Bonding Design-Build Projects - Design-Build for Water and Wastewater Projects - page 141

without some trepidation, due to the design-builder's control over and resulting liability
for design risks. The surety's decision to issue performance and payment bonds for a DB
contract is made on a project-specific basis and takes into consideration the specific terms
of the contract, the risks that are transferred to the design-builder under the contract, the
design-builder's skill, experience, and financial capacity to perform the project, and the
indemnification for the surety against loss.
Although the surety's assumption of risk is greater under DB than under other
project delivery approaches, DB can also offer the surety some potential benefits. For
instance, it has been suggested that the heightened control and cooperation inherent in a
properly managed DB project can actually result in reduced risk overall to the surety and
design-builder.
The major areas of surety underwriting of risk assessment concerns for DB projects
are:
1. Performance complexity, as evidenced by requirements for use of new technology
or specified performance guarantees
2. Clarity of contract scope, including guaranteed process inputs and measurable
performance outcomes
3. The structure, experience, management skills, and working relationships of the
DB team, including consideration of contractor/specialty-subcontractor/design
professional relationships, compliance with licensing requirements, design qual-
ity control procedures, and dispute resolution
4. Adequacy of capital to finance the work and to indemnify the surety in the event
of loss
5. Quality, sophistication, experience, and reputation of the owner on prior projects
6. Contract terms and conditions, particularly those addressing change orders,
allocation of differing site conditions risks, express guarantees and warranties,
entitlement for changes in contract scope, ownership of design documents, scope
and insurability of contract indemnity clauses, scheduling provisions, excuses for
nonperformance, design-builder exposures for unexcused delay, allocation of lia-
bility for consequential damages, fairness of dispute resolution procedures, and
any limitations on recourse against the owner with respect to liability or damages
7. Bond terms and conditions, including the amount of the penal sum and scope of
bond coverage as to design and construction risks
8. The overall insurance program of the owner, design-builder, and subcontractors,
including extent of seamlessness in comprehensive general liability and profes-
sional errors and omissions insurance coverages, extent of completed operations
and “tail” coverages, limits of coverage and applicable deductible and loss reten-
tion provisions, and existence of any unilateral cancellation provisions
SURETY'S ASSESSMENT OF SPECIFIC
DESIGN-BUILD RISKS
The surety's decision to guarantee performance of a DB contract involves an assessment
of concerns about the allocation and severity of specific risks unique to the contract. This
risk is viewed against the backdrop of the surety's traditional bond underwriting criteria