by Girard R. Visconti
There are several forms of contracts between owner and contractor which necessarily involve the architect/engineer. Three basic types are as follows:
Lump Sum Method
The traditional and conservative method is the lump sum method of awarding a contract by an owner to a general contractor. The architect/engineer prepares the contract package including the plans and specifications. Thereafter, the project is placed out to bid with an award going to a general contractor.
Construction Management
The construction management approach sometimes known as “fast tracking” is often utilized when the project must be completed at an earlier stage than the traditional lump sum contract.
The construction manager is hired, by the owner, simultaneously with the architect/engineer. Both the construction manager and architect/engineer work as a team to develop the project. When drawings are sufficiently complete, the construction manager gives the owner a guaranteed maximum price known as the “GMP” and signs a contract to construct the project. In the construction management method, the construction manager has no responsibility for design.
Design-Build
The “design-build” method is the subject of this article. The architect/engineer is not hired by the owner as in the other two methods but is a subcontractor to the contractor. Design-build is known as a “turnkey operation” because the contractor and architect/engineer construct a project and turn it over to the owner.
Advantages of Design-Build
The design-build contractor occasionally states that from the owner’s point of view the design-build contract may result in faster and less costly construction. The owner looks to one responsible entity i.e. the general contractor who is in fact also responsible for the architectural/engineering aspects of the project.
Disadvantages of Design-Build
The basic disadvantage to the owner in utilizing the design-build concept is that the general contractor is responsible for 100% of design. There is no check and balance system to the owner since the owner does not have an architect or engineer to review the construction by the general contractor. The owner loses the traditional functions of an architect/engineer that are usually spelled out in AIA documents. Those duties include review of applications for payment, project closeout, protecting the owner’s interest as to design criteria, project review, site review, review of change orders and costs, interpretation of contract documents, rejection of non-conforming and defective work, etc.
A disadvantage to the general contractor is the enormous risk that the general contractor is in fact the architect/engineer with its contract with the owner, notwithstanding the fact that the general contractor subs out the architectural design to the architect/engineer. Basically the architect/engineer has a duty and responsibility to the owner to design the project in the interest of the owner, however, the architecture/engineer also has an obligation to the contractor since the architect/engineer is a subcontractor of the contractor.
Design-Build Project Forms
The industry has various forms for design-build projects. Perhaps the most popular is the AIA Document A141 2004 Edition Standard Form of Agreement between Owner and Design-Builder which has supplements for Terms and Conditions, definition of Cost of the Work, etc. The AIA has revised the A141 with a 2014 Edition. In addition, AGC has various documents in relation to design-build. The National Society of Professional Engineers, the American Consulting Engineers Counsel, and the American Society of Civil Engineers have also prepared documents known “AJCDC” documents for utilization in design-build projects.
Insurance and Bonding Requirements for the Design-Build Project
Generally, liability insurance for contractors excludes or does not cover architectural, engineering, or other design functions. Therefore, it is imperative that design-build contractors obtain “design-build coverage.” Two endorsements may provide the required coverage. The first endorsement is called “Exclusion-Contractors-Professional Liability Endorsement” which covers certain design services but excludes certain damages. The second coverage is known as “Limited Exclusion Contract Professional Liability Endorsement” which covers bodily injury or property damage in relation to design services.
Most professional liability coverage is made on a “claims made basis” which means that that insurance only covers claims during the policy period as opposed to the coverage in effect at the time of an “occurrence.” I recommend that in the event a “claims made policy” is utilized, that coverage be in effect at least three years from date of substantial completion of the project.
Usually an owner requires the design-builder to carry a performance and/or payment bond. It is imperative that the bond does not exclude any coverage as to design-build liability.
Conclusion
I do not agree with the concept of design-build construction, either for the owner, the architect/engineer or the contractor/construction manager.
It is my preference that the owner retain an architect to draft plans and specifications and then place the project out to bid. If time is of the essence, the owner can issue an RFP to retain the architectural services and at the same time, issue an RFP for a construction manager to work with the architect which accomplishes the same timeframe as utilizing the design-build method.
By having the owner contracting with the architect, the architect is loyal and works directly to the owner and the architect can perform construction administration on behalf of the owner.
If an OPM is required, by state law or regulations, the OPM can be retained, excluding the duties that the architect shall perform for the owner.
Girard R. Visconti
Girard R. Visconti, Esq. is partner at Savage Law Partners, LLP.
