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Design Build in Federal Contracting Legal and Contractual Issues in a Military Design Build Projects

Design Build in Federal Contracting Legal and Contractual Issues in a Military Design Build Projects. The 2007 NC State University Military Design/Build Forum May 21, 2007 1:00 -1:45 p.m. Introduction. Joe Henner, Esq. Partner with Kilpatrick Stockton LLP Construction Lawyer for 19 years

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Design Build in Federal Contracting Legal and Contractual Issues in a Military Design Build Projects

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  1. Design Build in Federal ContractingLegal and Contractual Issuesin a Military Design Build Projects The 2007 NC State University Military Design/Build Forum May 21, 2007 1:00 -1:45 p.m.

  2. Introduction • Joe Henner, Esq. • Partner with Kilpatrick Stockton LLP • Construction Lawyer for 19 years • Practiced Throughout United States • Ten Years of Pure Litigation with Design-Bid-Build Projects • Last Nine Years, Front End Delivery Systems and Day to Day Advice

  3. PERSPECTIVES: First Word • Owner-Public and Private • Architect • Program Manager/Construction Manager • Construction Manager at Risk/GC • Subcontractor • Attorney

  4. Session Goals • Understand Key Differences between Design Build and Design-Bid-Build • Understand History and Development of Design Build Laws • Discuss Practical Steps to Minimize Risks of Design Build

  5. Project Delivery: Definition • Project delivery systems define the structural framework for the Owner’s development and management of a construction project

  6. Design/Build Delivery Method • What is Design-Build? • Whenever there is a sole source responsible for both designing and constructing the project, the delivery system is design-build

  7. Design-Bid-Build

  8. Design/Build

  9. Design Build • Provides single point of accountability for delivery of complex projects • Aligns incentives with owner’s goals and increases likelihood of a successful project.

  10. Design Build • Design Liability is Reduced/Eliminated • History Show a Reduction of Liability Exposure • integration of design & construction promotes cooperation • partnering approach • Key is to understand project risks and how to address them

  11. Design Build Issues • Designing to budget • Role of contractor during design • Duties during construction administration • Financial considerations • Bonds • Contingencies • Bonus/penalty • E&O coverages

  12. Distinguish Design Build vs DBB • Lump Sum or GMP includes everything that is reasonably inferable for D/B • In Design-Bid-Build, the GC is only responsible for what is clearly shown on the plans and specifications • Generally, the Change Orders for non land issues are covered by the Contractor’s Contingency.

  13. Distinguish Design Build vs DBB • In Traditional Role, the Architect has its right arm around the Owner. • In D/B, the Architect is a subcontractor to the Design/Build Contractor. • The D/B Contractor is responsible for the quality and timeliness of the design • All coordination issues rest with the D/B Contractor

  14. History of Design/Build • During the 1900s, competitive bidding laws required what is now known as the Traditional Approach • Owner hired Designer based on qualifications and hired the low bid contractor.

  15. History of Design/Build • Historically, all major construction feats were performed by Master Builders who designed and built the structure. • 1940s Naval Facilities Engineering Command used D/B on housing projects • In 1962, NASA used D/B • In 1972, Brooks Act is passed

  16. History of Design/Build • Architects Filed Lawsuits Fighting Against Design/Build laws. • The Brooks Act requires all Federal agencies to select the most qualified designers and price is precluded from the qualifications.

  17. Current Laws for Design/Build • In 1992, ASCE approved a Policy Statement on Design/Build in the Federal Sector • In 1997, the AIA Board released a Position Statement re Public Sector D/B • In 2000, the DBIA published a Guide to the Federal Design/Build Marketplace

  18. History of Design Build • Military Construction Authorization Act of 1986 allowed D/B on a limited basis • Use of Design/Build in the Public Sector doubled from 1986 to 1992 • 1994 and 1996 new laws passed using “best Value” • Federal Acquisition Streamlining Act of 1994 • National Defense Authorization Act of 1996

  19. Current Design/Build Laws • These laws permit the use of a 2 step process. • All Federal executive agencies are permitted to use D/B if that method is appropriate for the Public Project. • The first phase is to evaluate “specialized experience and technical competence.” NO COST • The second phase is the bid with award to highest ranked proponent, including qualifications and price.

  20. Current D/B Laws • In 1997, the Federal Government created the rules for design build Projects. • The Federal Acquisition Regulations codified the required Design/Build Procedures • See 48 CFR Sections 36.102-36.104 and 36.300-36.303

  21. Current D/B Laws • In 1998, Congress passed the Transportation Equity Act for the 21st Century (TEA-21, Section 1307) • Endorsed D/B for its speed, economy and effficiency. • In 1999, the Airport Improvement Program permitted the use of D/B on 7 projects

  22. Alternative Delivery Methods • Most States Have Adopted StatutesPermitting Alternative Delivery Methods • The Standard State Statutes now allow CM at Risk, Design/Build and other delivery methods • Fifty State Construction Contracting • DBIA website; www.dbia.org • Trending toward utilization of all delivery methods

  23. Design/Build: Initial Considerations • Procurement Statutes • Licensing Laws • Insurance Coverage • Performance Bond Coverage • Subcontractors • Lines of Communication

  24. D/B’s Biggest Challenge • THE MAIN CHALLENGE/CHANGE FOR CONTRACTORS WITH D/B IS CONTROLLING DESIGN LIABILITY

  25. Design - BuildShades of Gray • Owner’s Technical Expertise • Owner’s Design Involvement • Limitations Imposed on Design • Superior Knowledge • Comparative Fault • Partial Design • Terms of Solicitation • Information Provided • Terms of the Contract

  26. Quasi Design/Build Projects • Owners, for example the Ga. DOT, have advertised Design/Build Projects with 90% complete designs. • “Bridging Documents” • Does a D/B Architect want to accept liability for another Architect’s work?

  27. Key Contract IssuesPerformance Guarantees • An Obligation That all Or Part of The Project Will Perform In A Certain Way • Strict Liability • Not Unique to Design-Build • Like Performance Specifications • Strong Influence On Design-Build Choice • Product Output, Energy Usage, Pollution Discharges • Enforceable If Clear & Unambiguous

  28. Key Contract IssuesImplied Warranty • Implied Warranty of Fitness For A Particular Purpose • Strict Liability

  29. Key Contract IssuesStandard of Care • Design Functions • Baseline For Evaluating Negligence • Only If No Guarantees/Warranties • Even If Unstated It Applies • Standard of Care May Be Raised • By Express Statement • By Special Expertise • Construed As Performance Guarantee?

  30. Key Contract IssuesFlow-Down Obligations • Are They Design-Build Subs? • General Flow Down • Liquidated Damages • Disputes Procedures • Termination Rights • Resolve Inconsistencies • Flow Up & Flow Down

  31. Special ChallengesBonding • Many Sureties Do not Like To Bond Design-Build • Generally Do Not Bond Design Liability • Fearful of Confusion Between Design & Construction • Higher Premiums & Stricter Underwriting • High Risk For Dispute Over Whether Claim Is A Design (E&O) Issue Or Construction Issue

  32. Practical Advice • How Do We Make this Design Build Model Work?

  33. Alternative Delivery Methods • Successful Project Delivery Requires Fundamentally Different Approach • designers and contractors as team members • open discussions, no hidden agendas • contracting without a complete design • understanding and managing risk

  34. Teamwork • Excellence in D/B starts with Teamwork • A/E and Contractor are Teammates • Open and Frank Team Meetings • Like CM, Contracting without CDs • Utilizing Project Contingencies

  35. CLIENT SATISFACTION:SCOPE, SCHEDULE & BUDGET • With D/B, Contractor Has Increased Client Contact Opportunities • Contractor Can Gain Better Understanding of Owner’s Goals and Program Objectives • Contractor Controls A/E= better control of scope! • Contractor Controls Total Schedule= better control of design development! • Control Budget/GMP Process= better control of $ risks!

  36. Higher Fees Better Opportunity to Recover Soft Costs Better Control of Savings Participation Early Involvement Assist with Program Control A/E’s ego! Control Design schedule Control Scope Development Increased Profits & Protection

  37. Teamwork Requires Leadership • Who should lead? – (Bonds, Schedule, Budget) • How to take leadership role? • How to lead the Owner? • How to manage the A/E’s design and “feelings”?

  38. Teamwork Requires Good Teammates • How is Team Selected? • How to establish clear Roles and Responsibilities? • Maintain Control over Communication • Does Procurement Dictate a Teammate? • Consider Teaming Agreements • Who finances Bid and Marketing?

  39. Teaming AgreementThe Document • Typically intended to be only a preliminary agreement and NOT binding • Intent and limitations must be clearly expressed • Defines team structure and member responsibilities • Can be a brief letter of intent or detailed memo of understanding – NOT an agreement unless intended • It is not a substitute for a comprehensive agreement necessary to perform the project • But final contract (JV or subcontract) will likely incorporate teaming agreement and its structure • Even “preliminary agreements” can have legal consequences

  40. Teaming AgreementProposal Preparation Considerations • Roles & Duties of Each Team Member • Sharing of Cost … often primarily personnel • Disclosure & Ownership of Proprietary Information • Non-compete Provisions • Final Review of Commercial Terms Before Submission • Termination of Agreement • Subcontractors: Simply on the short list or promised the subcontract?

  41. Joint Venture Structure • Single Purpose Partnership • Sharing of Profits & Losses As Agreed • Joint & Several Liability (unintended assumption of risk) • Joint Venture Costs • Management Issues: • Who Is in Charge? Avoid Deadlock • Is Level of Control Exercised by a Party Commensurate With Level of Risk Assumed • Licensing, Insurance & Bonding Complications • Dispute Resolution

  42. Limited Liability Structure • Authorized by State Statutes • Like a Partnership for Tax Purposes • Limited Liability for the Members • Owner May Balk at Limited Liability and Contracting With a Shell • Licensing Laws • Statutory Reporting Requirements

  43. Importance of Owner Participation • Owner Design Input • Owner Design Review • Owner Design Approval • Controlling Owner’s Design Development

  44. Controlling the Design Professionals • Get an Experienced D/B A/E • Make the A/E a Team Member • Clearly Define Lines of Communication • Get Agreed to Deliverables and Schedule • Design Review to Control Scope Development

  45. Henner’s Six Stepsto Problem Solving • Promptly ID Problem • Prompt & Factual Documentation • Thorough Brainstorming • “Name” the Problem & Meet Notice Requirements • Propose a Solution • Create & Force Deadline for Resolution

  46. Thank You • THE ENDJoseph P. HennerKilpatrick Stockton LLP1100 Peachtree StreetSuite 2800Atlanta, Georgia 30309Telephone: (404) 815-6297E-mail: JHenner@kilpatrickstockton.com

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