July 22, 2005
Author: Kenneth Strong & Charles N. Juliana
Organization: Gordon & Rees LLP
I. Design Professional As Prime
A Design-Build organization with the Design Professional as Prime is created when an Owner contracts with the Design Professional to provide all of the design and construction services required to deliver the project. The Design Professional thus becomes responsible to the Owner for the means and methods, including ensuring that the project is built in accordance with the Design Professional's design.
Having the Design Professional as Prime provides the following advantages: 1) the Design Professional is experienced in meeting the Owner's need to balance quality and cost; 2) design can begin even if the Owner has not decided to use Design-Build as its project delivery method; 3) the Design Professional's client is the Owner, just as in DBB; 4) the Contractor is insulated from Owner claims for defects in the builder's work - the Contractor is only obligated to the Design Professional for these issues. These advantages are usually insufficient to overcome the disadvantages posed by the financial limitations of most design firms.
A possible disadvantage to Design Professional led team is the possibility of problems with state professional and contractor licensing laws. In many states including California, a design firm acting as lead will need to hold a contractors license. The State of California contracting code permits partnerships between Architects and Non-Architects, but requires the Architect's name to appear on plans, drawings, etc., and bars the designation of a non-Architect as an Architect. Other states may vary, and a D/B team should be aware of differing requirements when operating in other states.
II. Contractor(s) As Prime
In this contracting arrangement, more common than the Design Professional led arrangement, the Contractor contracts with the Owner to design and build the project, and the Contractor then contracts with a Design Professional to provide the design.
One important reason that Contractors often lead D/B teams is that Owners have confidence that they have the necessary skills and experience to manage the D/B process. These skills include managing and coordinating the design and construction activities, managing the budget, scheduling the work, and procuring the multiple trade packages, equipment and materials that will be incorporated into the project.
A second reason that Contractors typically lead D/B teams is that they are more likely than Design Professionals to have the financial resources to assume the risks associated with a construction project. Contractors are much more likely than design firms to be able to obtain required surety bonds.
The Design-Build Institute of America (DBIA) notes that not every Contractor is suited to lead a D/B team. Those Contractors coming from the low-bid market may not be prepared to assume the added risks associated with D/B contracting. As discussed previously, the fact that the D/B Contractor is responsible for design errors essentially requires the Contractor to develop a cooperative relationship with the Design Professional; a Contractor that cannot or will not do this will have problems succeeding in the D/B environment.
III. Design Professional & Contractor(s) As Joint Venture
Under the Joint Venture (JV) D/B structure, the Design Professional and Contractor pool their resources to deliver the project. The parties agree to share project losses/profits and management details. The JV can subcontract the design to the Design Professional and the construction to the Contractor, or the JV can self-perform these functions with personnel from the JV partners.
A benefit of the JV partnership is that it affords the Owner direct access to both the Design Professional and the Contractor. This access to both parties can ease an Owner's concerns about losing control of the project. Another benefit is the risk-sharing between the partners that will give each the incentive to work together to deliver a successful, profitable project.
A disadvantage of the JV arrangement to the participating partners is the added liability assumed by the JV partners - both partners are jointly and severally liable for the actions of the other committed during the joint venture. To quote the DBIA Teaming Agreement Guide "...if one of the venturer's actions damages the Owner or another party, and that venturer cannot satisfy its share of the liability, the other venturer: is responsible for satisfying that liability in full, regardless of whether that venturer was responsible for the particular loss." Thus, the parties should each learn the financial :resources of the other before developing the JV agreement. Often the parties will include a percentage allocation of responsibility for losses in the design build agreement in order to avoid finger pointing should losses occur.
Another disadvantage particularly from the designer’s perspective is that in the event of a design error, a “betterment defense” is not usually available to the D/B team where it may be available and quite helpful to a designer alone.