Engineering News-Record (ENR) Magazine recently wrote a thought-provoking article entitled “Will Claims by Contractors on Big Design-Build Projects Ever End?” Progressive design-build is mentioned as a means to address some of the critiques that design-build faces today. Progressive design-build has attracted increasing usage on larger projects, especially horizontal construction.[i] So is progressive design-build (PDB) as good as a PB&J sandwich with the crusts cut off? And if so, what does that mean for standard form contract language around this approach?
What is Progressive Design-Build?
Progressive design-build procurement uses two phases. The first phase is a qualifications-based or limited-scope best-value selection to procure the design-build team before the price is set. If best-value is used in the selection process, fees, and compensation for the first phase can be considered. Total price isn’t available during the selection process. Significantly, this first selection phase is quick and less resource intensive for the competitors than a more typical design-build procurement selection. Consequently, some call this a beauty pageant. One step in assessing qualifications is to use a qualifications statement or questionnaire. ConsensusDocs was the first industry-standard qualifications statement specific to the design-build project delivery method – the ConsensusDocs 421. In addition, owners may shortlist competitors, typically the three most qualified teams, before moving to interviews and discussing technical proposals.
The second phase covers completing designs and construction. Significantly more design is developed before the price is set. Achieving 40 to 70 percent design completion is common and even up to 100 percent in some cases. Consequently, project unknowns and risks are more clearly investigated and solved before setting a lump sum price or guaranteed maximum price (GMP). More communications and closer collaboration between the owner and the design-build team take place to ensure the schedule and budget goals are met.[ii] This is certainly true before the price and schedule are set through accepting a commercial proposal. Momentum for closer collaboration will likely continue once established on a given project.
Contracting for Progressive Design-Build?
Progressive design-build contracts follow a two-phased approach. ConsensusDocs standard construction contracts offer an entire package of design-build standard contracts documents in its 400 series. These contracts are compatible with a progressive design-build and include an option to use a two-phased approach. The first phase to get a design-builder under contract without locking in a price or GMP should be quick and easy. This is accomplished with the ConsensusDocs 400 Standard Preliminary Design-Build Agreement Between Owner and Design-Builder. This agreement takes the design potentially up to schematic design. While some projects may not use a contract for the first phase, this is not recommended. Unwritten construction contracts are not worth the paper they should have been written on.
When the Owner and Design-Builder agree to move onto a second phase, a ConsensusDocs 410 Design-Build Cost-of-the-Work Agreement or the ConsensusDocs 415 Design-Build Lump Sum Agreement are both excellent options. If an agreement for the second phase isn’t reached, failure to agree is a natural “off-ramp” that practitioners associate with progressive design-build. Significantly, the ConsensusDocs 410 utilizes a cost-of-the-work approach. Even after agreeing to the design-build agreement in the second phase, the GMP is not set until later in the project when the ConsensusDocs 410.1 GMP Amendment is executed. Consequently, the design could reach 70 percent development or more if the parties desire. Moreover, failure to agree upon a GMP amendment is another potential off-ramp.
Since the ConsensusDocs 415 is a lump sum agreement, the ConsensusDocs 400 is required to provide sufficient design detail to lock in a final fixed price, also known as a lump sum. When using the ConsensusDocs 410 cost-of-the-work agreement with a GMP, the ConsensusDocs 400 preliminary agreement is considered useful but optional. Using only the 410 from the beginning of the project with the 410.1 amendment is regarded as a single-phased design-build contractual approach and, therefore, incompatible with a PDB approach.
Progressive Design-Build at the Upcoming AGC Annual Convention
The AGC annual convention taking place March 13-15 in Las Vegas, Nevada, will address progressive design-build at a session entitled Progressive Design-Build – The Latest Hot Contracting Method on March 15 at 9:30 AM. This session will explore the differences in this procurement selection methodology within design-build and some advantages and potential pitfalls. This year’s AGC convention is part of Con Expo Con/Agg, the largest construction conference in North America. In addition, the recent AGC Surety Bonding and Construction Risk Conference, which was sold out and set attendance records, included a well-attended and highly regarded session on PDB “A Guide to Progressive Design-Build Bonding and Insurance,” which you can find here.
If you have questions or need further information in regard to this issue, feel free to contact Brian Perlberg, AGC’s Senior Counsel for Construction Law and ConsensusDocs’s Executive Director at brian.perlberg@agc.org or bperlberg@consensusdocs.org.
[i] https://watercollaborativedelivery.org/how-big-is-big/.
[ii] See LCI’s website at https://leanconstruction.org/lean-topics/progressive-design-build/ and Progressive Design Build, a Design-Build Done Right Primer, Design Build Institute of America. https://dbia.org/wp-content/uploads/2018/05/Primer-Progressive-Design-Build.pdf