This feature is a part of “The Dotted Line” series, which takes an in-depth look at the complex legal landscape of the construction industry. To view the entire series, click here.
Changes in the scope of work, materials or design are almost a given on any commercial construction project, regardless of the chosen delivery method.
Handing a project over to a design-build firm is supposed to reduce those changes, as well as conflicts and disagreements, by bringing the multiple roles involved in a major project — i.e. architect, general contractor and engineers — under one roof.
The ensuing early collaboration, according to design-build proponents, sparks innovation and can reduce the chance that time- and money-wasting clashes will surface as the project progresses.
Design-build projects can also save time and money when compared to other delivery methods, according to the Design-Build Institute of America (DBIA).
On average, design-build saves 1.9% in costs over the construction manager at risk (CMAR) method and 0.3% over design-bid-build (DBB). During the construction phase, design-build projects move 13% faster than CMAR projects and 36% faster than DBB projects. When design-builders handle a project from design through completion, they can deliver their projects 61% faster than CMAR, and 102% faster than DBB, according to DBIA.
The design-build method, once a common way to handle construction projects, has made another resurgence, and several publishers of construction contracts like the American Institute of Architects, ConsensusDocs and, of course, the DBIA offer their own series tailored for design-build projects.
Some owners, though, still have limits as to how much project control they are willing to relinquish, even if they are enthusiastic about the potential benefits of design-build — and even if they hire a design-builder. The federal government sometimes falls into that category and will issue its own set of prescriptive design requirements, performance goals or some combination of the two.
The design-builder is then left to complete the design, all while attempting to stay in compliance with the government’s requirements.
But what if the federal agency in question has made a mistake in a design element it requires? What if there is a conflict and the design-builder cannot meet the federal agency’s performance goals and still stick to detailed design specifications? Does the design-builder automatically assume responsibility for the end product, design and all, even if the agency insists that its own wish list of design elements be included?
Case law has determined how a court is likely to rule in these issues, according to attorney Michael Richard with Obermayer Rebmann Maxwell & Hippel LLP, during a recent DBIA conference session. These court decisions typically apply across all agencies.
Of course, there are some agencies that do hand over all responsibility to design-builders, said attorney Bennett Greenberg with Seyfarth Shaw LLP, but even in those cases, the government would hesitate to give up total control.
“[Agency officials] are used to doing what they’ve always done in the design-build context,” he said, “and there’s a reluctance to give up their roles and oversight of the process.”
It could be also that they are hesitant to turn over a project to a commercial venture, Greenberg said.
Defects in the government’s concept design
For the discussion, Richard defined concept design as any portion of the design or design documents the government provides to the design-build contractor as part of the initial contract.
In general, said Richard, when it comes to federal contracts, a design-build contractor can recoup reasonable, extra costs incurred in the attempt to comply with the defective specifications and deliver a satisfactory end product, even if any necessary changes “constitute a relaxation of the specifications.”
“The courts are recognizing,” he said, “that because of a defect in the specifications, a change to the work as originally contemplated by the parties … the contractor is certainly entitled to recover its costs incurred to perform the changed work.”
If the change results in a reduced cost, however, the government could pursue a deductive change order, he said.
In addition, design-build contractors can only recover costs if the defect is in a design specification, not a performance specification.
For example, a design specification identifies the type of material to be used and perhaps the method of construction — a “roadmap,” Richard said. A performance specification gives the contractor end goals, like energy efficiency requirements, and allows the contractor to get there on its own.
If the government’s mistake was obvious enough during the bidding process, the design-builder might not be able to recover its costs.
The federal agency essentially warrants the facts they provide about the project are correct, but the design-builder is still obligated to bring the defects or problems to the government’s attention as early as possible, said attorney Holly Streeter-Schaefer with AEC firm Burns & McDonnell.
“The design-builder,” she said, “doesn’t get to take advantage of the government by intentionally not raising the issue in the hopes of making money on the back end.”
In the end, Richard said, providing timely notice of delays to the government is the best protection a contractor can have on the path to recovering its costs for defects. Design-build contractors should also avoid signing modifications that give extra time but no money.
Changes to the concept design
Over the years, Richard said, the federal government has tightened up its contract language regarding the design-builder’s right to make changes to the concept design and get paid for it.
In one case, the design-builder upgraded significantly a fountain that was included in the concept design. The government didn’t ask the contractor to change it and wouldn’t pay for the change even though the agency approved it. In the end, a court decided that the government had to pay the construction costs but not the costs of the design.
In yet another case, a court ruled that an authorization for redesign issued as part of the prebid Request for Information process left the government on the hook for both design and construction costs for changes to the concept design.
In general, however, a design-builder does not have the right on its own to change a concept design, even though, as a design-builder that limitation might not be a familiar one, Richard said.
The reality is, he said, that the government has a longstanding practice of using its own design reviewers on design-build contracts as though they were working on a design-bid-build contract where the government is in greater control of the design, he said.
The government, Richard said, has great difficulty in ceding control over both a design and project in a way that falls in line with how most in the industry look at design-build.
Liability for government changes to the design criteria
During the development of the design, Richard said, the government has the right to tweak the design without incurring extra costs, but there are limits. These minor types of alterations are different from fundamental changes, though, and the government does not have the right to make significant changes without paying for them.
It’s important to remember, Richard said, that no matter who from the government team directs the design-builder to make a change — any change — the contracting officer is the only one who can authorize it.
So, is the risk of taking on a design-build project for the federal government worth it?
Contractors sometimes compensate for these risks by adding a contingency to their price, Greenberg said, although they run the chance of increasing their bid by too much and not winning the project.
Experienced federal design-build contractors might feel comfortable enough, however, to move forward anyway and take their chances in court if a dispute over the design comes up.
“There’s risk in doing that,” Greenberg said. “You have to be sure you’re going to be right at the end of the day.”
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