Project Delivery Methods
This article explores key aspects and differences among the various delivery methods that are commonly used in today’s construction industry and provides guidance related to the obligations and risks of the parties involved.
The first step in the design-bid-build method involves the owner hiring an architect to prepare a complete project design. Contractors then bid on the completed architectural drawings, usually on a stipulated sum basis. Because of the ease by which these stipulated sum bids can be compared, this delivery method has been a mainstay of public contracting for decades.
With few exceptions based on state legal requirements, the owner of a design-bid-build project warrants the design documents provided to the contractor. Mistakes and oversights in the design resulting in changes to the work usually entitle the contractor to additional time and compensation on the project. This places the owner in the middle of the contractor and the architect in the event of a dispute, and can result in the owner affording the contractor relief for delays and costs caused by the architect’s errors and omissions, sometimes with only limited ability to recoup such losses from the architect.
Because the contractor is engaged late in the overall process, the contractor’s value engineering and constructability analyses will not occur until the end of the design process, possibly leading to further delays.
Construction Manager (“CM”) at Risk
In contrast to the design-bid-build method just discussed, the CM-at-Risk project delivery method endeavors to streamline project delivery and reduce costs by involving the CM early in the design phase of the project. The owner is still responsible for hiring the architect directly, but the CM, typically engaged earlier on in the process compared to the contractor under the design-bid-build method, is responsible for reviewing the architect’s designs for purposes of constructability and to provide feedback about cost reduction measures that can be integrated into the design to achieve project savings.
At various intervals during design development, the CM will provide estimates of their anticipated costs during the construction phase of the project, thereby allowing the owner to evaluate its budget and assess its cost reduction options.
Once the designs are sufficiently refined and the owner approves same, the CM will provide a price – often on a cost-plus basis with a Guaranteed Maximum Price (“GMP”).
The CM bears the risk of excess costs when costs exceed the GMP, unless the overrun is the owner’s fault or otherwise excused by the contract terms. Often these projects will allow for shared savings if the cost of the work falls short of the GMP.
The design-build project delivery method provides the owner with a one-stop-shop for design and construction services. Rather than hiring an architect directly, the Owner hires a “design-builder” who is responsible for performing construction services and also for retaining the services of a qualified and properly licensed architect to perform the required design services for the project. The effect is that the owner shifts its design responsibility to the design-builder, and any costs impacts due to errors and omissions in design are the design-builder’s responsibility.
General contractors and construction managers should be accustomed with the different project delivery methods, including the contractor’s obligations and risks.