Design and Build Contracting for Developers

The Scenario

We put forward the following scenario to Jason Farnell, Adjudicator and CEDR Accredited Mediator.

I’m a Developer with a number of secured sites across the UK. Our business has historically taken the Traditional, Architect-led approach to procurement but as we look to expand and grow the business in the next few years we’re interested in considering different procurement routes – particularly Design and Build.

We wanted some advice in regards to what you consider the Pros and Cons were in terms of Design and Build Contracting.

We asked Jason the following questions:

1. Could you provide us with an Introduction to Design and Build Contracts generally – its history and in general practice, which projects it best fits, what are the main advantages etc.?
2. One concern we have with Design and Build is that we may lose a level of control on the design of key elements such as the kitchens and M & E which often help drive value to our developments. What is our obligation regarding the Design and Specification of the project under a Design and Build Contract and what is the Contractor’s? Is there any way to increase our control?
3. Under a Design and Build Contract who approves the Design? Does the Main Contractor still have to submit their design for our approval and on what grounds can we reject design?
4. In terms of Design and Build are there any major differences between JCT and NEC Design and Build Templates? Given we typically work on projects with up to 100 plots, which Design and Build Contract suite (JCT / NEC) do you think is best suited?
5. Is there any other advice you’d give us before choosing the Design and Build Procurement Route?

The Answers

This is a very topical scenario – the design and build style of contracting has gained in popularity since the late 1990’s and has become the most prevalent style of contracting. However, due to changes in the contracting market’s appetite for risk and rising insurance premiums, I can see that there may now be a move away from this procurement route.

1. Could you provide us with an Introduction to Design and Build Contracts generally – its history and in general practice, which projects it best fits, what are the main advantages etc.?

The rise in popularity of Design and Build Contracting (D&B) as a procurement route can be traced back, in my view, to the industry reports published in the early and late 1990’s [Sir Michael Latham – “Constructing the Team” 1994; Sir John Egan – “Rethinking Construction” 1997] which were aimed at addressing the perceived failures of the construction industry and driving performance improvements, efficiencies and cost reductions. A key theme of these reports was the wasted cost of duplicated effort.

D&B contracting, as it is now generally arranged, is intended to deliver cost efficiency and avoid overlapping responsibilities by harnessing appropriate levels of design expertise; for example concept design by an architect and detail design by a specialist manufacturer/contractor.

D&B contracting is best suited to projects where traditional designing practices may not have the specialist skills and knowledge to carry out the detail design of the building (e.g. where say the building facades are heavily reliant on the design of a particular system such as curtain walling where the specialist manufacturer’ expertise is key). Where the requirements for a project can be defined by output requirements and the design is entirely at the discretion of the contractor/consortium (e.g. a two hundred bed, community hospital; Science block with four laboratories to deliver GCSE and A level syllabus Chemistry, Physics and Biology). There has been a tendency for design responsibility to be comprehensively transferred to the contractor where only a small amount of specialist design is in fact required, where a contractor designed portion package would be more appropriate (e.g. say where specialist design is required for say structural steel connections; lift installation; stainless steel handrails/architectural ironmongery).

The main advantages attributed to D&B as a procurement route are:

• Single point delivery for completing the design and delivering the project.
• Limited opportunity for contractor to present claims for extra time or money provided that the scope is properly defined at the outset and changes are avoided.
• It is an opportunity to harness specialist design expertise and to achieve cost effective project delivery through avoiding duplication of efforts.
• Cost certainty at the outset.
• Potential for programme duration reductions.

2. One concern we have with Design and Build is that we may lose a level of control on the design of key elements such as the kitchens and M & E which often help drive value to our developments. What is our obligation regarding the Design and Specification of the project under a Design and Build Contract and what is the Contractor’s? Is there any way to increase our control?

This is an area where the perceived advantages of D&B contracting might be compromised or the suitability questioned. Employers must be wary to ensure that the things that matter to them are properly defined at the outset, otherwise there is the potential for the Contactor to cheapen the specification and lower the quality where there is inadequate definition in the Employer’s Requirements.

The more definition there is in the design prepared by the employer (and its advisors), the less there will be remaining for the contractor to design. Although the practice of what I would term ‘design and dump’ (i.e. where the design is substantially completed by the employer and the responsibility is passed across to the contractor) has been become common practice in recent years, there is now a push back from the contracting market, which I can only see growing. Good practice would suggest that better performing projects will be achieved by adhering to the risk apportionment that the draftsmen of the contract forms had intended.

If changes / choices are to be introduced during the currency of a project then this may hamper the Contractor and lead to claims for time or money. If flexibility is important (say for fitting out works or typically purchaser choices) then either D&B will not be suitable or the contract needs to be properly structured to accommodate this.

3. Under a Design and Build Contract who approves the Design? Does the Main Contractor still have to submit their design for our approval and on what grounds can we reject design?

It is usual for there to be a design approval process and the standard form contracts include a written procedure. Most commonly the contactor has to submit its design proposals for approval and the Employer will review them and respond with a design status – typically Status A, approved for construction; Status B, approved for construction subject to incorporating the employer’s comments; Status C, not approved, resubmit taking into account the employer’s comments.

The design approval procedure will include time periods for inspection and responses to design proposals. These must be strictly adhered to otherwise this is a fertile area for claims and disagreements to arise.

4. In terms of Design and Build are there any major differences between JCT and NEC Design and Build Templates? Given we typically work on projects with up to 100 plots, which Design and Build Contract suite (JCT / NEC) do you think is best suited?

The NEC form of contract is intended to be bespoke by selecting options and defining the Parties’ responsibilities by completing the Works Information. There is no reason why this should not be successfully achieved for use in construction of residential developments. In practice however, building contractors are more likely to be familiar with the terminology and approach required by the JCT suite of contracts. The NEC contracts are prescriptive on how the contract is to be administered and it is rare that either the Employer or Contractor resource or operate them properly.

Therefore, for developments of this type I would suggest that the more familiar JCT contract should be adopted.

5. Is there any other advice you’d give us before choosing the Design and Build Procurement Route?

Since most main contractors do not design anything themselves and merely sublet or buy-in the capability this procurement route introduces an intermediary between the Employer and the designer limiting direct access.

Where the Employer wishes to retain choices to himself then a D&B contract may not be suitable, particularly where decisions may be left until late into the project. In say high quality residential schemes where choices of finishing materials, kitchen appliances and even layouts are offered to purchasers and tenants then this can undermine the potential benefits of choosing the D&B contract route.

In any form of contracting arrangement it is always best to make decisions early and stick to them. If there is the likelihood for late changes to occur or the need for more flexibility, then the D & B model is less suited and alternative arrangements should be adopted.

About Paul Heming

Paul was a Quantity Surveyor who gained 10 years experience of managing £200 million worth of flagship UK projects, including 20 Fenchurch Street and Battersea Power Station. In 2015, Paul founded C-Link with the intention of sharing his expertise of managing major projects with the SME market.