Transparency, trust and communication are vital to successful design-build projects, and formal teaming agreements to pursue a project followed by subsequent pacts when they are won are highly recommended, according to industry experts.
Owners may even request seeing a teaming agreement during the procurement process, considering it a good practice, said Rachel John, senior associate at law firm Zetlin & De Chiara, speaking at the annual Design-Build Institute of America conference in Las Vegas this month. Once a design-build team has been formed, a subsequent agreement should be formed with its first-tier consultants and trade partners, panelists said.
Putting everything in writing is vital, John said, citing two legal case studies. In one case, an oral teaming agreement in which the engineer provided pre-bid quantity estimates ended with the professional liable for some $5 million for breach of implied warranty. In the other, a written teaming agreement rendered the engineer not liable for any underestimation of deliverables during the pursuit phase.
One goal of the teaming agreement is to identify risk responsibilities, especially related to pricing of material quantities, noted Sean Gellhaus, HNTB national contracting manager. Design partners should pay attention to the limits of liability and not hesitate to seek fair compensation for pre-award investments, he added.
For first-tier consultants, the subsequent agreement should bring clarity as to what they can and cannot deliver, said Lee Slade, managing principal and board chairman of Walter P Moore. That need for clarity extends to second-tier consultants, who must know what information to hand over, and when to do it, so there are no scope overlaps or gaps, said Holly Stone, president of Stone Security Engineering.
Insurance is a big issue for second-tier parties, she added.
“We often can’t attain the same limits of liability as first-tier consultants,” Stone said. “It can cost more than our fee itself. What is feasible?”
Moreover, second-tier parties may need the DB team not to demand exclusivity from them, since their fees can be a fraction of the total design package. “Maybe I have two clients pursuing the same job,” she said. That requires “frank discussions on how to maintain confidentiality without exclusivity,” such as having different staffers work with different clients without sharing information.
While the prime contractor would prefer exclusivity, it would be more for the primary partners, said Rob Barbera, senior vice president at Turner Engineering Group, acknowledging Stone’s points.
Changes in a project will be inevitable, requiring teams to choose the right “day to day leaders” from each firm who “know how to pivot,” he said.
The agreements should also include “off-ramp” factors that might cause design partners to walk away from a job once it’s won, and that list should be updated often, said Barbera. So should the quantity estimates and liability limits, he added. “We want the structural engineer in the room when we are talking to our trade partners” about quantities, he said.
And in some cases, “it may be in [the design-build team’s] interests" to use in-house resources rather than trade partners depending on the cost, Barbera added. “Every project requires a different answer.”
Another panel discussed common misconceptions about design-build methodologies.
The notion that owners may lose design control or flexibility on a project is “nothing further from the truth,” said Zetlin & De Chiara’s John. The idea of change order confusion “has a grain of truth, but it’s not that different than design-bid-build,” she added. “The role of who does what is slightly different,” but in design-build, “the owner is more involved.”
In progressive design-build, the idea is to progress the design collaboratively, and validate it as the process goes on, said Molly Jones, president of Jones Design Studio, which specializes in sustainable design. She noted that owners should ideally seek three to five shortlisted proposals, an approach that makes the job more attractive to competing firms. Proprietary meetings with those teams are extremely important to ensure they understand the project priorities, including sustainability criteria, she added.
General contractors pursuing design-build contracts should not try to estimate quantities too early, especially when design may be only at 10%, said Damon Gray, New York branch office manager for Burns & McDonnell. “You have to estimate not what’s on paper, but what could arise,” he said. Moreover, “there is no value in cutting corners,” he said. “It’s hard to understand what the guaranteed maximum price is now versus three years later … we know things will fluctuate and we have to make allowances.”
The idea that design-build jobs exclude potential leadership of small firms is also untrue, said David Triplett, chief contracting officer for the Federal Bureau of Investigation, which he said has increased its use of design-build to 50% of its projects in the past few years. “Some small firms have led magnificent projects,” he said.
Owners can encourage diversity by prescribing socio-economic goals and a community engagement plan, he added. Rather than prescribing what that engagement looks like, an owner should ask the design-build team how it will develop a strategy, he said.
The idea that out-of-state firms may dominate design-build jobs in some areas is also untrue, said Triplett, noting that many companies self-perform and that there can be a 30% premium for out-of-state firms. However, if there is a shortage of local workforce, staff may be brought in from other areas.
If a firm is inexperienced in design-build, there are still opportunities, he added. “Gauge what you can do; pick projects in your wheelhouse,” Triplett said. What is required is “an organizational culture of collaboration.”