By: Michael C. Loulakis, Esq.

The rapid increase in the use of design-build around the country is a testament to the benefits of this project delivery system. Single point responsibility for design and construction gives the owner an opportunity to receive early commitments for total project cost and speedier project delivery -- while at the same time lowering the potential for disputes and change orders. It also makes design-build the system of choice when the success of the project is dependent upon output, throughput and other performance guarantees.

But is design-build the best choice for every project? The most frequently published case studies discuss success stories -- projects where the parties understood what design-build does and does not deliver. This has lulled some owners into thinking that design-build is a cure-all for anything that can go wrong on a project. The reality is that owners who misuse the design-build process, or don't understand the limitations of it, are likely to be seriously disappointed.

When you understand the issues that can create problems in a design-build relationship, you can better determine if this is the best system for your project. Whether you are an owner or someone who provides services to owners, make sure that the key factors driving the project can be best accomplished through design-build and the procurement and contracting methodology for the project. You should also remember that project success will not be determined solely by what project delivery system you use, but by how the overall project is managed and administered. Consider these thoughts.

The design and construction of each project are controlled by a combination of unique factors and drivers. Some of these drivers are project specific -- such as those affecting price, schedule and quality. Others are dictated by the personality of the owner and how it wants to manage the project. Project delivery systems are intended to establish a framework to help the owner achieve these drivers, with some systems being better than others at meeting specific drivers.

Consider, for example, an owner who wants to use design-build to accomplish three goals: (1) get a value engineered design; (2) eliminate any claims; and (3) obtain the lowest price possible. All of these goals are well-suited to the design-build process. Add to the equation the owner's expectation that it will control the design -- by using detailed, restrictive specifications developed by it's A/E before the design-builder became involved. Can design-build be used in this scenario? Certainly. Will the owner's objectives by met? Hardly.

The owner's need for control seriously jeopardizes each of the project drivers. An owner stifles the ingenuity and creativity of the design-builder's team when it requires the team to use its design ideas. As a result, the ability of a design-builder to achieve meaningful value engineering or cost savings is seriously impeded. Finally, the owner will likely be held responsible for any faulty design elements, eliminating the single point of responsibility benefit of design-build.

Many other examples show how misaligned project drivers can result in an unsuccessful design-build project. A number involve owners who select design-build for early project completion, yet insist on actions that delay the process (such as starting construction after all design is completed). In short, if you are an owner who (a) distrusts your service providers, (b) cannot make decisions to keep pace with tight schedules, and (c) micro-manages by committee, you should choose another delivery system.

The design-build process merely establishes the roles and relationships among the key members of the project team. Owners sometimes forget that in order for specific project goals to be achieved, the delivery system must be compatible with the owner's contracting methodology (e.g., lump sum, cost plus with GMP) and procurement process (e.g., direct selection, competitive best value). If any of these three elements are out of alignment, the owner's expectations are not likely to be met.

If speedy project delivery is the major driver for selecting design-build, the owner should seriously consider using a procurement strategy based on qualifications and competitive negotiations -- with price competition, if any, limited to fee and general conditions expenses. Owners interested in selecting the design-builder on the basis of a fixed low price usually spend significant time in the procurement process, eroding much of the time savings obtained in the merging of design and construction.

Matching an owner's high quality expectations with its procurement and contracting preferences can also be problematic. When a design-builder is selected primarily on price, it may have little incentive to spend its money or time to consider life cycle costing issues or to give the owner quality that exceeds what is being specified. If quality is a significant driver, qualifications of the design-build team should be part of the selection process, as well as proposed life cycle costing approaches. Likewise, if the owner wants more control over what is being designed -- which is particularly important in projects with rigorous architectural standards (such as courthouses and luxury hotels) -- it should consider selecting the design-builder on qualifications, with a GMP set after the design has evolved and the owner feels comfortable with what it is ultimately buying.

· Adequate to excellent ability of owner to make decisions;

· Adequate to excellent scope definition,

· Excellent team communications

· Qualified contractor pool

· High ability to restrain the contractor pool through prequalification and shortlisting

Likewise, the worst performing projects were characterized by:

· Contractors engaged late in the design process,

· Limited or no prior team experience,

· Onerous contract clauses,

· An owner lacking ability to make decisions,

· No prequalification of bidders

It is clear that if a design- build project has all of these "worst-performing" features, it will probably be troubled.

Above all, don't delude yourself into believing that simply by calling your project "design-build" you have a fail-safe mechanism for meeting all your needs. You must carry the principles of design-build forward into your procurement, contracting and management of the project.

About the Author: Michael C. Loulakis is a nationally respected authority on design-build and an attorney in the firm of Wickwire Gavin, P.C. He advises owners, contractors, design professionals, and sureties on construction law issues. He may be contacted at Wickwire Gavin, P.C., 8100 Boone Blvd., Vienna, VA 22181; Phone (703) 790-8750 or by e-mail at mloulakis@wickwire.com. Article copyright ã 1999, Wickwire, Gavin, P.C. Originally published in the firm's Summer 1999 issue of "Legal Foundations" newsletter. Reprinted by ConstructionRisk.com with permission.

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By: William T. Kacerovskis, Esq.

If the construction contract contains a typical insurance clause, the owner's property insurer pays the claim and the insurance proceeds can be used to fund the cost of demolition and reconstruction.

(A) If the construction contract contains a waiver of subrogation clause, then this is typically the end of the matter. The property insurer agreed to insure against the risk and it must pay. Subrogation usually refers to the situation where a property insurer who has paid the loss attempts to recoup its loss from some party other than the owner (e.g. general contractor, subcontractors' A/E's , etc.). Waiver of subrogation clauses typically prevents the property insurer from pursuing such parties. Although the owner's property insurer is ordinarily not mentioned in waiver of subrogation clauses, the property insurer who pays a loss steps into the shoes of the owner. If the owner has given up (i.e., waived) the right to pursue certain claims in the contracts, the legal effect is that the property insurer is bound by that waiver.

A typical waiver of subrogation reads as follows: "The owner and Contractor waive all rights against (1) each other and any of the subcontractors, sub-subcontractors, agent and employees, each of the other, [and] (2) the architect, architect's consultants, . . . for damage caused by fire or other perils to the extent covered by property insurance obtained pursuant to this contract.

(B) If the contracts do not contain express waiver of subrogation clauses, then typically the property insurer will pursue claims (i.e., lawsuits) against the contractor, subcontractors and/or the A/Es, contenting that their negligence or other fault caused the fire or other catastrophe. Missouri law allows the insurer to file suit in the name of the owner (a definite advantage if the case is tried before a jury).

2. If the amount of the loss exceeds the amount of the property insurance limits of coverage, then the owner is free to pursue claims for all losses which exceed the amount of property insurance.

About the Author: William Kacerovskis is with the law firm of Brown and James, 705 Olive Street, Suite 1100, St. Louis, MO 63101; Phone (314) 421-3400. Article copyright ã 1999, Brown and James, first published in the firm's Summer 1999 issue of their "Fault Line" newsletter. Reprinted by ConstructionRisk.com with permission.

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