What You Need To Know
Levi W. Barrett, Nathan A. Cohen and Stewart Shurtleff are partners at national construction law firm Peckar & Abramson. Opinions are the authors’ own.
From the pyramids to the Burj Khalifa, for centuries the ability to create sophisticated structures has been the yardstick by which civilizations have been measured. Just as our capacity to build has evolved over time, so too have the methods of project delivery.
From Design-Bid-Build to CM-at-Risk and Design-Build to Integrated Project Delivery, each method is developed to fit a very specific need and each has its own set of risks and rewards. Here is an overview of each of these types and the projects that most benefit from them:
The first step in this classic project delivery method involves the owner hiring an architect to prepare complete project designs. The completed architectural drawings are then bid by various contractors, usually on a stipulated sum basis. Because of the ease by which these stipulated sum bids can be compared, this delivery method has been a mainstay of public contracting for decades.
With few exceptions based on state legal requirements, the owner of a Design-Bid-Build project warrants the design documents provided to the Design-Builder. Mistakes in the design usually entitle the contractor to additional time and compensation on the project. This places the owner between the contractor and the architect in the event of a dispute. The owner can be left giving the contractor relief for delays and costs caused by the architect’s errors, sometimes with only limited ability to recoup such losses from the architect.
This method is not the most time efficient means of getting a completed structure to market or delivered to its end user. As the designs must be completed before the project can be bid, there is lead time before the project can be bid and a contractor selected. Absent from this model is the early-stage collaboration that is found in other methods. Any value engineering or constructability analyses by the contractor will come at the end of the design process, which may lead to further delays.
Construction Manager at Risk
This method endeavors to streamline project delivery and reduce costs by involving the construction manager early in the design phase of the project. The owner is still responsible for hiring the architect directly, but the CM, who is typically engaged earlier on in the process compared to the contractor under the Design-Bid-Build method, is responsible for reviewing the architect’s designs for purposes of constructability and to provide feedback about cost reduction measures that can be integrated into the design to achieve project savings.
While the CM should generally not be responsible for design, it is often required to notify the owner and architect if it observes any errors or omissions in the architect’s work. At various intervals in design development, the CM will provide estimates of its anticipated costs, which allows the owner to evaluate its budget and assess its cost reduction options.
Once the designs are sufficiently refined the CM will provide a price — often on a cost-plus basis with a guaranteed maximum price (GMP) although it is not uncommon for these contracts to contain options to proceed on a pure cost-plus or stipulated sum basis as well.
If costs exceed the GMP, the contractor bears the risk of excess costs unless the overrun is the owner’s fault or otherwise excused by the contract terms. Often these projects will allow for shared savings if the cost of the work falls short of the GMP.
This project delivery method provides the owner with a one-stop-shop for design and construction services. Rather than hiring an architect directly, the owner hires a Design-Builder who is responsible for performing construction services and also for retaining the services of a qualified and properly licensed architect. The effect is that the owner shifts a large portion of its design responsibility to the Design-Builder and the Design-Builder is left to chase its design consultant for impacts to the project caused by their mistakes.
Instead of providing designs, the owner supplies the Design-Builder with a program of design parameters or requirements that must be included in the project’s ultimate design. The Design-Builder will provide the owner with increasingly refined design documents and pricing information at agreed-upon intervals. This allows the owner to evaluate the design and price in a manner similar to CM-at-Risk.
Design-Build project delivery is gaining acceptance by public entities in the United States. However, as price certainty can only be given once the design is nearly complete, Design-Build usually functions best when the Design-Builder is selected on the basis of qualifications as opposed to price. This can make it difficult to comply with bidding requirements and in many cases, enabling legislation is required for Design-Build to be used on public projects.
Emerging delivery methods
An example of the continued innovation in this area is Progressive Design-Build. Here, the Design-Builder is engaged by the owner at the earliest stages of project development and the design is thereafter developed by owner and Design-Builder in a step-by-step progression. Typically, once the design reaches somewhere between 50% and 75% completion, the Design-Builder issues a GMP. Variations on the design-build theme are plentiful, including public-private partnerships (P3s), which combine Design-Build project delivery with options for financing, operation and maintenance of the project.
Another example of a delivery method geared toward greater collaboration among the parties is Integrated Project Delivery. This structure is quite unique in that the parties, rather than finding ways to shift risk on to one another, instead share and manage both design and construction risk as a team throughout the process.
There are any number of considerations involved in all forms of project delivery including, but not limited to those addressed above. The contractor that embarks on a new project without a clear understanding of the delivery method, including the contractor’s obligations and associated risk profile thereunder, does so at its own peril.
For everyone in the construction industry, staying informed regarding all aspects of the ever-changing world of project delivery should be a top priority and best practice.