receiving what was bargained for. This is done partly by effective Performance Specifying which clearly sets out the means of verifying compliance with criteria by substantiated tests, accepted reference standards, calculations and physical inspection where required.
WHEN NOT TO USE DESIGN-BUILD
There are instances when an Owner and contractor may be better off avoiding the D-B form of contract:
Don't use D-B When:
- The Owner needs more time for decision-making. Sometimes, especially with large agencies, it is not possible to expedite decisions on how the building facility is to function, without a long process of meetings, follow-up dialog, and preliminary designs. If this is the case, it may be better to proceed with the design professional "at the owner's side" in the traditional way, where design decisions are made in a methodical step-by-step process. Otherwise, Owner design changes may have to be made after the Design-Build project is under construction with likely increases in time and cost and potential deterioration in quality. If the advantages of early cost definition and construction speed are lost, then D-B may no longer be the method of choice.
- The Final Design is already determined. To be most effective, D-B needs flexibility so the contractor is able to innovate and provide the Owner with the benefit of industry or individual specialization with resultant added value.If an Owner cannot define the functional needs of the facility, or cannot allow the flexibility to innovate, then Design-Build is unlikely to succeed.
THE MAJOR DIFFERENCE: A word about Performance Specifications.
For Owners, the major difference in the D-B process is the preparation of Performance Specifications. The Construction Specifications Institute (CSI) defines a Performance Specification as a "statement of desired results with means of verifying compliance". This contrasts with Prescriptive specifications, which fully delineate the mandatory features. In planning for a D-B project, careful thought must be given to identify those essential (prescriptive) features of the project for which no flexibility is to be allowed: for example, the exterior façade on an historic building which must match existing facilities. In fact, most D-B contracts include a combination of prescriptive and performance specifications. Prescriptive specifications bring more risk to the Owner in the event there is a design or specification defect, as in the conventional Design-Bid-Build delivery method.
SUMMARY
Design-Build can bring significant benefits in time and cost savings, and may also result in enhanced quality and value stemming from industry innovation.
An Owner's decision to go Design-Build should depend on whether it has the ability to expeditiously define the performance aspects of its new facility.
After deciding to proceed with Design-Build, successful implementation requires the Owner to: prepare the procurement package including the performance specifications; select the D-B contractor based on evaluation of technical and price proposals; and award and administer the contract so as to ensure compliance with performance quality and function.
Design-Build is indeed an excellent construction management tool, when wisely used.
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