May 23, 2022

Unfair Risk Allocation on Design-Build Projects

By: Brian Perlberg, Executive Director of ConsensusDocs Coalition & AGC Senior Counsel.

The AGC annual convention included a session entitled “Who’s on the Hook for Design Defects in Design-Build Projects.” Fox Rothschild’s Dirk Haire, Les Synder of Infrastructure Construction Brightline West, and David Hecker of Kiewit presented. Attendees crowded into a standing-only room because more and more builders are facing design liability, especially design-builders on large infrastructure projects. The presentation highlighted how some owners abuse the submittal process on design-build jobs to make changes without compensating the builder with more time, money, or both. One project took a sample of owner comments and extrapolated that just one project generated over 15,000 submittals and generated over 110,000 comments of “concern” or “preference.”

Certain owner-representatives and attorneys for owners have oversold the risk allocation transfer aspect of design-build. The Spearin Doctrine protects a builder from design documents containing errors by entitling them to receive equitable compensation. The design-build project delivery method erodes potential Spearin protections. Ways that an owner may retain some design responsibility and bring Spearin protections back into play for a builder include the following:  

  • Accuracy of reports prepared by owner’s outside consultants
    • Owner’s design approval process
    • Viability of owner’s stated design and project criteria

The more an owner gives input and control on design, the more likely that Spearin compensation for design defects may apply to design-build projects. It is important to assess the RFP and contract language and determine if prescriptive or performance specifications are used. Prescriptive specifications set precise measurements, tolerances, materials, etc. Performance specifications leave the details to the design-builder. They set outcomes or “operational characteristics” that must be achieved but leave discretion on how to achieve such outcomes. Many design-build contracts combine both prescriptive and performance specifications. This further complicates liability for costs and delays caused by defective design.  Generally, an equitable adjustment will be determined by evaluating if the defective design element relates to the specification’s performance or prescriptive portion. 

Factors used to determine if the Spearin Doctrine applies may include:

  • Contract language and clauses
    • Discretion exercised by the design-builder
    • Circumstances surrounding the bidding (limitations on time and resources)
    • Discussions and negotiations
    • Owner reliance on design-builder’s representations and expertise
    • Prior course of dealings between parties and customs of the industry

Additional Resources

Stay tuned for an episode of AGC’s ConstructorCast podcast on design-build risk (featuring Dirk Haire of Fox Rothschild LLP and David Hecker with Kiewit) to be released in June