Design-Build Contract Risk Allocation - Design-Build for Water and Wastewater Projects - page 110

prices from other design-builders, or the owner can request that the design be completed
and the project bid as a DBB assignment. The original design-builder is relieved of any
liability for the partially completed design, which would now become the responsibility of
the subsequently selected design-builder.
Controlling Project Costs
As previously discussed, a benefit to the owner of DB contracting is the ability to estab-
lish a contract price sooner than under the DBB delivery model. The risk to the design-
builder, of course, is committing to contract price based on incomplete design. If the
owner requests the design-builder to provide a firm, fixed stipulated sum, a prudent
design-builder has to include amounts to cover unforeseen risks, such as design risks,
which are now the design-builder's responsibility. From the owner's perspective, under
a stipulated-sum contract, the owner is paying the design-builder for contingencies that
may never materialize.
Accordingly, the preferred pricing vehicle that has emerged on DB projects is a GMP
contract. A GMP contract contains elements of both cost-reimbursable and stipulated-
sum contracts. The owner of the project is obligated to pay for actual reimbursable costs
(as defined in the contract) plus a predetermined fee, subject to a guaranteed maximum
amount. The design-builder is responsible for cost overruns in excess of the GMP as
properly adjusted pursuant to the terms of the contract. If the design-builder's cost of
work and fee are less than the GMP as properly adjusted, the savings revert to the owner
unless another business arrangement is reached between the parties to share the savings.
As discussed later, the execution of a GMP contract presents numerous challenges and
risks to the parties.
Unlike a stipulated-sum contract, a GMP allows the parties to establish a contin-
gency for the design-builder's use only if the need arises. It is inevitable, given the breadth
of a water or wastewater project, that issues will arise that were not contemplated by the
parties at the time the GMP was established. Moreover, it is critical, given the amount of
work that has to be done in a compressed time frame, that funds be available to permit the
design-builder to correct defective work and accelerate its activities by working overtime
and multiple shifts. Thus, the construction contingency is intended to provide a pool of
funds to pay for costs of work incurred that were not specifically addressed in the GMP
and do not qualify for an increase in the GMP. Specific examples for which a construction
contingency may be spent include: scope differences between trade packages, trade con-
tractor defaults, overtime and acceleration (regardless of the design-build's fault), correc-
tive work, errors in estimating, and design errors and omissions that are the responsibility
of the design-builder. A good example of a contingency clause can be found in DBIA's
Standard Form of Agreement Between Owner and Design-Builder (DBIA 2010a).
As previously discussed, a progressive DB model holds the most promise for estab-
lishing a mutually satisfactory GMP. This process requires the design-builder to work
closely with the owner and the owner's design consultants before committing to a price.
The design-builder, the owner, and the owner's design team meet frequently to review
the status of the design and the feasibility and constructability of the design in relation to
construction methods, availability of materials and labor, and the construction schedule.
The owner and the design consultants accompany the design documents with a technical