December 16, 2009

Lawyers unveil design-build project guide

DAN O’REILLY

correspondent

Design-build projects are like winding highways, and owners and contractors need a good roadmap to master the various twists, turns and detours they will find along the route.

A roadmap of sorts was unveiled by Jason Annibale, associate counsel with McMillan LLP, at the recent Construction Superconference in Toronto.

He summarized the highlights of a research paper on how to effectively structure and manage design-build projects.

It was written by Annibale and Tim Murphy, a partner with the Toronto law firm.

As Annibale made clear, an owner has to carefully weigh the pros and cons of a design build project before entering into a contractual agreement.

Design build is particularly well suited for large turnkey projects, such as highways or hydro electric plants, where the owner contracts for a finished project and awaits complete delivery.

They offer a greater range of contractor responsibilities such as land selection and acquisition, financing, project equipment procurement and leasing, the audience was told.

Under design-build, the owner retains a single entity for both design and construction.

This approach has several advantages, including an expedited timeline, which will save time and money, plus improved communication and accountability with a single source.

Since the project will be delivered by a single entity, it will be possible for the owner and the design builder to agree upon a fixed price contract for the entire project.

This may help an owner when negotiating funding from financiers, who will be more receptive to a project with a lower risk of unanticipated costs.

And since the design and construction divisions will be integrated from the very early stages of the project, the contractor can start construction with an understanding of how the design has progressed and how it is proceeding, he said.

This, in turn, can also reduce the number and severity of conflicts that are often inherent on more conventional construction because the design and construction entities are, in essence on the same team.

For the owner, the risk side of the ledger is that they don’t maintain direct control over design detail and may only comment on whether the design meets with the general specifications to which the design-builder bid.

As well, the design builder will often be the sole judge of the quality of his work. Owners must rely upon the design builder’s integrity, expertise and competency. It may also be difficult to accurately price a project before the design has been fully completed.

As a result, design-build contracts are often written to allow for unexpected situations, such as changing prices.

However, there are optimal situations when design-build projects can be executed from standardized designs that require little or no modification, he said.

At the same time, such projects have to be sufficiently large and valuable enough or the owner runs the risk of not enticing bids.

Because of the large costs contractors entail in preparing proposals, owners should consider offering an honorarium or remuneration to the unsuccessful bidders to subsidize some of their costs, Annibale said.

For their part, design builders have to scrutinize all the project details and address each specification as listed on the Request for Proposals to win the award.

“Less is more,” said Annibale, explaining that while those items have to be covered, they shouldn’t bury owners with excessive material.

Some of the risks the design builder faces include being liable for overall failure of the design or any construction defects and having to deal with numerous change orders, he pointed out.

Some strategies and best practices owners and contractors can use to manage risk include clarifying the owners’ expectations early in the negotiation process and reaching an agreement on an alternative dispute resolution mechanism, he said.

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