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Design/Build
What's it all about? Where do you fit in?

Arthur O'Leary, FAIA, MRIAI
 


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In recent years design/build has established a real foothold in the United States construction industry. Many architects and contractors have not gotten involved, probably because the opportunity has never arisen. Many who rushed into it without a full understanding of the diverse ramifications have learned some bitter lessons. But then, we all know that education can be expensive. Those who have done well in design/build have really prospered. D/B is probably here to stay. 

Historical Background
Until about 30 years ago, it was considered a serious breach of ethical standards for members of the American Institute of Architects to be involved in any way with the actual construction. AIA members could not be contractors. 

This changed in the 1970’s when the anti-trust forces of the Federal Government attacked the various organizations representing professionals. They deemed the restrictive ethical standards to be anti-competition and contrary to the interests of the American consumer. This affected not only architects but also engineers, accountants, lawyers and all others whose professional societies regulated fees and professional conduct in the guise of enforcing ethical standards. Their ethics also prohibited advertising and any kind of fee competition. 

AIA’s new user-friendly ethics standards opened the door to design/build. Many architects who were in the contracting business, as principals or employees, could then become AIA members. Some AIA members became contractors. Contractors found it easier to team up with the now willing architects. Today, architects are found in every role and function of the construction industry. 

How Did It Get Started?
The construction industry is always looking for new ways of selling its product. New project delivery systems spring up spontaneously, it seems. (Note 1) Owners are always looking for ways of stemming the tide of constantly rising building costs and reducing construction time. 

Upward pressure on cost and time is caused by the unrelenting improvements in construction technology that everyone wants in their new buildings. Another factor in growing costs is building regulation that is added, generally in response to public demand for better and safer structures and construction sites. 

Whoever stumbled onto design/build must have known that it would sound good to owners and should be easy to sell. He or she was right and the volume of design/build construction is rising at an impressive rate. (Note 2) Now, it is not only accepted by many owners, but in some cases, it is the preferred method of buying construction. Numerous governmental agencies now find design/build to be acceptable. 

The architect-contractor alliance doubles the effectiveness of the marketing effort for both. The contractor finds work for the architect and the architect is added to the contractor’s marketing team. Prospective clients are impressed with an architect that is considered competent by a contractor and the contractor’s abilities are attested to by the architect. The architect-contractor sales team is highly effective. 

Whether design/build is the perfect answer to an owner’s prayer has yet to be conclusively proven. 

What Is Design/Build (D/B)?
At the simplest level, it is design and construction in one contract. Design/build is a project delivery system in which the design/builder is responsible for designing and building the project or building. 

The traditional or conventional project delivery system is based on the sequential process of design, construction documents, bidding, contract award, and then construction, frequently called Design/Bid/Build (D/B/B). This procedure usually requires more elapsed time than D/B, since each work segment must be completed before the next can begin. 

In D/B, time can be saved by overlapping these functions, or fast tracking. The bidding period is simultaneous with production of the construction documents. Further time can be saved by starting construction before the drawings are completed. More time can be saved by simpler drawings and specifications and streamlined change order procedures. 

If the time saving objectives are not enough, D/B is further attractive to owners for two additional reasons. D/B offers (1) single point contact and (2) concentration of responsibility. The owner has to deal with only one entity, the design/builder. In D/B/B the owner must interview and hire architects and contractors separately. If something goes wrong in construction, the architects and contractors each blame the other and the owner has no way of knowing who is really at fault. In D/B the owner may still not know exactly who is at fault but has the considerable advantage of looking to a single D/B entity for responsibility and satisfaction. 

D/B firms often promise innovation stemming from the designer-builder collaboration. This is expected to yield finer buildings of creative design and construction and lower costs. 

Design Errors
In D/B/B, errors in the architect’s work and construction delay caused by the architect cannot be charged to the contractor but must be paid for by the owner. The owner may not be able to recover the loss from the architect since the architect’s legal duty is defined by the professional standard of care, not a strict guarantee. In the absence of negligence, the architect’s professional indemnity insurance may not cover. 

In D/B, the owner has no direct concern with the costs arising from design error or construction delay caused by the designer, as the D/B contract is judged by the strict liability standard of a construction contract. The D/B cannot require additional compensation for extra costs caused by its own design or judgment errors. 

The D/B Organization
The fundamental key to the system is that the owner deals only with the design/build entity. This organization can be structured just like any other kind of business, as a sole proprietorship, a partnership, a corporation, or a joint venture. The design/builder must have direct connections with licensed architects or engineers to perform the design duties and licensed contractors to perform the building function. State laws regulating architectural and engineering practice as well as contracting must always be complied with. Being a member of a D/B organization does not entitle a non-architect to practice architecture nor does it entitle a non-contractor to contract for construction. 

The licensed designers and contractors can be a part of the D/B entity in any number of different ways, as sole owners, as partners, as directors or officers of a corporation, or as joint-venturers. Some D/B firms are headed by dually licensed individuals. 

If the designers and contractors are not a part of the D/B entity, then they must be hired as employees, or as subcontractors. 

As a matter of fact, most of the design/build firms have been organized as contracting firms that obtain their design input by hiring architects and engineers as in-house employees or as consulting subcontractors. 

Legal Form of Organization. The AIA has devised some useful standard forms for the D/B entity to contract with their clients and with contractors and designers. (See Sidebar) However, the agreement establishing the D/B organization must be created anew for each unique situation. This should be devised carefully to reflect the understandings reached between the members of the D/B organization. Consultation with experienced construction industry counsel is absolutely essential. It would be foolhardy to proceed without a realistic organizational agreement. The complexities and legal expense might cause an architect and a contractor friend to proceed on the basis of a handshake. After all, they would reason, what can happen when old trusted friends do business together? 
    
Insurance. Architects and contractors who team up to do design/build work should not assume that their existing insurance policies will suffice. Each will be venturing into unfamiliar and unknown realms of liability not necessarily covered by their existing insurance. It is essential to confer with insurance counsel to assure that unnecessary uninsured liability is not voluntarily assumed. 

Conflicts of Interest
The D/B customer would normally realize that the architect will be aligned with the contractor and will share in the profits and losses of the venture. The architect’s fiduciary duties are to the contractor, not the customer. If the architect offers any advice to the customer, it should be with the open understanding that it may not be wholly objective. In fact, the architect has no incentive to report any construction irregularities to the customer. 

The Contractor’s Position. Contractors often give valuable construction advice to their customers. In most cases, the recipient of the advice would realize that the contractor might have an axe to grind, that the advice might not be entirely objective. Some advice given by the contractor might be considered to be like a sales pitch, and is accepted as such. A certain amount of hyperbole is expected and acceptable as long as it does not cross the thin line into misrepresentation. D/B is not much, if any, different from the contractor’s usual relationship with the customer. 

The Architect’s Position. The architect, on the other hand, is normally, in the conventional D/B/B relationship, a fiduciary, an agent of the owner, and an impartial advisor. In this usual position, the architect is not entitled to exaggerate or mislead the client. Also, the architect cannot withhold material information from the client. 

However, when the architect is in a D/B relationship with the customer, it would be improper for the architect to mislead the customer into regarding the architect as an impartial advisor. Further, in some cases the architect should inform the customer that there may be a conflict of interest. The architect’s financial position is very close to the contractor’s and in direct opposition to that of the customer. The architect will not be in a position to be the impartial judge of the contractor’s performance. The architect’s usual role of adjudicator of disputes between the owner and contractor would be inappropriate in the D/B setting. 

Differing Points of View
The Contractor’s Attitude. Contractors generally make considerably more profit than architects do on the same project. Some contractors would have trouble splitting profits evenly with an architect partner. The contractor would feel that a 50/50 profit sharing would be too high a price to pay for gaining an architect’s help in marketing. Partially offsetting this, the contractor would realize that the architect, not being in the usual adversarial position as owner’s agent, would probably be easier to deal with, and the profits might be higher. 

The Architect’s Attitude. Architects fear that, in the struggle to keep costs within a guaranteed maximum, the contractor might be willing to degrade the quality of materials and design. Architects generally do not want to concede the design prerogative to the contractor. Some architects would consider that the D/B architect becomes unacceptably subservient to the contractor, serving primarily as a drafting service for the contractor. 

Designer-Led D/B. Some D/B firms are led by architects or engineers who subcontract the entire project to contractors, thereby retaining all design decisions. This does not resolve the conflict of interest with the customer. But, it does retain decision-making in the hands of the designers. It also has the potential of much higher profits than architects are accustomed to. 

Architects who participate in the D/B process will have to learn to operate in the milieu of contracting as a business and not as an agent, impartial advisor to the owner, and as a resolver of disputes between the owner and contractor. 

The Owner’s Position. Owners should realize that the advantage of having a single entity for design and construction does not come without cost. D/B cannot normally be effectively utilized by amateur owners, that is, those with only one project to build. They might not have the necessary expertise to deal with a D/B entity. To protect their interests they should consult with construction management professionals such as architects, engineers, or construction managers to assist in their dealings with the D/B.


Notes

1. See “The Perpetual Quest for the Ideal Contracting System,” by Arthur F. O’Leary, FAIA, MRIAI, in the Sept-Oct 2000 issue of Design Cost Data. 
2. The Design/Build Institute of America recently reported that 35 percent of construction is design/build, 54 percent is conventional, and 10 percent is construction management.


AIA Documents Available for Use in Design/Build

Between Owner and Design/Builder
A191-1996, Part 1 for Preliminary Design and Budgeting A191-1996, Part 2 for Final Design and Construction

Between Design/Builder and Contractor 
A491-1996, Part 1 for Pre-Construction A491-1996, Part 2 for Construction

Between Design/Builder and Architect 
B901-1996, Part 1 for Preliminary Design B901-1996, Part 2 for Final Design


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