Effective Use of the Design Build Contract Template: A Handbook

All About Design Build Contracts

A design build contract is a construction contract that encompasses both the work of the designer and the builder in the same contract. In a traditional construction project, the architect and construction manager enter into separate contracts with the owner. The traditional process creates a situation where multiple people make statements and/or decisions regarding the project at various times without coordination or communication between the parties. It also requires the owner to spend more money on internal resources to handle budgetary issues and scheduling conflicts. The designer and builder may even experience conflicts resulting from the division of design and construction , ultimately impacting the project itself.
A design build contract eliminates some of these problems by creating one contract that includes the designer, builder and owner. Because the owner is working with one team, there are less opportunities for conflicts, schedule or other design and planning issues. There is also less of an emphasis on completing a plan to bid out for construction, meaning the parties can work together to create the design and build simultaneously. The overall effect is the production of a more efficient project, where the parties work collaboratively and communicate often.

Essential Features of a Design Build Contract Template

At the core of the design build process is the written contract. A well-structured contract provides the framework for successfully delivering the project, along with various rights and responsibilities of all parties. While there is no guaranteed way to create a contract so that it eliminates all risk, proper drafting will go a long way toward minimizing potential disruptions.
Scope of Work
The scope of work in the contract should be clear and concise. The parties should not assume that the designer will just know what to do as the project moves forward. In the event of a dispute, the scope of work will determine which side prevails. Therefore, it is critical to list every single aspect of the work and/or materials that will actually be performed on the project. Some examples of scope items include painting, insulation, installation, demolition, caulking, and even cleanup. Depending on complexity, some projects may call for a more detailed scope with breakdowns of cost estimations and specific tasks to be performed.
Design Drawings
A list and attachment of design drawings should be included in the contract. Change orders to the design should also then be attached as they are put together, so that all changes appear as part of the original contract documents. As with the scope of work, it is important that a plain English description is contained in the contract along with a scope summary. This makes it easier for everyone involved to understand the agreement and what it entails.
Completion Date / Time of the Essence
Parties to design build contracts should always try to include a completion date in the contract, and one that has some flexibility to it. Since the contract governs, it is in the best interest of the parties to make sure that everyone agrees on a completion date. When the project is large and significant, they may also find it helpful to specify intermediate milestones. An example of this would be, "Commence work on March 15, 2010 and achieve substantial completion no later than 12 months from the commencement date."
Payment Schedule
The payment schedule should break down the way the costs will be paid over the course of the project. There are various approaches to a payment schedule, including progress billings based on specific work completed, full payment upon completion, or partial payments upon pre-established milestones or upon completion of certain portions of the work (such as excavation.) An initial deposit upon signing of the contract is also common. It is also important to describe each of the payment terms as outlined in the contract in terms that he or she can understand.
Responsibility for Deliveries
It is also important to determine whether the contractor will be responsible for any property that is damaged by deliveries made to the job site, and when it comes to removals. The specifications of the scope of work may cover some of these items, and the entire issue of payments may also be covered in greater detail. Documentation such as receipts for payments made to third parties (i.e. subcontractors) may be required by the owner, and contractors may also be required to include a payment schedule that details the dates and amounts due.

Legal Aspects of a Design Build Contract Template

Design build contracts offer several advantages but they are not without risks. One of the key legal considerations in design build contracting is whether or not a design build firm is financially qualified. There are no licensing requirements to be a design build firm but lenders will likely want to see that your firm has sufficient funds to cover the costs of the project.
Another important legal consideration is insurance requirements. Your firm will have to obtain general liability insurance. Ensure that you have discussed coverage with your underwriters and that your policy covers all the work your firm will be doing. The scope of the policy should also include cover for liability on projects where others may have performed work for the design build project.
A written agreement is essential to a successful design build contracting project. It should contain all provisions for completing the design build project and the rights and responsibilities of all parties. While it may be tempting to enter into contracts with pre-printed forms such as AIA forms, ensure that you are not inadvertently accepting unreasonable risks or agree to terms that could disrupt the progress of the design build project. When completing printed forms, make sure that all blanks are filled in and all riders and addenda are attached and initialed.
Write the design build contract so that it is clear and complete. Be specific about responsibilities. Make sure all parties are aware of what work belongs to them and what work is the responsibility of the other parties. Avoid using technical language or jargon to describe responsibilities. If there are ambiguous provisions or conflicts in the contract, they can be exploited by others to your detriment.
To mitigate risks, consider purchasing Errors and Omission (E&O) insurance. E&O insurance will protect your firm and its directors and officers from potential losses in the event claims that the design build firm was negligent. E&O insurance provides coverage for damages, defense costs and attorneys’ fees. E&O insurance also protects your firm from liability arising from alleged or actual mistakes in professional services.

How to Draft a Design Build Contract Template

When it comes to customising the Design Build Contract Template, or any automated document template for that matter, It is important to understand that you do not have to wait until a later point in the construction process, say at the time of documentation review, to make clear and positive changes to the Template. Too often, I have observed that one waits until a contract wordsmith has reviewed the Template, or you have some further ‘fresh set of eyes’ on the Template, to address issues with the Template. By this approach, the intention of the change is lost from the outset. Instead, and to ensure that all parties to the Template are clear as to the intentions of the parties at the outset and that nothing gets lost in interpretation, I recommend to my clients to action the following:

Step 1: Understand the Position

Like any contract / document it is useful to understand what information / details the Template needs as a minimum to be effective. The bowels of the Construction Contract Template need to be fully understood before proceeding to make changes in the Template. This may take the form of contacting an expert in the field, asking the Template writer for a call or, in my view best, sitting down and carefully reading through the Template to decipher its intention.

Step 2: Inform and Debate

Once an understanding of the Template’s intention has been reached, it is then the time to inform: At this stage of the process, a record of the discussion and the intended changes should be documented to be included in the later final documentation review. With that said , it is also important to acknowledge what will not be discussed at this point not be discussed. Not everything requires a discussion and far from changing every part of the Template, it is important to remember that the Template already contains critical changes which satisfy obvious risk and the need to make changes must be focused on those items that are material to the changes to the risk profile upon which the Template is based.

Step 3: Consult with the Lawyer

It is common for, and natural that the lawyers with whom you work will not (and cannot always) understand the workings of your industry. So while Steps 1 and 2 above are important for any legal professional to appreciate, it is not necessarily a bad thing. A classic example of this may be a Net Cost Plus contract which is a perfectly good Construction Contract Template but which is often attended to with a heavy dose of caution or scepticism by the broader legal community. This is in part due to the heavy involvement of legal professionals in BIM projects and a lack of understanding of how Trimble & Co. go about pulling a Net Cost Plus together. My advice to my clients is not to hide the ball or circumvent the lawyers from making their views known. The Design Build Contract Template has not been drafted lightly and is based upon 20 years, on this basis of experience offering insight into what can work and what does not. Equally, the role of the lawyer is essential in providing a real legal expertise in ensuring that the contract is compliant with its intention and meets the necessary requirements of law.

Pitfalls to Avoid

One common mistake is assuming that a template provides a one-size-fits-all solution. This is rarely the case, and failing to customize the agreement can lead to terms that are either too broad or too vague. It’s crucial to carefully review the document and adjust the specifics to meet the unique details of your project. Another pitfall is the use of ambiguous language, which can lead to differing interpretations down the line. High-quality contracts are clear and concise in their terms; be sure to use unambiguous language so that everyone is on the same page regarding the terms. People also tend to skimp on the details. The more comprehensive and specific the agreement is, the better prepared you’ll be if issues arise. Including clear timelines, deliverable specifications, responsibilities and obligations, and addressing materials provided by the owner all help to paint a picture of the agreements in great detail so that everyone involved is aware of what is expected of them. Finally, some people draft the contract but never have it reviewed by a professional. If there are areas of the contract that you’re not sure about, having it reviewed by a skilled professional will ensure that you’ve covered all of the necessary bases.

Advantages of a Design Build Contract Template

One of the immediate advantages of using a design build contract template is that it can save you time and money. Designing and drafting a contract from scratch can take hours or even days, particularly if the construction project is complex. However, with a written template, much of the work has already been done for you. As long as you can find a template that is close to what you are looking for, you can save substantial time by refining the template into your new design build contract.
When it comes to money, having a design build contract template can save you quite a bit in legal fees. Lawyers bill by the hour and spend much of their time researching law , drafting, reviewing, redrafting, etc. When working with a template, these steps should go a lot faster since they have already been completed.
A design build contract template can also save you when the time comes to hire an attorney to read through your prepared document. Attorneys are far more likely to be receptive to your template than one you drafted from scratch. A pre-made template that has been finely tuned to fit your specific situation will most likely only require a review, as opposed to a comprehensive drafting. This can save you both time and fees on your next construction project.