Design and Build vs Traditional Contracts for Main Contractors

Executive Summary:

Originating in the 19th century with pioneers like Thomas Cubitt, contracting has evolved significantly, especially with the adoption of Design and Build (D&B) contracts in the 1980s, which contrast sharply in objectives and outcomes when compared with Design and build vs traditional contracts. These contracts, often structured as a single contract with the main contractor, aim to streamline the construction process by assigning full responsibility to the main contractor, thereby protecting the employer and mitigating risks. Despite their advantages in managing complexity and redistributing risks, challenges such as low margins, high risks, and frequent insolvencies among UK construction companies highlight ongoing issues within the industry. The post delves into these problems, focusing on the T.C.Q—time, cost, and quality—factors that influence every project. It compares the two predominant procurement routes: the traditional procurement route, which can lead to delays and increased costs due to its sequential nature and lack of collaboration between the construction team members during the construction phase, and the more integrated design and build approach which enhances project management and project timelines by overlapping these phases. The discussion also critiques the traditional approach, emphasizing its limitations in adaptability and efficiency in modern construction environments.

Where did it all start?

Main Contracting, as we know it, has its origins in the 19th century, during the 1st Industrial Revolution, and the birth of “modern” contracting came from Thomas Cubitt, who was one of the first people to manage all the trades under his own company. Thomas Cubitt and his work have a lasting legacy, and if you’ve ever visited London, you have likely seen or stepped foot on some of his work, such as Buckingham Palace and Belgrave Square, or in one of the pubs and restaurants named in his honour.

Fast forward to the 20th century, and we see the introduction and high adoption of Design & Build contracts (D&B) in the 1980s with the primary purpose of protecting the employer (i.e., the Government) and placing the whole process and responsibility with a single party—the Main Contractor. This approach significantly benefited project owners by streamlining decision-making and enhancing the efficiency of managing complex projects.

Besides the introduction of Design & Build contracts, very little has changed in Main Contracting since the Second World War; however, projects are now more complex, contracts have become more unfair and complicated, and the distribution of risk has become more and more disproportionate to the reward. Project owners face increasing challenges, necessitating a comparison of Design and build vs traditional methods to adapt their house team strategies to cope with these complexities. This brings us to the comparison of Design and Build vs Traditional, which highlights these ongoing issues with risk and complexity.

Where did it all go wrong?

Low margins, significant risks, complex projects and tricky contracts are a recipe for disaster, and it’s the very reason the Construction Industry has the highest levels of insolvency compared to any other industry – with 5,124 UK construction companies becoming insolvent in 2023, up c.18% on 2022. This brings the Design and Build vs Traditional debate to the forefront, risk management becomes the central concern here. The Problems with Traditional Contracting

Traditional contracting, also known as the “bid-build” approach, has been the go-to method for centuries. However, this approach has its fair share of issues that have plagued the construction industry for years.

The route we took to get to such an unsustainable landscape for construction companies isn’t obvious; however, let’s break down some of the critical factors impacting almost every project.

Time. Cost. Quality.

Time. Cost. Quality (or T.C.Q, as I sometimes refer to it) heavily influence every project and procurement decision. From my experience, the T.C.Q mandate isn’t always clear—most projects soon encounter budget and time issues that obscure the priorities, with Cost and Time often becoming the subliminal focus. This is especially true in the context of Design & Build contracts, where the integration of design and construction phases can help align these elements more seamlessly than traditional methods.

For example, in a Design & Build scenario, a client may want to focus on a high-end kitchen for their entire project and may explore options during the early project concept stage. The Architect, under a Design & Build contract, would have limited input as the package is client-led, requiring only coordination rather than full design control. The Main Contractor, operating under the Design & Build model, prices this work in a competitive market with a low margin. Without a nominated Kitchen Subcontractor, the Main Contractor bears full responsibility, so any issues with the kitchen installation could lead to significant contractual and financial repercussions, with minimal margin for error. The Kitchen Subcontractor, having built a relationship with the client long before the project’s official commencement, has a more direct line of communication with the client than the Main Contractor, whose role becomes more transactional, serving mainly as the payment conduit. Complex procurement negotiations might ensue if the Main Contractor has to finance upfront deposits, a situation less likely in a traditional setup but still a concern under Design & Build due to the consolidated responsibility.

This example illustrates how the T.C.Q factors are differently prioritized by the key stakeholders in a Design & Build contract. The Client focuses on Quality, ensuring the end product meets their expectations. The Architect prioritizes Time, ensuring that designs from the Subcontractor are received promptly. Meanwhile, the Main Contractor focuses on Cost, striving to keep the project on budget and schedule, often a challenge under the tight margins typical of Design & Build contracts.

Now we understand the forces at play between Design and build vs traditional, let’s take a look at these procurement routes.

In 2018, the National Construction Contracts and Law Report 2018, published by NBS, suggested the two most common procurement methods were “traditional” procurement (46%) and “design and build” (41%). Jumping forward to several years, Ryder Levett Bucknall’s (RLB) report in March 2022 suggested design and build had become the more popular choice at 54% vs 43% for traditional procurement.

This change in tact from clients is interesting, as it suggests they are trying to absolve themselves from as much risk as possible by shifting the majority of responsibility towards the contractor and fast-track projects with minimum initial design expenditure.

Could there be a different approach? Let’s take a look at the two most popular procurement routes in a bit more detail.

Traditional

In traditional construction projects, the employer employs the design team (i.e., Architect and Structural Engineer) to design and detail the works fully, which is then sent to tender. This approach is a staple of traditional procurement methods where the project owners bear the responsibility for hiring and coordinating separate entities for design and construction.

The contractor does not hold design responsibility in traditional procurement methods, but there may be sections of the works where the contractor and the subcontractor are responsible for the design. These items are referred to as “Contractors Design Portion”, or CDP for short. This allows for some flexibility within the rigid framework of traditional construction projects.

In theory, fully developing the design before going out to tender makes the procurement process more efficient and gives greater cost certainty. However, it can be slower than other forms of contracting as the contractor is appointed once the design is complete. Also, the contractor cannot leverage their expertise to help improve the design and buildability. This often puts project owners at a disadvantage, as they must manage the increased timelines and costs associated with the lack of integration between the design and construction phases.

Design & Build

In the Design and Build contract’s procurement route, the building contractor is appointed to design or evolve the employer’s design plans and then construct the works. Design and Build contracts can be advantageous in terms of time and risk, as they allow the overlap of design consultancy and construction, reducing the overall project delivery time for building projects—and as the contractor pre-agrees the price to design and construct the works, they take on the financial risk of the project, which may be reflected in the price. Also, as the contractor and their design team or supply chain are engaged earlier in the process, the design can achieve a more practical and buildable solution.

For Design and Build contracts to be effective, they rely on the design quality and comprehensiveness of the Employer’s Requirements (ERs). The ERs will stipulate how the building should perform but can often be vague, with caveats such as “equal and approved” noted against material and product selections—this effectively gives the contractor carte blanche to make cost savings as they are only incentivised to maximise their margin, and as we have seen with design-build projects such as Grenfell, concessions on product selection can have catastrophic effects. Also, poorly defined areas in the ERs can lead to grey areas in liability, such as accessibility requirements, which can be complex and potentially leave the contractor with noncompliant concepts— who bears the liability and the cost?

Sometimes, on Design and Build contracts, the original design team that developed the initial detailed plans and ERs will be novated to the contractor. This can benefit quality and continuity as the same team is evolving the design between pre-tender and post-tender whilst leaving overall responsibility to the contractor. However, the design team, who are now switching allegiance to the contractor with a new set of priorities (i.e. maximising margin), has its challenges, leading to a conflict of interests. Also, novation may be less appealing to contractors with an in-house design team or who regularly work with another external design team that charges and pushes back less.

Design and Build contracts could work really well, but in a competitive market where margins are low, and contractors taking on such significant design and cost responsibility so early on in design-build projects they didn’t design is problematic and creates an unsustainable landscape for contractors and subcontractors, as well as comprising quality and potentially, safety.

Complicated contracts and complex projects

Complicated contracts and complex projects often reveal the stark differences between Design and build vs traditional approaches. Time is money—the industry wants projects delivered on time, on quality, and on budget—but the approach to risk management, collaboration, and reward for taking risks needs to add up. The benefits of design can only be fully realized when a design firm and construction team work as a single entity to streamline processes and reduce miscommunications that lead to delays and increased construction costs.

Projects are doomed for failure when there are significant contract amendments, with onerous clauses and conditions precedent that require extensive manual effort to administer—the very essence of non-standard or heavily amended contracts that lack collaboration as they are set up to trip up the contractor and unfairly distribute the risk. In a market where Quantity Surveyors and Commercial Managers are in short supply with an outdated tech stack, it’s highly challenging to administer contracts effectively, particularly complicated ones. Engaging a cost consultant early in the traditional route can help project owners manage budgets more effectively enhnce cost control, and mimimise unexpected costs.

Projects are becoming increasingly complex, with legislation constantly evolving (and rightly so!) to ensure greater building longevity and improved performance and safety standards. This complexity often follows the traditional route, where segmented responsibilities can hinder the adaptability needed to address rapidly changing regulations. Coupled with complicated contracts that are difficult to administer, it is obvious why projects are haunted by issues and underperform. The traditional route, by not integrating design and construction phases, often fails to capitalize on the synergies that a more unified approach could offer, putting additional strain on project owners to navigate these challenges.

What the future could look like

What the future could look like hinges on resolving the ongoing debate between Design and build vs traditional methods. As a project team, it’s challenging to have a shared outcome in a high-risk, low-reward industry. Suppose we all want to pull in the same direction and help diminish the plague of poor quality, late and over-budget projects. In that case, we need a different approach – as you will see, there’s a theme with the issues highlighted, and that’s ‘collaboration’.

There are endless possibilities as to what can be changed in our industry, but if we want to make a significant change, we need to shift our culture to risk management and our approach to collaboration.

So what does it look like?

Every project has its own opportunities and limitations, and it would be ignorant to think one single approach would work for every project. However, if we implemented practical strategies and contracts that embody genuine collaboration, we would see a gigantic shift.

Bill of Quantities (BoQs)

As we know, employers tend to make rash procurement decisions when it comes to consultants, and they often choose not to employ one of the most influential people on a project team, the Professional Quantity Surveyor (PQS). The PQS plays a pivotal role in providing cost advice and plans, but they also provide the BoQ.

I’m a big fan of BoQs, as they translate the drawings and information into an easily digestible and priceable format, making the tendering and procurement process much more efficient and accurate for everyone. Also, BoQs help evolve the design as the query process between the PQS and design team will naturally pick up any gaps in the design information, meaning more comprehensive prices and fewer contentious changes than projects that don’t have one. Despite all these positives, BoQs are sometimes considered “nice to have”, and from a risk perspective, employers can see it as less advantageous as they are responsible for the quantities –  our research tells us that c. 42% of projects have some form of pricing document, meaning nearly 60% of projects aren’t investing in best practice.

Not having a BoQ is a massive oversight! BoQs don’t just provide cost and procurement accuracy and efficiency; they’re also collaborative, as the whole team are working from a single point of truth, and the client is ensuring that the contractor has priced for the correct quantities and scope – this approach instils trust from the outset between the employer and the contractor. They can also be a fantastic tool if used correctly, allowing a deep dive analysis once the project is completed and making change management less protracted with the pre-agreed rates within the document.

BoQs should be considered essential documents that the client has to put together before the project is tendered – particularly for traditional contracts that are less complex and risky.

Early Contractor Involvement (ECI)

ECI’s main advantage is the contractor’s impact on the buildability and ensuring the design information is detailed and comprehensive, meaning fewer changes and possible delays during the construction phase. Also, ECI allows for genuine collaboration and aligns the outcomes between all the stakeholders – meaning more cohesion between the contractor and design team and improved outcomes such as quality and timely delivery.

ECI can be viewed as unfavourable from a cost perspective, as the contractor essentially embeds themselves into the project, which can lead to possible inflated costs – even if a competitive tender process has been undertaken, the other parties pricing the project who haven’t been involved at the pre-tender stage will be less interested as the embedded contractor will have a competitive advantage.

Balancing the benefit of ECI and possible inflated costs can be tricky. ECI works well for complicated projects that opt for a two-stage procurement route. However, for traditional contracts, I believe the client could employ a contractor and their team (i.e. the construction manager, project manager and QS) to help evolve the design. This could be a 4-8 week period of rigorous RFIs and queries and leveraging the contractor and their supply chain expertise to improve buildability and identify value engineering opportunities early. This would obviously extend the design period of a “traditional” procurement route, but this would be offset by the substantial gains from a deeply connected and invigorated project team, improved cost certainty, and a significantly reduced likelihood of delays and friction from missing information.

More carrot, less stick

Contracts shouldn’t incorporate cloak-and-dagger clauses and set up commercial hurdles to trip up contractors with the whole supply chain stumbling over one another. If we want projects to perform well, we must simplify contracts and incentivise positive outcomes.

Time and quality are two critical outcomes for a client. Still, they are put to the bottom of the pile as cost becomes the core focus, meaning we don’t have project teams motivated and working together to deliver projects on time and to a high standard.

We could adopt a similar approach to the shared gains you see in NEC contracts. Contractors are adept at identifying value engineering opportunities. Still, there isn’t an incentive for them to do that for the client under traditional procurement routes, and even if the contractor is feeling generous and is helping the client out with finding cost-effective options, the contractor doesn’t necessarily reap the rewards, and the client gets all the gain. If there were incentivisation and a shared split on the gain, you would have a highly engaged contractor proactively seeking the best value for the client.

Addressing woeful margin and excessive risk with two-stage design & build

Design and build contracts were supposed to facilitate collaboration from the outset of a project by bringing the contractor on board earlier than the traditional route, acting as a single entity. However, this doesn’t work in a single-stage approach, as the contractor accepts too much risk early in the project when there are high levels of uncertainty. Also, the single-stage competitive approach hinders margin and profitability, leading to negative behaviors as the contractor protects their margin. This scenario underscores the critical differences in risk management between Design and build vs traditional contracting methods, where the latter often leads to adversarial practices with the supply chain and client, and the potential for quality to be compromised as the contractor seeks the cheapest alternatives.

This can transcend into adversarial practices with the supply chain and client, and the potential for quality to be compromised as the contractor seeks the cheapest alternatives.For complicated Design and build contracts, we should operate on a two-stage approach. This will fairly distribute the risk as the contractor and their supply chain have the time to evolve the design and provide better cost certainty and improved buildability—this will improve the margin for both the subcontractor and the contractor as there is more confidence in the build. Operating as a single entity in this two-stage approach maximizes the benefits of design, enhancing the project’s cost savings and overall efficiency.

It will also embed the contractor and their supply chain into the project, allowing collaboration to truly manifest and remove the incentivization to cut corners and make concessions, which will improve quality and project delivery. Emphasizing the benefits of design throughout the process ensures that the design fully supports the construction phase, leading to cost savings and better resource management.

Technology

Commercially executing projects is a mammoth task, and procurement makes up most of the work for a quantity surveyor. Throw in a complex project with lots of design changes and extension of times (EOTs); then the commercial teams are forced to cut corners as they simply don’t have the time or resources to follow best practices. The industry needs to embrace technology to improve the lives of its commercial teams.

A commercial toolkit such as C-Link significantly reduces manual administrative procurement tasks and helps construction businesses scale without the significant employment overhead.

C-Link removes the burdensome and time-consuming low-value tasks to improve procurement outcomes and empower Quantity Surveyors and commercial managers to add greater value to their projects. This means they can collaborate and cultivate stronger working relationships up and down the supply chain, which will build a bigger pool of companies to work with and for, allowing their company to thrive.

C-Link also allows project teams to execute two-stage projects transparently and collaboratively – allowing the client, design team, and contractor to join forces and be more effective and deliver high-quality projects. Click here to book a demo.

The Vision

My vision for the construction industry is one that embodies collaboration from the outset of design through procurement, contracts and delivery. The Construction Industry will reach its full potential by truly embracing collaboration and leveraging technology.

About Chris Barber

Chris began his Quantity Surveying career in 2006, working for one of the market leaders in the Design for Manufacture and Assembly (DfMA) sector. After cutting his teeth as a specialist subcontractor for over seven years, Chris transitioned to Main Contracting, working on high-end residential schemes across central London, constructing and fitting out buildings for high-net-worth individuals and estates. Having worked on both sides of the industry, Chris understands the pain points and inefficiencies these two essential stakeholders experience and believes technology will revolutionise how the industry does business and dramatically shift its outdated culture.