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Quick Guide to Design and Build Contracts for Contractors

The CrewCost Team
Published Jan 9, 2024

With an emphasis on collaboration and streamlining all phases from design, construction and close out, the design and build contract is becoming more and more popular in the construction industry. Instead of a formalized bidding phase (following receipt of the full construction set), you will be involved early on in the process with the design team to develop the budget.

Previously known as integrated project delivery, this type of contract does not lead to competitive bidding as you will be establishing the costs for scope of work as the drawings are being completed. Simply, you and the design team will be working in tandem to make the owner’s vision a reality instead of being brought in late in the game and have a short window to provide an estimate and qualify scopes of work.

Key Takeaways


  • The design and build team includes the architect, engineer/consultants and general contractor together under one contract.
  • Costs are established early on as you will be in receipt of preliminary drawings earlier than in a traditional project delivery method.
  • The speed at which the project is completed is much quicker as each step involves more collaboration than traditional siloed construction methods.

What is a Design and Build Contract?

Owners look to design and build contracts when they want to simplify the contractual phase and bring the architectural design services and construction services under the same contract. The goal of combining both into one contract is to let coordination and communication take place across all phases of construction and streamline the collaboration of both parties. Typically with this type of contract, owners will have one point of contact who will be able to report on both design and construction issues.

Pros + Cons of Design and Build Contracts for Construction

Pros

  • Above all else, this type of contract leads to strong collaboration between all parties.
  • As a contractor you will be brought into the process early on to advise on project feasibility before the actual construction phase begins.
  • Since you get to speak to the design team early on in the process there is potential for significant budget savings.
  • Instead of the constant back-and-forth and blame game that happens during other types of contracts, information sharing between you and the architect starts early on in the process, which leads to less finger pointing and more collaboration.

Cons

  • The risk mostly falls on you as a contractor in this type of contract for any unforeseen errors or costs.
  • There needs to be a high level of trust between the design-build team (designers and contractors) as you will be working in conjunction throughout the whole process.
  • The owner most likely will be more involved in the build process which can lead to delays.

Uses for a Design and Build Contract

First and foremost, these contracts are typically only used when an architect and a contractor have previous experience working together. Since design and construction teams will be working together throughout the duration of the project, it’s essential to have open communication throughout. Whether small or large projects, this limits the finger pointing and ensures a collaborative process throughout.

Some contractors also have the capabilities (whether they are licensed architects or have draftsmen in house) to perform design and build work without hiring a design team. This option will help increase your profit and limit the amount of stakeholders in the process.

Best Practices for Contractors Under a Design and Build Contract

As you are under the same contract as the architect/design team, it is essential that roles and responsibilities are clearly defined at the onset before signing any agreement. While the process of a Design and Build contract is collaborative, you need to make sure to protect your interests by speaking to the architect to ensure you both understand your roles. The contract should establish primary responsibilities of each entity on the design-build’s team from: primary design responsibilities, plan review, quality control, construction phase and more.

To be prepared, you should include in the contract how team members will communicate as well as expectations and deliverables. You should set concrete dates for recurring meetings along with deadlines for putting together information to the owner.

Since you are under the same contract as the architect/design team, it is essential that there is trust, open communication and ongoing collaboration. A pitfall of this contract is there is no clear delineation of when design stops and construction ends, so it is important to realize that it is an evergreen process and design and construction often happen congruently.

How Design and Build Affects Profitability

While this doesn’t impact you as a contractor, with this delivery method, owners are not able to differentiate between revenue from construction and design. As both costs are lumped in together, they won’t fully be able to separate soft costs from hard costs.

Since there is more emphasis on a contractor driven design versus a purely aesthetic driven design, overall costs may lower but your overhead and profit will not be impacted. While you will still be responsible for subcontractor, change and risk management (like all other delivery methods), your construction expertise will be used heavily in the design process. As such, you must budget accordingly when agreeing to the overarching cost of the design-build contract so your time is fairly compensated.

Often, contractors fail to understand the time needed in design development and bank on the markup/profit they have on the construction phase. Similar to the bidding phase (with it being a sunk cost in hope of obtaining business) you can look to the design phase in a design and build contract as well as a sunk cost, but most contractors will speak with the owner early on before a contract is executed to best understand how much involvement they will have in the overall design phase. Once you understand the total time needed to assist in the design phase, you will include a lump sum cost which is added to the construction cost (and the design teams cost) for the owner to sign off.

Further Reading: A Guide to the 8 Types of Construction Contracts


Author
The CrewCost Team

The CrewCost Team consists of men and women who have worked in the construction industry as project managers, general contractors, sub contractors and more. They share their decades of experience on our blog as a way to help other contractors grow healthier and more profitable businesses.

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