December 9, 2013

New design-build contracts released

New standard contracts address concerns about previous design-build contracts and better define the roles for the people involved in those projects.

The Canadian Construction Documents Committee (CCDC) has released its revised Design-Build Stipulated Price Contracts, CCDC 14 and 15.

CCDC 14 is a standard prime contract between the owner and the design-builder.

It combines design and construction functions from the outset, providing a single point of responsibility for a single, pre-determined stipulated or fixed price.

CCDC 15 is an agreement between the design-builder and the design consultant that assumes use of CCDC 14. It represents an amalgamation of Royal Architectural Institute of Canada (RAIC) Document 6 and Association of Consulting Engineering Companies-Canada (ACEC) document 31, listing a basic and additional design service menu used to articulate the scope of service.

CCDC 14 replaces a document endorsed in 2000, but never named a CCDC document because of objections put forward by ACEC concerning the lack of a mechanism to accommodate professionals engaged by owners.

Terry Brown, chair of the Southern Interior Construction Association and a CCDC member, said CCDC 14 introduces the owner’s advisor, which allows owners to designate a professional to represent their interests.

It also clarifies the term “work,” which previously encompassed both design and construction.

“When we wrapped design and construction within that term, it didn’t mesh with some clauses in the contract. For instance, ‘the design-builder shall be responsible for health and safety’,” said Brown.

“That would imply he was also responsible for consultant’s health and safety.”

The new document clearly separates construction and design functions.

It removes the assumption that the consultant will certify his or her own work by the designation of a payment certifier.

“A number of these improvements went a long way to address the engineers’ concerns,” said Brown.

Matthew Swanson and Bill Woodhead, lawyers with Borden Ladner Gervais LLP in Vancouver, said under the contract, the owner can suspend design services before the work begins and the contract is assumed terminated if the suspension lasts more than 20 days.

“The design-builder is then entitled to payment for work performed and other damages including reasonable profit,” said Woodhead.

Similarly, if the owner submits a change order and the design-builder prepares the design, but the owner elects not to proceed, the design-builder must be compensated for the design services, including preparing the change order.

Woodhead said there is a reduction of design-builder responsibility as it relates to the owner’s requirements, asking the design-builder to do a simple review and point out glaring errors.

“If a design-builder discovers an error and proceeds with the work without consulting the owner, the design-builder may assume the risk,” said Swanson.

“That said, the contract does not define what the risk is.”

CCDC 14 also introduces a survival clause that explicitly preserves certain indemnities and warranties, among other things, following the termination of the contract.

Contractors should be aware of a provision addressing a mutually agreed upon date of substantial performance.

The previous contract addressed potential administrative lags by timing substantial performance to occur a specific number of weeks after permitting was complete.

“This left the owner in a difficult situation because he never knows when he’s getting his building,” said Brown.

“Now the parties agree on the day of substantial performance and the design-builder has to be aware of the market he’s in and be astute enough to reasonably predict the schedule.”

The design-builder is also responsible for having and ensuring the consultant has professional liability insurance at today’s rate of $1 million per incident and $2 million aggregate.

Under CCDC 14 there is no longer the presumption of confidentiality, said Woodhead.

“It is assumed the parties will enter a separate agreement or create supplemental conditions to address confidentiality,” he said.

Enhanced copyright provisions state that the design can only be used once for a specific project and the owner can’t alter the design or provide it to a third party.

“With any standard form contract, the parties need to closely review the terms as they may wish to alter, add or remove provisions,” said Swanson.

“Ultimately, the parties need to turn their minds to what they are trying to accomplish and they need to address the risks that they are and are not willing to accept. The goal here is not to unreasonably transfer risk, but to ensure that it is fairly apportioned in the context of a specific project.”

Pierre Gallant, principal with Morrison Hershfield and CCDC member, recommends against supplementary conditions that modify the contract’s basic intent and structure.

“We look at all the tasks involved in the work and decide who is best suited to do each task,” he said.

“When parties write up supplementary conditions that change the thrust of the contract, they could be transferring a responsibility to someone less equipped to handle it.”

This could lead to price increases, he said.

If an owner transfers the responsibility of hiring a geotechnical engineer to identify unforeseen conditions, for instance, the general contractor will then have to shoulder the price.

CCDC 15 allows the parties to articulate the expectation of the scope, which leads to better price certainty and can lower the overall construction costs, said Brown.

“Ambiguity is a risk factor that adds money to the cost of the work,” Gallant said.

“If the two parties understand precisely what they are supposed to do, they don’t have to put ‘just in case’ money in the contract.”

Brown said the revised contracts can work for any type of procurement, as long as the owner allows for flexibility.

“You get a tremendous amount of innovation from the design-build side because their whole career is spent in the field solving problems,” he said.

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