Design-Build Contract Risk Allocation - Design-Build for Water and Wastewater Projects - page 112

of achieving these standards before it can accept the risk of failing to achieve them. Here
again, progressive DB contracting affords the owner and design-builder an opportunity
to review the performance standards, to understand how they will be measured, and to
ensure that the design being developed is capable of satisfying these standards. DBIA's
Standard Form of Agreement Between Owner and Design Builder provides the parties
with an option that allows the owner to establish specific performance standards for
aspects of the work (DBIA 2010b).
Establishing Time of Performance
The timely completion of a water and wastewater project is of paramount importance.
Owners need to know that their facilities will open on time to satisfy legislatively imposed
requirements. Accordingly, the failure to bring the facility online in a timely manner will
not only have financial sequences but also may well result in a public relations fiasco. The
design-builder will also suffer immediate financial consequences if the project is not com-
pleted on schedule. The design-builder will incur extended general conditions costs and
will be required to pay liquidated damages or the owner's actual damages if the delay is
determined to be the design-builder's fault. The design-builder's reputation will be seri-
ously, if not irreparably, injured.
Because of the substantial risks associated with constructing a water or wastewa-
ter project, a design-builder may not be prepared to subject itself to unlimited financial
exposure. Owners, however, look to recover the damages they will suffer if the facility is
delayed, and at the same time they seek a tool to motivate the design-builder to perform
its obligations in a timely manner. Accordingly, on many of these projects, the parties
agree to liquidated damages if the project is not completed by a certain date or dates.
The parties will have to address whether to cap liquidated damages so that the design-
builder knows at the outset of the project what its ultimate liability to the owner might
be for late completion. The parties may also agree that the amount of liquidated damages
will vary depending on how much time is needed for the design-builder to complete the
project. For example, liquidated damages can be assessed at one rate for the first 30 days
of delay, and a lower rate thereafter until substantial completion is obtained. Courts will
endorse liquidated damages providing that the amount does not constitute a penalty but
instead represents a good-faith effort on the owner's part to approximate the amount of
financial harm the owner will suffer if the project is not timely completed. To avoid a
fight over which entity bears responsibility for a few days of delay, a grace period is often
established, whereby the parties agree that liquidated damages will be assessed after the
scheduled substantial completion date.
While owners believe liquidated damages help motivate timely completion, perhaps a
better motivational tool is to combine liquidated damages with an early completion bonus.
This permits the design-builder to earn additional sums if it is able to better the contract
schedule and provide the owner use and operation of its facility before the scheduled sub-
stantial completion date. As with liquidated damages, early completion bonuses can be
structured in many different ways. However the bonus is structured, the design-builder
should be afforded a realistic chance to earn its bonus so that is sufficiently motivated to
complete the project earlier than scheduled.