The three key measures of a construction project’s success are cost, quality, and time (delays). The project delivery method that the owner of the project selects can affect each of these metrics. Project delivery methods in complex construction projects evolve as technology and processes improve. The traditional methods of design-bid-build (DBB), design-build (DB), and construction management (CM) have been the standard for many years. More recently, however, newer methods such as integrated project delivery (IPD), and public-private partnerships (PPP) have gained traction.
Design – Bid – Build (DBB)
Design-bid-build is the oldest, most commonly used method of project delivery. It involves three distinct phases: design, bid/award, and construction. An owner asks a team of professionals, such as architects, engineers, and contractors, to produce design documents that will be used to solicit bids. After the owner evaluates the bids and chooses a contractor, a construction contract is written. While this method is the most familiar and well-understood, it can lead to disputes during the construction process as changes are made to the original plans.
In DBB, the owner bears the risk for funding increased costs attributed to design changes and related delays – thanks to the Spearin Doctrine, which holds that the owner impliedly warrants the information, plans, and specifications that it provides to a general contractor. See 248 U.S. 132 (1918) Although the owner cannot claim against the contractor, it can make a claim against the design firm.
Standard contracts help define project delivery methods. ConsensusDocs most used standard contract documents are for DBB. Prime contracts can be found in the 200-series and the subcontracts in the 700-series.
Design – Build (DB)
Over the years, the design-build method has gained popularity among owners who want to reduce risk and save money by shortening project completion times. This method consists of a single contract between an owner and one company (the DB entity), which will complete both the design and construction of the project. The owner typically provides a performance specification that outlines its requirements for the project, but the DB entity is responsible for the design of the project, as well as negotiating and entering into contracts with subcontractors, suppliers, and other stakeholders. The DB method is now permitted for public agency projects in 43 states, including New York, Virginia, and Washington. This delivery method often avoids disputes that can arise between designers and contractors in a DBB project and provides single or sole source responsibility between the owner and the contractor and design team.
Advantages of DB construction include: (i) faster delivery, because the separate bidding phase is removed, and occurs somewhat concurrently with construction; (ii) single source responsibility, which eliminates finger-pointing from the perspective of the owner; (iii) better collaboration because the professionals are on the same team; and (iv) cost savings because all ideas regarding construction and design are brought to the table at the same time. DB works well for highway and bridge construction, libraries, hospitals, and other public buildings, which usually have specific performance requirements, but less well for those projects where the design elements are the prominent features of the building.
Some drawbacks? Single-point responsibility means that the risk shifts to the DB team. Although the owner’s engineer will create the initial specifications, the owner is not responsible for the design that the contractor ultimately uses to deliver the Project, because it is the contractor and its design team that develops and provides the 100% design documents. Also, an owner that is not familiar with the process should avoid it.
ConsensusDocs offers an entire family of standard design-build contract documents in its 400 series.
Construction Management At Risk (CM)
The construction management method is similar to design-bid-build in that it consists of three distinct phases. However, instead of the owner awarding one large contract, it hires a construction manager to manage all aspects of the project. The CM oversees the list of subcontractors and suppliers, manages the budget and schedule, and coordinates all activities. The CM can provide cost savings to the owner through its ability to manage the subcontracts, control costs, and mitigate issues before large problems arise.
However the CM charges a fee for its services, and it relies on the subcontractors to adhere to the project specifications and maintain the high standards of quality that the owner expects. Although many CMs work using a Guaranteed Maximum Price (GMP) format, volatility in the cost of construction supplies has caused a trend towards Cost plus a Fee, reducing the risk that a CM would otherwise have to assume.
The ConsensusDocs 500 series offers both a GMP and Cost plus a Fee standard agreement.
Integrated Project Delivery Method (IPD)
Integrated Project Delivery (IPD) is another relatively new method of project delivery. IPD is a team-based approach to design and construction that emphasizes collaboration between all stakeholders throughout the life of the project. All members of the IPD team work together to develop a shared understanding of the project’s objectives and are jointly responsible for developing innovative solutions to achieve those objectives. Additionally, members of the IPD team share in the risk and rewards of the project’s success.
ConsensusDocs 300 Standard IPD Agreement was the first standard IPD agreement and is well used in this project delivery method and an entire family of IPD documents.
Public-Private Partnerships (P3s)
Public-Private Partnerships (PPPs), commonly referred to as P3s, are arrangements between public and private entities that allow both sides to benefit from a project. Generally, a partnership is created when a public entity (e.g., a government, municipality, etc.) agrees to provide land, funding, and/or other resources for a project, and a private investor or contractor agrees to complete the project according to agreed-upon terms and conditions. P3s are often used to finance large infrastructure projects, such as roads and public transportation systems since they allow the public to leverage its resources while still maintaining some level of control over the project.
The ConsensusDocs 900 provide an example of a model standard P3 Agreement.
Conclusion
There are a variety of project delivery methods available to owners and contractors today, each with its own set of advantages and disadvantages. As technology and processes continue to improve, these delivery methods will continue to evolve, creating more opportunities for project teams to develop new, innovative solutions to complex construction projects.
Fox Rothschild LLP is home to one of the deepest Construction Practice Groups in the United States. With offices in major construction hubs nationwide, Fox’s experienced team advises on major construction and infrastructure projects, including drafting and negotiating contracts and litigating disputes involving such projects. Harnessing the combined strength of a nationally recognized construction practice and a deep bench of lawyers focused on Federal Government Contracts, we provide business-friendly advice to help our clients complete projects in the United States and internationally. Fox construction law practice is backed by a national firm of 950 attorneys providing a comprehensive suite of legal services from 27 offices coast to coast. For more information, visit foxrothschild.com/construction.
The views expressed in this article are not necessarily those of ConsensusDocs. Readers should not take or refrain from taking any action based on any information without first seeking legal advice