Construction contracts can have a big affect on your project
Vail, CO, Colorado
In the first part of this series, we considered the various “flavors” of construction agreements which divide, broadly, into either “fixed price” (or lump sum) contracts or “cost-reimbursable” contracts. In the second part, we distinguished between classes of cost-plus and cost-reimbursable and fee agreements, both of which are variations on the cost-reimbursable kinds of agreements. In this column, we will explore the common methods of project delivery, such as “design/build” and “design/bid/build” arrangements in the construction setting.
While design/bid/build and design/build forms of project delivery are the most commonly encountered, there are other, more exotic, forms as well. These include “multiprime contracts,” construction management arrangements and fast track projects.
A design/bid/build arrangement is the traditional method of construction project delivery. It contemplates that the owner will retain an architect who will design the project and protect the owner’s interests. The owner then solicits bids from various general contractors. Thus, design (by the architect), bid (by various general contractors) and build (by the wining general contractor).
The relationship between the wining general contractor and the owner is a direct contractual relationship; the general contractor has no contractual relationship with the architect. Documents are generated by the architect and implemented by the general contractor who, typically, subcontracts portions of the work to various “first-tier” subcontractors, who will, in turn, often subcontract a portion of their work to other companies.
The traditional design/bid/build approach places the risk of executing the work on the general contractor, who then spreads the risk to the various subcontractors and the material suppliers. In this traditional method, the general contractor will not enter into any subcontracts to perform design services to the project.
The design/build form provides the owner with a single point source of responsibility for both design and construction. Usually, in this form, the owner contracts with the contractor and the contractor provides “in house” or subcontracted design services.
There is no bidding “contest” between various general contractors. Instead, if the owner “shops” different general contractors, he does so before entering into the design/build relationship with the general contractor of his choice.
In a design/build arrangement, there is a direct contractual relationship between the design professional and the general contractor. This relationship is significant. In design/build arrangements the general contractor assumes responsibility (and, therefore, liability) for the adequacy of the construction methods and design. Unlike the design/bid/build arrangement, the general contractor, and not the owner, becomes responsible for the design professional’s acts and omissions and will be charged with the design professional’s acts of negligence. Further, the general contractor may be held liable for any defects which may result from improper construction.
The owner’s obligations and responsibilities are also different. The owner has the responsibility to monitor construction, administer changes to the work and administer payment and cash flow for the project. He no longer has an independent agent looking out for his welfare and to protect his interests.
Clearly, both the responsibilities and potential liabilities of all parties are different in the traditional design/bid/build arrangement as compared to the “one-stop-shopping” setup one finds in the design/build system.
Significant efficiencies of both cost and time in employing the design/build arrangement can be realized, the design professional and the general contractor inherently being less at odds with one another.
Multiprime contracts (also known as “parallel prime” contracts) are those in which project delivery consists of an owner who, rather than contracting with a single contractor, instead contracts with several contractors for portions of the work.
Multiprime contracts are often seen when the project is being “fast-tracked,” and in larger commercial or industrial projects. In these arrangements, the owner and each of the prime contractors are in a direct contractual relationship with one another but the various “primes” are not contractually bound to one another. Generally, one or more design professionals are interposed between the owner and the various primes to define the overall and divisible scopes of the various primes’ work.
Fast-track projects are, essentially, “design as you go.” Portions of the work are begun while the details for the subsequent portions are deliberated upon and designed. Because there may be critical deadlines in fast-track projects, foundations, for example, may be poured while the framing details are being finalized. These kinds of arrangements clearly anticipate a “leap of faith” that everyone will work harmoniously together and that the pieces will ultimately fit together into a complete and satisfactory end result.
Although it may appear at first that the means one chooses for project delivery is largely inconsequential, nothing could be further from the truth. The form one chooses at the outset dictates the contractual responsibilities and obligations and the potential liabilities each party assumes in bringing the construction project to its, hopefully, happy conclusion.
Rohn K. Robbins is an attorney licensed before the Bars of Colorado and California who practices in the Vail Valley. He is a member of the Colorado State Bar Association Legal Ethics Committee and is a former adjunct professor of law. Robbins lectures for Continuing Legal Education for attorneys in the areas of real estate, business law and legal ethics. He may be heard on Wednesday nights at 7 p.m. on KZYR radio (97.7 FM) as host of “Community Focus.” Robbins may be reached at 970-926.4461 or at his e-mail address: firstname.lastname@example.org.
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