Design and Build Contracts – Increase your profit

A Design and Build Contract is a contract where the Main Contractor offers to design and build a project for a price that includes both the design and construction.

What I found striking throughout my career is the lack of contractual knowledge of even some of the most highly-skilled construction professionals – particularly the designers.

I appreciate a QS is employed to provide contractual and commercial support to the team but I still found it remarkable that regularly, senior members of my team, whether Design Managers or Project Managers don’t understand the implications of the form of contract under which they’re employed.

There are typically two forms of contracting:

1. Traditional Contracting with Client Driven Design and the more contemporary, and
2. Design and Build with Contractor Driven Design.

How the parties should act under both contracts is totally different but it’s amazing that on many projects there’s no change.

Whether its because Architects want to retain a firm grasp on their ‘baby’ (the concept design) or Subcontract Designers are still restrained by the historical (traditional contracting) fear of being subservient and needing to ask the Architect’s position – it is amazing how many Design and Build Contracts still get run with the Architect as ‘boss’ as under Traditional Contracting methods.

I became frustrated as I saw project budgets and programmes evaporate and wanted to try and create some simple tools to help my colleagues.

I can share these with you now…

What is Design and Build Contracting?

“Design and Build is a contractual arrangement in which the contractor offers to design and build a project for a value inclusive of both the design and construction costs.”

The intention of the Employer (the end Client) is to transfer design responsibility for delivering the required project”. The design input of the Contractor is much greater on Design and Build than a traditional contract with a Contractor’s Designed Portion (CDP).

While the Employer still assembles a Design Team (Architect and Engineer) to get the design to a certain point, the Main Contractor (and their Subcontractors) complete the design. While tendering, the Contractor, together with his Subcontract team, develop a design to ‘complete’ the Architect’s design – this becomes known as the Contractors Proposals.

The Employer retains his professional team to monitor the work and ensure that the specification is adhered to, however, the Design Responsibility, is with the Contractor to finalise the design and its compliance with the specification and the performance requirements. To put it simply on a Design and Build contract, the Contractor (and their Subcontractors’) has the same professional liability for the design as an Architect.

The Contractor(s) are on a level par with the Architect. So…

1. Why does the subservience we associate with Traditional Contracting still exist with D & B?
2. Why do competent Contractors and Subcontractors still whittle away their budgets and programmes alike in order to take the Architect’s lead even when they’re on equal footing under the contract?

I created a couple of little tricks for QS to ensure programmes and budgets can be met during project execution.

This is not to exploit, simply to balance things.

1. Contract Negotiation

Understanding all the Contract Clauses and negotiating the correct wording thereof is extremely important to the success of the project. It is critical to understand that Standard Form of JCT Contract is on your side.

Here is one example typical to contract negotiation stage that can save you money:

Clause 2.14.2 of the JCT Design and Build Contract reads as follows…

 “Where the[re] is discrepancy within the Employer’s Requirements the Contractor’s Proposals shall prevail…”

It is imperative that, during contract negotiation, the Contractor prevents the removal/amendment of this standard clause (as commonly it is deleted by Employers as it is there to protect you.

Moreover, the standard form of the JCT Design and Build Contract, unamended, protects the Contractor but too often this is amended to your detriment. Further examples are below:

• The contractor, under the D & B contract, must “design and complete the works in accordance with the details contained in the Employers Requirements and the Contractors Proposals”.
• If no details are included, “the Contractor is free to select the materials and workmanship appropriate to the context.”
• This effectively means that we, as D & B Contractor can Design and Build with certain freedoms as long as we are compliant with the architectural intent, specification and statute.

Want a working practical example of this……?

Often during concept design certain elements are not 100% finalised. When you are the Design and Build Contractor, this is a great opportunity for you.

I’ve provided an example of this below which was on a major project in Central London where a high-level element of the works had its specification left open. The contract documents are below:

 

The specification and drawings read that EWS-321 is to be… “Hardwood to the acceptance of the Employer.” On a Design and Build Contract this is a great opportunity as if no detailed requirements are included the standard form of contract states that “the Contractor is free to select the materials and workmanship appropriate to the context.”

Therefore, in this instance, you could propose a reasonable quality, inexpensive hardwood that was quick to procure. What happened was that the Architect was asked which hardwood they wanted…

Guess what?

The Architect proposed the use of Teak; one of the most expensive hardwoods going that also has a long lead-time. Once proposed this was the starting point for discussion and it was highly challenging to unravel the discussion and as a result, the Contractor lost time and money procuring teak.

What should have happened is the Contractor (ultimately responsibility for completing the design) should have proposed a hardwood that fitted in with the requirements of its own budget and programme. Thereafter, two things could happen:

1. The material would be approved and the Contractor would be on time and on budget
2. The Architect would request an enhancement (teak) which could then be negotiated as a Variation with both time and money impacts

Too often, Contractors shy away from making ‘bold’ decisions and instead prefer to ask the Architect for their opinion – much to their cost!

Why? Contractors carry the same responsibility as the Architect.

Responding to Comments during the Design Phase

You’re the Contractor. You’re driven by the need to deliver the project in accordance with the programme and nobody will thank you if you don’t. Despite this, time and again, project after project we’re held up in design and we just grin and bear it.

Again, the Standard form of the JCT Contract protects you. Schedule 1 of the Contractor’s Design Submission Procedure, clause 2 reads as follows:

“The Employer shall return one copy of the Contractor’s [Drawings] to the Contractor marked A, B or C provided that a document shall be marked B or C, ONLY where the Employer considers that it is not in accordance with the Contract.”

Therefore, the comment must explain why they believe it is not in accordance with the Contract. If the comment doesn’t, the Contractor can consider it totally void and consider the drawing A Status.

Below I’ve extracted some comments which rendered a drawing as a B Status wrongly. I’m sure the theme of these will be common to you and it’s incorrect.

Example 1 – Can this panel be louvres?

Comments such as this are very common and too often drawings become a ‘message board’ for the Design Team and Employer. This is unacceptable:

What’s your answer to this question? Yes, this panel can be formed in louvres; however, this is a deviation from the Employer’s Requirements and Contractor’s Proposals and therefore requires confirmation under Instruction if this is how you wish to proceed. This change will have both time and cost implications.

Some people would argue that this response is too contractual but by the same token the Employer wants you to complete on time and will be quick to remind you with contractual letters the moment you do not – does the Employer really want to lose two / three weeks over this comment?

Probably not, so set the boundaries early and don’t accept your drawings being a message board like this – the Employer will only thank you in the future.

Example 2 – Edge joint width to be agreed between sub contractors

In this case let’s imagine you are the Subcontractor. I bet this type of comment looks recognisable but it doesn’t really mean anything and doesn’t warrant your drawing being a B Status yet it is, and you’ll have to re-submit and await A Status so you’ve lost two weeks.

If you have have designed in accordance with the Design Intent and coordinated with other trades; should the Employer want to change this detail be changed this may require formal confirmation under instruction and be cited as change.

Reject it and move on.

Conclusion

My point is not to discourage relationship building and collaborative working – it is simply imperative that the entire Design team realise the impact of their comments on the project programme and budget – the Employer will thank you long term.

These simple tools are intended only to address the balance of power so it ensures project delivery on time and budget so that we can all make money! At the moment I believe Contractors lose too much money (unfairly) during design.

Having an understanding of the contract and controlling the Employer’s Design Team is imperative to your Long Term success. Your position should be clearly defined from the outset on the project; this ensures all parties understand the boundaries.

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.