Are design-build projects introducing contractors to risks for which they are unprepared? The issue was front and center—and with good cause—at the Associated General Contractors' annual convention in San Juan on March 17-20. Anecdotal accounts suggest that design-build will continue to claim more market share from other project-delivery systems.
Risk and Insurance, an industry publication, recently wrote that design-build and integrated project delivery potentially saddle contractors with exposures that could "slow" the construction recovery. That was probably overstating the case because contractors are taking steps to control those risks.
One problem faced by contractors is that the limits on designers' errors-and-omissions insurance coverage usually top out at a modest multiple of the firm's fees. And as some contractors point out, designers have fewer assets.
Contractors have strategies to help minimize the risk. During one AGC seminar, Robert P. Majerus, general counsel of Hensel Phelps, outlined how the Greeley, Colo.-based contractor handles the issue. He said he tries to get the designer in a design-build project to provide $10 million worth of insurance coverage for its work and carry the coverage until the statute of repose expires.
Next, he said Hensel Phelps requires the mechanical, electrical and plumbing sub- contractor to have an individual design-build contract with the company and provide its own insurance coverage and a surety guarantee. Asked about designers' potentially refusing to provide the insurance coverage, Majerus counseled contractors to "hang tough."
The duty owed to owners under design-build is another issue that isn't likely to go away. Recent revisions to the American Institute of Architects standard forms of agreement seem to differ significantly in their approach to liability from the corresponding documents issued by ConsensusDocs, which comprises more than 40 different industry groups that work toward the fair allocation of risk. The AIA documents, while created in a spirit of industrywide benefit, in the past have tended to shield architects from costly risks.
Brian M. Perlberg, AGC's senior counsel for contracts and executive director of ConsensusDocs, says he is particularly troubled by the AIA's recent insertion of language that, he claims, creates a fiduciary responsibility by a design-builder to an owner. For those using the updated, unmodified owner-designer-builder agreement, the responsibility "would not flow consistently" to the designer of record, he says.
We share Perlberg's concern about the AIA's standard form of agreement language and prefer that all standard forms keep foremost the interests of the project team without expanding obligations to the owner.