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Design Professionals and Contractor-Led Design-Build - Some Professional Practice and Risk Management Observations

By: David J. Hatem, Esq.

INTRODUCTION

Unquestionably, the design-build delivery method is gaining popularity with owners and it should be expected that this trend will continue. While one may debate whether design-build will ever surpass the more pervasive use of the traditional design-bid-build delivery method (especially in the public sector), no one can reasonably question that design-build has certainly emerged as a significant and realistic optional delivery method that deserves serious evaluation and consideration by owners and their consultants during the planning phase of many projects. The purpose of this article is not to revisit the debate about the merits of design-build (in general or in any project-specific context), but rather, to explore the following question: How does the design professional's role as subcontractor to the design-builder differ from the role of the design professional under contract with an owner in the traditional design-bid-build delivery method?

HOW DOES THE DESIGN PROFESSIONAL'S ROLE AS SUBCONTRACTOR TO THE DESIGN-BUILDER DIFFER FROM THE ROLE OF THE DESIGN PROFESSIONAL UNDER CONTRACT WITH AN OWNER IN THE TRADITIONAL DESIGN-BID-BUILD DELIVERY METHOD?

This section will focus on the role of the design professional as a subcontractor to the design-builder and how that role differs from the role of the design professional under contract with an owner on a traditional design-bid-build project.
At present, the most prevalent design-build approach - i.e., contractor-led design-build - involves a structuring of the design-build team in which the constructor member serves under a prime agreement with the project owner, has single-point responsibility for both design and construction of the project and engages one or more design professionals as subcontractors to provide the professional services considered necessary or appropriate to meet the programmatic, design and other requirements of the project.

In all of the varied approaches to contractor-led design-build the following professional practice and risk management issue should be addressed and evaluated by the design professional:

1. Potential Impact on Existing Client/Project Relationship Considerations.

In any of these contractor-led design-build approaches, the design professional is engaged by the design-builder (typically a constructor) or by trade contractors who are sub-contractors of the design-builder. In these circumstances, the design professional's client or contracting partner is the design-builder (or the trade contractor) - not the project owner - that engages the design professional. While it is accurate that design professionals - no matter by whom retained - owe certain basic legal obligations to the public (e.g. health, safety, welfare, etc., see e.g. G.L. 112, § 81P (grounds for suspension or revocation of license to practice engineering); G.L. c. 112, § 60G (grounds for suspension or revocation of license to practice architecture), compliance with those legal obligations is a very far cry from establishing that the design professional owes primary or any degree of allegiance to the project owner (with whom the design professional has no direct contractual relationship).

In circumstances in which the design professional has or has had direct contractual relationships with a project owner in the traditional design-bid-build delivery approach and simultaneously or subsequently enters into a subcontractual relationship with a design-builder on a design-build project for that same owner, the project owner may have an expectation - whether contractually justified or not - that the design professional will serve as its representative in the design-build process and owe allegiance to the owner. The disappointment of those expectations may - directly or indirectly - lead to friction, tensions and claims - between and among the owner, design-builder and the design professional and, worse yet, may disrupt or terminate longstanding relationships between the design professional and the project owner.

One commentator has described some of the tensions between the owner and design professional inherent in contractor-led design-build as follows:

[Contractor-led design-build raises] a whole host of legal, professional, and relational realignments for design professionals. As the term implies, most architects and engineers view themselves as 'design professionals' rather than as 'subcontractors' working for a general contractor. Their professional practice, guidelines, ethical standards, and other traditions are based on the premise that they work as agents directly for owners. This becomes a continuing challenge for the design-build method of doing business and is a strain in the relationship between the builder and the designer that the owner should keep in mind. The reality of this tension may affect not only the contracting relationships, but also the outcome of the project.

When a construction contractor has the direct design-build contract with the owner, the contractor takes on all of the responsibilities, risks, and rewards of design. This is also a major realignment for the many contractors who do not price the risk of design errors, omissions, and design-related delay in their construction costs. These types of problems have been the source of numerous claims by contractors against owners under the design-bid-build project delivery system. Many contractors may not appreciate the professional judgment, time, and effort it takes for a designer to work with an owner to obtain approval for a design concept, design details and program elements. There is much handholding and give-and-take between the designer and the owner before an acceptable design is developed. In this form of design-build, the developmental aspects of the design process are generally minimized. This, too, may lead to tension between the design-builder and the owner, especially when the owner is unsophisticated." Design-Build Contracting Claims, Aspen (1999), §1.03 [A], at 12-13 [hereinafter "Design-Build"].

Many design professionals who have served as subcontractors for design-builders have expressed the frustrations and concerns associated with this "disappointed expectation/conflict" predicament. Although one may debate whether the circumstances described above constitute a legal or ethical conflict of interest for the design professional, it is clear that the design professional's involvement as a subcontractor on a design-build project raises at a minimum the potential for such tensions and disappointed expectations, which should be carefully evaluated and balanced, especially against a broader context of the design professionals other, more traditional relationships with the same project owner.

2. The "Professional" Essence of the Design-Builder/Design Professional Relationship

The design professional in the contractor-led approach is not simply another subcontractor or vendor to the design-builder. In this role, it is critically important for both the design-builder and the design professional to understand the distinction between providing professional services (involving the exercise of professional skill, acumen, experience and judgment) in support of the design-builder and the more traditional trade or subcontractor which provides labor or materials. As noted above, design professionals are registered professionals who owe legal obligations to the public arising from the discharge of their professional services. In addition, the design professional's services typically, and in most cases, require and depend upon the exercise of independent professional judgment and skill.

Some design professionals who have served in the subcontractor role on design-build projects have expressed frustrations and concerns that arise from the sense that the design-builder attempts to direct the design development effort or inappropriately control or intrude into the design professional's exercise of independent professional judgment.

Along these lines, it has been stated:

"The designer's lack of independence in design-build may also raise professional and ethical concerns for the design profession. Problems may arise if a contractor controls the leadership of the design-build entity and puts pressure on the designer to focus on construction costs and possibly downplay the owner needs, material quality, or long term maintenance considerations. More critical are pressures that may have an affect on safety considerations. Some design-build contracts contain provisions requiring the design-builder to perform independent agent-type functions, such as inspections, certification of payments and certifications of substantial and final completion. Such clauses may be an inappropriate hybrid of design-build and design-bid-build agreements. The architectural and engineering communities also have raised related concerns. The lack of an independent and direct relationship between the designer and the owner is one such issue. Designers may resent being treated like 'subcontractors' rather than professionals. The concept of design professional practice developed over the years primarily in the context of design-bid-build contracting. Thus, the professional concept often involves qualification selection, rather than low price, and direct contact with the client. More than finances may be at stake." Design-Build, §1.05, at 25-26.

Clearly, there is a balance that needs to be struck between the design professional's ability to develop design within the constraints imposed by design criteria/performance standards furnished by the owner (or otherwise established in the Design-Build Agreement) and the appropriate level of independent judgment required to be exercised by the design professional in that design development process.

3. Scope of Service and Communication Considerations

The design-builder, even more than many owners in the traditional design-bid-build delivery method, sometimes unreasonably restricts or limits the design professional's level or scope of effort during the design development phase and may even allow for only "on-call" services of the design professional during the construction process. This is unfortunate and, as is well known and understood, such unduly restrictive scope limitations on the design professional's services (especially in certain project types, such as subsurface projects) significantly increase the potential liability exposure for the design professional.

These types of unreasonable scope limitations are problematic, not only for the design professional, but also for the owner and its professional consultants. More specifically, the design development process in the design-build method is both iterative and interactive and requires an appropriate level of access and communication between the owner, its professional consultants, the design-builder and its design professionals. If the latter have not been retained by the design-builder to provide the appropriate level of professional service support in that process, the design development process will suffer in terms of timeliness, communication and quality of the completed design. These problems are further exacerbated when the design-builder's design professional has no or an unacceptably minimal or contingent submittal review and observational role during construction.

An innovative approach to this type of "scope limitation" concern is to include in the Design-Build RFP a minimal scope or level of effort required of the design professional who is part of the design-build team and to provide for the ability of the owner and its professional consultants to communicate directly with the design professional provided that the design-builder is afforded an opportunity to be present and/or otherwise participate in such communications. This approach is unconventional - in the sense that "subcontractors" of a general contractor typically are not allowed to directly communicate with the project owner or anyone other than the general contractor; however, design-build is an entirely different delivery approach and, as noted above, design professionals are not just simply "another subcontractor". For design-build to succeed and improve as a delivery method, we need to learn to "think out of the box" about innovative ideas and not be retarded in that process by traditional limitations or conventional approaches.

4. Influence of Constructability and Cost Considerations in the Design Process

By integrating the design and construction expertise into a single design-build team, the design-build delivery method affords a tremendous opportunity for the design process to more directly and contemporaneously benefit from the constructability and cost estimating experience and expertise of the constructor member of the team. The constructor's input during design development relates to such matters as costing and estimating; value engineering; analysis of site, geotechnical, environmental and other site-specific information for the purpose of project planning and sequencing; constructability review; preliminary scheduling; design review for errors or omissions; long-lead item procurement; and arranging for trade contractor involvement and identifying design delegation opportunities. See generally, Design-Build, §2.07 [B], pp. 53-54. At the same time, for many design professionals, interacting with a constructor during design development - especially a constructor to whom the design professional is contractually subordinate - is a somewhat different experience. Simply put, it is inaccurate to say that for the design professional the service activities in this role essentially remain the same as in traditional design-bid-build and that all that has changed is the identity of the client. The identity of the client - i.e. a constructor, rather than an owner - has a dramatic impact on the nature and emphasis of the design professional's service effort. Unquestionably, the design professional must be receptive to the interaction and input of the constructor during the design development process with respect not only to the design of permanent work, but also constructability and means and methods considerations. As stated in a draft Revision to ASCE Manual 73, entitled "Project Delivery Systems":

"A key point to be noted in the design-build project is that the Design Professional Party to the Design-Build organization worked for the Constructor/Sponsor. As such, the attention of the Designer and allied professionals must be appropriately focused on the requirements and expectations of the Builder. Issues such as constructability, use of particular equipment or erection methods, and the choice of construction materials may control design and be directed by the Constructor. While the resulting designs and facilities must meet the Standards and state of requirements of the Owner, beyond that, the design focus must be on the preferred means and methods of the Contractor as the client. This is a very different role and focus for most designers and can be expected to require some deliberate cultural adjustment."

With respect to the design of permanent work, one commentator has described some of the respects in which the design professional's services as a subcontractor to a design-builder differ from services provided by design professionals on design-bid-build projects, as follows:

" Designing by system. Instead of adding detail gradually to the drawings and focusing on the traditional deliverables of schematic, design development, and construction drawings, the A/E takes advantage of the contractor's expertise to design the project system by system. In a typical design-build project, the design professional starts with a preliminary design of a system, such as structural steel, HVAC, or roofing, and shares the concept with trade contractors or vendors to obtain their input. Using their input, the A/E refines the design of the system and resubmits it to the contractor or vendor for additional input. The design continues to be refined with each successive round of input until the design-build team is satisfied with the design of each system. Final design then consists of integrating the various systems into the facility as a whole.
Eliminating "defensive detailing." In traditional construction, design professionals "waste" a great deal of time during the construction documents phase adding a great number of details to the plans and specifications for the primary purpose of avoiding change order claims by low-bid contractors. Construction superintendents commonly agree that only about two-thirds of the detailing on the drawings is necessary to know how to build the facility (and that some necessary details are omitted). In design-build, it is more efficient and usually preferable to rely on informal communications, such as minutes of meetings, sketches, or even verbal explanations, rather than on "defensive detailing," to convey design intent.
Investigating alternative designs. In traditional projects, the A/E tries to minimize the number of alternative designs that the owner can require it to create because the alternatives are for the owner's benefit and the design fee is rarely large enough to allow such creativity. In design-build, design alternatives are for the design-build team's benefit and are an attempt to achieve the project criteria more quickly or efficiently. Much of the labor time saved by not defensively detailing the drawings is spent investigating alternatives that might save time or money.
Delegating design to specialty subcontractors. In design-build projects, the A/E can take advantage of the presence of specialty subcontractors by delegating to them the responsibility for completing the relevant aspects of the design of their systems. This approach is also commonly used in traditional construction, particularly by design professionals who provide only schematic designs of the mechanical, electrical and plumbing systems for subsequent completion by the MEP subcontractor(s). This practice is increasingly used for other systems, such as precast concrete, structural steel, and curtainwalls. The design-build team must be careful, however, to ensure that delegating the design responsibility to the specialty subcontractor does not violate applicable licensing laws.
Setting price constraints. Design-build often involves greater than usual price constraints for A/Es. Not only is the design-build team usually required to guarantee a price at a relatively early stage in the project, but construction costs in excess of the guaranteed maximum price come out of the design-build team's own pockets. However, most design professionals find it easier to design within design-build price constraints than to a fixed limit of construction cost in a traditional project because of the availability of pricing information during the design phase.
Altering design sequencing. Design professionals in design-build projects find that they must provide design details in sequences different from those common to traditional projects. The sequences in traditional projects are geared toward providing the usual deliverables at the end of each design phase. In contrast, in design-build the A/E must provide design details as when the contractor needs them for pricing or other purposes. This change of sequence is less difficult than it might seem if the design professional is employing the system-by-system design approach described earlier.
Setting performance specifications. In traditional projects, the A/E is the project police officer whose goal is to compel the contractor to follow the construction documents. Accordingly, to minimize disputes and time spent during the construction phase, the design professional tends to employ prescriptive specifications wherever possible. In design-build, the A/E's goal is to maximize flexibility for the design-build team and to encourage substitutions and design alternatives as long as the project criteria are achieved. Accordingly, the A/E often prefers to use performance specifications in the contract documents wherever possible." Design-Build, §2.08 [B], at 56-57.

Another author has commented on the impact of cost considerations on the design professional as follows:

"Another outcome of soliciting design input from construction players is a focus on cost reductions. A bottom-line perspective is often obtained because a design-build entity usually has a price limitation, if not a fixed price, agreed to with the owner. This cost orientation may also permeate the relationships with trade subcontractors who perform portions of the construction work on a fixed price basis in an attempt to achieve savings. Tension may arise when the designer of record has to finalize construction requirements in conformity with engineering standards, safety requirements, building codes, esthetic considerations, and other professional considerations. If the constructor plays the lead role in the design-build process, it may increase the emphasis on bottom-line considerations at the expense of engineering or operational considerations. This entails more responsibility and risk for the constructor but increased pressure for the designers. Similarly, if the scope or price of the design services are strictly limited, tension may also arise within the design-build team because of the professional standards conflict, creating a source of additional risk." Design-Build, §1.03.

5. Professional Liability Considerations

5.1 The manner and fairness in which risk is allocated between the owner and design-builder will impact allocation of risk between the design-builder and the design professional subcontractor. As a general proposition, if risk is unfairly or inappropriately allocated in the prime agreement between the owner and design-builder, it is probable that the design professional will - by virtue of "flow down" or "incorporation by reference" provisions - be subjected to a similarly unfair, or inappropriate risk allocation burden and, when that occurs, there is a significantly increased probability of professional liability exposure for the design professional. D.J. Hatem, Subsurface Conditions: Risk Management for Design and Construction Management Professionals, Chapter 10 (New York: John Wiley & Sons, Inc. 1998), pp. 313-340; D.J. Hatem, "Risk Allocation for Subsurface Conditions: Design-Build Projects," The CA/T Professional Liability Reporter, Vol. 4 - No. 3 (Boston: Burns & Levinson LLP, July 1999), pp. 1-17. Examples of unfair or inappropriate risk allocation provisions include warranty/guaranty provisions with respect to design adequacy; complete risk transfer to the design-builder for unanticipated site and environmental conditions; redesign at no cost due to building code or regulatory changes that impact design; and responsibility for obtaining all local, state or federal or other governmental approval required for the design and construction of the project. In addition, constructors (and their counsel) may not be sufficiently sensitive to and/or conversant with liability and risk management concerns from the standpoint of the design professional, thus negatively impacting the prime contract negotiation process in the sense that the design professional's interest will not be adequately represented. For those reasons, it is important that the design professional (and its counsel) have a "place at the table" in the negotiation of the prime design-build agreement - at least with respect to discussion of issues that pertain to the design professional.

5.2 In addition to risk allocation provisions in the prime agreement, there are other important factors that may impact the professional liability exposure for design professionals in a contractor-led design build project:

5.2.1 The range of services to be provided by the design professional is likely to be more encompassing than the design professional's scope on a traditional design-bid-build project, particularly as relates to retention of subconsultant disciplines. Specifically, consistent with the design-build hallmark principle of "single-point responsibility", it is probable that the design professional subcontractor will be required to retain all professional service disciplines, including geotechnical, environmental, asbestos, hazardous waste, civil, site, survey, permitting and other services. On the even more non-traditional end of the spectrum, professional services such as cost estimating, accounting, public relations and legal services may be required to be retained by the design professional. The greater the range of subconsultant retention, the greater the range of potential professional liability exposure, especially if the service activities fall beyond those traditionally retained and managed by the design professional.

5.2.3 At the other end of the spectrum, the structural relationships for the design-build project may involve the retention of multiple, prime design professionals by the design-builder or the retention of one prime design professional and multiple design professionals to be retained by specialty trade contractors. In these circumstances, liability exposure issues will be presented arising out of design coordination responsibilities and the potential ambiguity, fragmentation and diffusion of responsibility for final design as among multiple design professionals. D.J. Hatem, "Design Delegation: Risk Management/ Allocation Considerations for Design Professionals," The CA/T Professional Liability Reporter, Vol. 4 - No. 1 (Boston: Burns & Levinson LLP, November 1998), pp. 1-21.

5.2.4 In many significant design-build projects, the owner will correctly perceive the need and/or desirability of retaining its own design professional consultant to develop conceptual or preliminary design and represent its interests in the design-build procurement process, the review of design development submissions by the design-build team and in the review of submittals, certifications, payment requisitions and observation of construction during the construction phase. D.J. Hatem, "Design-Build: Professional Liability and Risk Management Issues for Design Professionals," The CA/T Professional Liability Reporter, Vol. 2 - No. 2 (Boston: Burns & Levinson LLP, December 1996), pp. 8-20. The degree of involvement of the owner, directly or through its professional consultants, in design development and review, as well as the degree of discretion delegated to the design-builder (and its design professional subcontractor) to develop the design, are factors that will significantly impact on professional liability risk for the owner, its design professional consultant, as well as the design professional who is a subcontractor to the design-builder. D.J. Hatem, "Design Delegation: Risk Management/ Allocation Considerations for Design Professionals," The CA/T Professional Liability Reporter, Vol. 4 - No. 1 (Boston: Burns & Levinson LLP, November 1998), pp. 1-21; D.J. Hatem, "Design-Build: Professional Liability and Risk Management Issues for Design Professionals," The CA/T Professional Liability Reporter, Vol. 2 - No. 2 (Boston: Burns & Levinson LLP, December 1996), pp. 8-20. In this regard, one commentator has stated:

"Risk allocation in design responsibility is a key difference between design-build and the traditional design-bid-build delivery system. Traditionally, there has been a clear demarcation between design responsibilities and construction responsibilities. But the design-builder has increased responsibility for the defects and deficiencies in design, particularly those aspects of design that it prepared. Not all of the design aspects are performed by the design-builder. For example, prior to selecting the design-builder, the owner may retain a designer to develop a project concept, a program, and criteria that may become the project requirements handed over to the design-builder to implement. The owner has responsibility for these aspects of design. There is no bright-line test that separates this aspect of design from the more detailed engineering and design performed by the design-builder. However, design responsibility is shifted from the owner to a greater extent under design-build than in more traditional project contracting methods." Design-Build, §1.03, p. 12.

5.2.5 The greater the involvement of the design professional in the design and/or implementation of construction means and methods or safety precautions or programs, the greater the design professional's liability exposure for bodily injury and property damage claims and exposure under OSHA. D.J. Hatem, "Design-Build: Professional Liability and Risk Management Issues for Design Professionals," The CA/T Professional Liability Reporter, Vol. 2 - No. 2 (Boston: Burns & Levinson LLP, December 1996), pp. 8-20; D.J. Hatem, "Changing Roles of Design Professionals and Constructors: Risk Allocation, Management and Insurance Challenges," The CA/T Professional Liability Reporter, Vol. 3 - No. 3 (Boston: Burns & Levinson LLP, May 1998), pp. 1-16.

5.2.6 In traditional design-bid-build, the contractor typically is furnished with a "complete" design by the owner that carries with it an implied warranty that the owner-furnished design is complete and accurate in all respects, and constructable. D.J. Hatem, "Design-Build: Professional Liability and Risk Management Issues for Design Professionals," The CA/T Professional Liability Reporter, Vol. 2 - No. 2 (Boston: Burns & Levinson LLP, December 1996), pp. 8-20. If that warranty obligation is breached, the contractor (subject to the terms of the Contract Documents) may be entitled to an appropriate equitable adjustment from the owner. In contrast, in design-build, the owner - at most - provides the design-builder with a conceptual or preliminary design and often disclaims the completeness, accuracy and/or constructability of that design. The Design-Build RFP typically will explicitly state that the design-builder will be responsible for the development and finalization and accuracy of the design, and for the adequacy, completeness or certain performance characteristics of that design. As such, in a design-build project, it is unlikely that in most instances, the design-builder will have any significant recourse against the project owner for "defective design". As a practical matter, however, this lack of recourse against the owner translates into a higher risk of errors and omissions claims by the design-builder against its design professional subcontractor.

In addition to professional liability considerations, the design professional who is a subcontractor to a design-builder must carefully evaluate several other factors, such as:

1. Insurance Considerations: What types of insurances are required - workers' compensation, general liability, professional liability, builders' risk, etc. - and of what team members? Who is responsible for insurance procurement? Who should or may be added as additional insureds and on what coverages? How do insurance provisions dovetail or otherwise relate to indemnification obligations? How should waiver of subrogation provisions be addressed? Who determines that adequacy of coverage limits and the amount of deductibles/retentions? How does one design an insurance program that avoids both gaps and redundancies (that will result in unnecessary premium cost and heighten the risk of coverage disputes (D.J. Hatem, "Changing Roles of Design Professionals and Constructors: Risk Allocation, Management and Insurance Challenges," The CA/T Professional Liability Reporter, Vol. 3 - No. 3 (Boston: Burns & Levinson LLP, May 1998), pp. 1-16.) Who will be responsible for the payment of deductibles and retentions under the required coverages?

2. Business considerations: Who will be responsible for the costs of responding to the design-build RFP? Will the design professional be reimbursed? Will the design professional be able to obtain any renumeration for such efforts through a "success factor" payment? How can the design-builder and design professional provide a mechanism to account for and objectively measure the basis for any equitable sharing in profit and cost savings?

CONCLUSION

The design-build method clearly has a permanent place in the menu of realistic project delivery options for many private and public sector owners. The critical issue for design professionals is what position they want to assume in the design-build method. Although there are a variety of options, design professionals, at least presently, seem inclined and/or reconciled to accept a subordinate position as subcontractor in a contractor-led approach. Whether this position is professionally and economically rewarding and fulfilling and, in the long term, in the best interest of the independence and traditional mainstream client relationships of design professionals, is open to serious question and, presently, should be carefully evaluated by design professionals and the organizations which represent their interests.

Attribution

David Hatem, Esq. is a partner with Burns & Levinson, LLP, Boston, MA and chairs the firm's Professional Practice Group. Mr. Hatem is nationally known for his representations of architects, engineers, construction management professionals, and environmental professionals. He may be reached at (617) 345-3000 or e-mail at dhatem@b-l.com.

The information in this and all other RISK Administration and Management Company articles is intended for information and risk management purposes only and does not constitute legal advice. For legal advice and assistance, please contact competent counsel in the jurisdiction of your professional practice.

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