Design-Build Contract Risk Allocation - Design-Build for Water and Wastewater Projects - page 114

for a number of reasons, including the owner's belief that the contractor has the requisite
skills to manage the entire DB process, which entails overseeing the design process, fast-
tracking construction, and procuring the necessary equipment and materials. In addi-
tion, contractors usually possess sufficient financial resources to assume contractual risks,
including providing bonds and managing large payrolls and the cash flow required for
these projects.
Other organizational structures exist, including having the team form a single entity,
such as a joint venture or other special purpose entity, for purposes of performing the
contract. These structures place the design professional at greater risk and may not be
acceptable to the owner unless some specific safeguards are taken to protect the owner's
interests. As noted, there are a number of integrated DB companies in the water and
wastewater industry that not only have strong engineering expertise but also have con-
struction expertise within their organizations. Some of the integrated firms when working
alone or in joint venture with a construction firm are perceived by owners as engineer-led
design-builders.
Flowing Down Prime Contract Terms to All Team Members
Experienced and successful design-builders involved in complex projects, such as water
and wastewater projects, recognize that a traditional prime contractor-subcontractor rela-
tionship, in which the contractor flows down to the designer as much risk as possible,
is not necessarily conducive to success. Such an approach usually has associated costs,
whether it is higher design fees or a greater likelihood that disputes will eventually ensue
between the parties. Instead, the likelihood of a successful relationship between contrac-
tor and designer (and thus, a successful project) is enhanced by employing a modern risk
allocation philosophy under which risks, if not shared, are allocated to the party best able
to manage and bear the cost of those risks.
The starting point for first identifying and then allocating risks between contractor
and designer is the agreement between the design-builder and the owner of the water or
wastewater project. The agreement between the contractor and the designer must mir-
ror the provisions of the owner/design-builder agreement. The members of the DB team
all have to be working to the owner's requirements, including those relating to schedul-
ing, submissions, scope of work, and standard of care. For example, if the standard of
care is diluted in the designer's agreement from what is required in the design-builder's
agreement with the owner, the design-builder cannot possibly satisfy its obligations to the
owner. This is why prudent project owners ask to review the contracts between the DB
team members prior to execution, simply to ensure that the owner's objectives for the proj-
ect will be met. Conversely, all members of the DB team must be intimately familiar with
the owner's contractual requirements prior to structuring their relationships.
The task of negotiating the agreement between the contractor and the designer will
be made significantly easier if the designer actively participates with the contractor in the
procurement and negotiation of the DB contract with the owner. The designer's involve-
ment will help ensure that the designer fully understands the owner's requirements, how
the design-builder arrived at its price, and other key assumptions the design-builder has
made with the respect to the project. This early involvement will also help minimize