Wickwire Gavin, P.C. Minnesota Department of Transportation November 29, 2000 Michael C. Loulakis, Esq. Design-Build: Understanding the Basics

Wickwire Gavin, P.C. Presentation Overview l What makes design-build different? l How are design-builders selected? l How are design-builders organized? l What are the key design-build contract and risk issues?

Wickwire Gavin, P.C. What Makes Design-Build Different? l Approach is structurally different from other delivery systems l Single point of responsibility l Procurement options l Performance specifications l Role of design professional

Wickwire Gavin, P.C. Design-Bid-Build

Wickwire Gavin, P.C. System Strengths l Lowest initial construction cost l Full design developed before money spent on construction l A/E hired by Owner directly to act in Owners best interest l Owner can be actively involved in design process l Completed plans and specifications as benchmark for performance l Predictable rights & responsibilities

Wickwire Gavin, P.C. System Weaknesses l Linear nature of process l Actual construction cost determined after design completed – little chance to influence design without project delay – no contractor involvement in design or conceptual pricing

Wickwire Gavin, P.C. Cost Influence Curve

Wickwire Gavin, P.C. System Weaknesses (contd) l Challenges in obtaining high quality product l Owner warrants sufficiency of plans & specifications to Contractor l High potential for adversarial relationships l Unrealistic Owner expectations

Wickwire Gavin, P.C. Standard of Care Not Exact Science: Moundsview v. Walijarvi Architects, doctors, engineers, attorneys and others deal in somewhat inexact sciences and are continually called upon to exercise their skilled judgment in order to anticipate and provide for random factors which are incapable of precise measurement. The indeterminate nature of these factors makes it impossible for professional service people to gauge them with complete accuracy in every instance * * * an architect cannot be certain that a structural design will interact with natural forces as anticipated * * * The law has traditionally required, not perfect results, but rather the exercise of that skill and judgment which can reasonably be expected from similarly situated professionals.

Wickwire Gavin, P.C. Owner Design/Builder Professional Subcontractors Trade Subcontractors Suppliers Design Criteria Consultant Design-Build

Wickwire Gavin, P.C. Design-Build Plus

Wickwire Gavin, P.C. System Strengths l Single point of responsibility l Facilitates project financing l Shorter time to develop project l Total cost can be determined very early

Wickwire Gavin, P.C. Team Integration: Scheduling Construction team brought on after design, with open bidding: Prog Dev Prelim Drwgs Final Drawings Bid Construction Award Construction team brought on early, facilitating fast- tracking: Prog Dev Prelim Drwgs Final Drawings Procurement & Construction Cost Established

Wickwire Gavin, P.C. System Strengths l Single point of responsibility l Facilitates project financing l Shorter time to develop project l Total cost can be determined very early

Wickwire Gavin, P.C. System Strengths (contd) l Design innovation more readily achieved l High level of accountability can result in higher quality l Potential construction cost savings l Reduced conflict

Wickwire Gavin, P.C. CII Quality Study Start Up Call Backs Op&Mt. ERSF InSp&Lo Environ Equip DB DBB

Wickwire Gavin, P.C. System Weaknesses l Time & cost of implementing competitive process l Overly involved Owner may impact Design-Builder l Price provided before design documents completed l A/E doesnt work directly for Owner

Wickwire Gavin, P.C. System Weaknesses (contd) l Constraints with public procurement laws l Antiquity of licensing laws l Unrealistic Owner expectations l Lack of substantial judicial precedent

Wickwire Gavin, P.C. How Are Design-Builders Selected? l Direct design-build l Competitive negotiation l Best value proposals l Low price proposals

Wickwire Gavin, P.C. Negotiated Design-Build Procurement l Short-list l Interviews l Selection based upon: – teams experience – financial capability – key people – current & projected workloads – similar projects – pricing: fee & general conditions

Wickwire Gavin, P.C. Competitive Design-Build Procurement l Short-list l Selection based upon: – weighted criteria – adjusted low-bid – equivalent design/low-bid – fixed budget/best design – meets criteria/low-bid

Wickwire Gavin, P.C. Weighted Criteria Example * award to proposer with highest total score

Wickwire Gavin, P.C. Adjusted Low-Bid Example Note: The adjustment of the bid is for selection only. The firms price proposal is the actual contract amount.

Wickwire Gavin, P.C. Procurement Challenges l Remembering the design-build difference l Using consultants l Bridging/detailed design l Establishing qualitative criteria l Objectively analyzing criteria

Wickwire Gavin, P.C. Procurement Challenges (contd) l Stipends l Using information of unsuccessful proposers l Keeping A/E involved throughout project l Integrating procurement laws into solicitation

Wickwire Gavin, P.C. Balancing the Structural Framework of the Project l Project delivery systems l Procurement methodology – Negotiated – Competitive l Contracting approaches – Lump sum – Cost plus (GMP) – Unit Price

Wickwire Gavin, P.C. How Are Design-Builders Organized? l Integrated Design-Build Firm l Contractor as lead l A/E as lead l Joint Venture l Developer as lead

Wickwire Gavin, P.C. What Organizational Structure Works Best? l Owners needs & comfort level are key drivers l Nature of project l Licensing requirements l Relationship among team members

Wickwire Gavin, P.C. Owner Design-Builder (Integrated) Suppliers Integrated Design-Build Trade Subcontractors Consulting Engineers

Wickwire Gavin, P.C. Owner Design-Builder (General Contractor) Suppliers Designer Trade Subcontractors Contractor-Led Design-Build

Wickwire Gavin, P.C. Owner Design-Builder (Designer) General Contractor Trade Subcontractors Designer-Led Design-Build Suppliers Consulting Engineers

Wickwire Gavin, P.C. Owner Joint Venture (General Contractor & Designer) General Contractor Trade Subcontractors Joint Venture/LLC Design-Build Suppliers Designer Consulting Engineers

Wickwire Gavin, P.C. Design-Build (Developer Model)

Wickwire Gavin, P.C. What are the Key Design-Build Contracting Issues? l Standard form contracts l Identifying scope of work l Ownership of documents l Owner's rights to review design l Changes of law l Establishing the GMP

Wickwire Gavin, P.C. Current U.S. Standard Form Design-Build Contracts l AGC (1999) l DBIA (1998) l AIA (1997) l EJCDC (1995)

Wickwire Gavin, P.C. What are the Key Design-Build Contracting Issues? l Standard form contracts l Identifying scope of work l Ownership of documents l Owner's rights to review design l Establishing the price

Wickwire Gavin, P.C. Key Contracting Issues (cont'd) l Changes of law l Permits l Site conditions l Time extension issues l Changes

Wickwire Gavin, P.C. Key Contracting Issues (cont'd) l Limitations of liability l Performance guarantees l Acceptance criteria l Warranty and design liability

Wickwire Gavin, P.C. Unique Contract Issues: Design-Builder and Designer l Designing to budget l Role of contractor during design l Duties during construction administration l Financial considerations – Contingencies – Bonus/penalty – E&O coverages

Wickwire Gavin, P.C. Unique Contract Issues: Design-Builder/Subcontractor l Design-build vs. trade subcontractors l Bidding on incomplete plans & specs l Determining when subcontractor becomes involved Wickwire Gavin, P.C.

Major Design-Build Risk Areas l Single point of responsibility l Design liability l Fair business dealings l Ownership of documents l Contract formation l Licensing Wickwire Gavin, P.C.

A/E vs. D/B Claims Frequency Per 100 Firms Source: Victor O. Schinnerer Company

Wickwire Gavin, P.C. Why Does History Show a Reduction of Liability Exposure? l Merger of design & construction promotes cooperation l Professional attitudes l Quality players l Owner fear of process l Partnering approach Wickwire Gavin, P.C.

Where is Design-Build Liability Heading? l Owner's role with design development & review l Business deal & scope of work l Procurement disputes Wickwire Gavin, P.C.

Where is Design-Build Liability Heading? (contd) l Subcontractor - prime disputes l Contingent liability for performance breaches l Magnitude of dollars when something goes wrong

Wickwire Gavin, P.C.