Types of Building Contract Agreements

Sam Kubba Ph.D., LEED AP , in Handbook of Green Building Design and Construction, 2012

14.2.1 Design−Bid−Build

Design−bid   −   build (DBB) is the traditional method of project delivery and has been the most widely used since ancient times. It is also the one with which project owners are most familiar. DBB is a linear process where one task follows completion of another with no overlap. It commences with an owner selecting an architect to prepare construction documents. Most often the architect will release these documents either publicly to any general contractors or to a select, prequalified group that are invited to bid what they believe the total cost of construction will be. This bid is inclusive of various other bids from subcontractors for each specific trade, and the general contractor's fee is generally built in. The majority of government contracts are required to bid competitively using this method. Contractors bid the project exactly as it is designed and the lowest responsible, responsive bidder is awarded the work. The design consultant team is selected separately and reports directly to the owner. A DBB contract is most suited for less complicated projects that are budget-sensitive but not necessarily schedule-sensitive or subject to change. The owner can define and control the design through the architectural consultant.

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The Green Design and Construction Process

Sam Kubba PH.D., LEED AP , in Handbook of Green Building Design and Construction (Second Edition), 2017

3.6 Traditional Green Design-Bid-Build Project Delivery

In most countries around the world, the traditional Design/Bid/Build (DBB) delivery method has been the approach of choice in both public and private construction projects. It remains the project delivery system that is most widely used today and which is still required by some states. And because of its long history, the design-bid-build method is well understood by the majority of owners, contractors and industry professionals. With this delivery system, risk is minimized through the owner's control and oversight of both the design and construction phases of the project. The design-bid-build process usually provides the lowest first costs based on submitted tenders, but takes the longest time to execute. However, this method has been somewhat modified in addition to increasing complexity by the inclusion of green/sustainability features into the equation.

Thus, when employing the traditional project delivery system, the owner contracts separately for the design and construction of the project to a planned budget. The owner will typically contract directly with a design professional for complete design of the project including contract documents and professional assistance during the bidding stage. The design professional often provides project oversight and continues to administer the construction phase of the project on behalf of the owner. This involves reviewing shop drawing submittals, monitor construction progress and check payment requests as well as processing contractor RFI's re the construction documents and addressing change order requests. When the plans and specifications (bidding documents) are complete, they are released for bidding and solicitation of tenders to prequalified contractors. Prequalification requires certain information that facilitates the selection of potential constructors. This information includes proof of past experience in similar work, financial capability, a record of exemplary performance by responsible references and current work in hand to ensure that the contractor is not overloaded.

Allegations of owner favoritism (whether real or perceived) in the selection process can be largely eliminated by allowing all qualified contractors to tender on an equal low-bid basis. The design of the project must be completed prior to contractor bidding and selection. Once the general contractor is selected (normally through a competitive bid process) which in most cases is the lowest acceptable bidder, the owner enters into a separate contract with the general contractor to build the project. This process is generally perceived to be a fair process for contractor selection for the project. Under the design-bid-build project delivery system, the owner retains overall responsibility for project management and all contracts are generally executed directly with the owner. When a lump sum price is agreed to between owner and contractor, the owner can usually rely upon the accuracy of the price and is able with the assistance of the consultant designer to compare submitted bids to ensure that the best contract price has been obtained. It should be noted that there is no legal agreement between the contractor and the designer of record.

The design-bid-build process has several important advantages; e.g., it provides much needed checks and balances between the design and construction phase of the project. It also provides the owner with the ability to provide significant input into the process throughout the project's design phase. The traditional design-bid-build process also has some disadvantages, the main one being that it is a lengthy and time-consuming process and the owner often has to address disputes that may arise between the contractor and the design professionals due to errors or other unexpected circumstances. With this process the ultimate estimated cost of construction is unknown until bids are finalized, bearing in mind that the system encourages potential change orders which will most likely increase costs. Moreover, there is no builder input during the design process which opens the project to potential change orders. Also, there is zero owner involvement through the bid process and normally the general contractor selects all subcontractors, although generally there is no contractor buy-in to green process and concepts. However, there is always the risk with this system that construction bids exceed the project's stated budget (because plans and specifications are completed prior to tendering the project), the consequence of which is either being forced to abandon the project altogether or having to redesign it to fit within the available budget. Another important consideration with this type of delivery system is that the owner is normally required to make a significant financial up front commitment in order to have a complete design in hand as part of the contract documents before solicitation of tenders. According to Petina Killiany, Associate Vice President of PinnacleOne, a leading construction consulting firm the design/bid/build approach is generally best suited for projects that meet certain requirements such as:

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The owner desires the protection of a well-understood design and construction process;

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The owner desires the lowest price on a competitive bid basis for known quantity and quality of the project;

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The owner has the time to invest in a linear, sequential, design/bid/build process;

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The owner needs total design control.

Killiany also maintains that there are certain project success factors that owners sacrifice when using the design/bid/build approach which are, "First, because there is no input from the contractor during the design phase, their input is lost on what may provide the best value in the trade-off between scope and quality. The construction contract is usually performed on a lump sum basis, any savings are not returned to the owner. Design/bid/build projects normally do not allow for fast track design and construction, and as a result, can take more time than those delivered by other approaches." It should be noted that should gaps be discovered between the plans and specifications and the owner's requirements, or errors and omissions are found in the design, it is the owner's responsibility to pay to rectify these mistakes.

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Types of Building Contract Agreements

Sam Kubba PH.D., LEED AP , in Handbook of Green Building Design and Construction (Second Edition), 2017

14.2.1 Design-Bid-Build

In Design/Bid/Build, also known as the general contracting project delivery method, the process is linear, where one phase is completed before another phase is begun with no overlap. This is the traditional method of project delivery and has been the most widely used construction delivery method since ancient times. It is also the one with which most Owners are familiar. Under the design/bid/build example, the architect is selected under a separate contract that is based on a negotiated professional fee. It therefore commences with an owner selecting an architect to prepare construction documents. Most often the architect will release these construction documents publicly, or to a select group of invited prequalified general contractors, who will be asked to bid on the project which reflects what they believe the total cost of construction will be. This bid is inclusive of various other bids from subcontractor for each specific trade. The general contractor's fee is generally built into the bid cost. The majority of government contracts are required to bid competitively using this method. Contractors bid the project exactly as it is designed with the lowest responsible, responsive bidder awarded the work. The design consultant team is selected separately and reports directly to the owner. This type of contract is most suited for less complicated projects that are budget sensitive but not necessarily schedule sensitive and not subject to change. The Owner can define and control the design through the Architectural Consultant.

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Prefabrication of the Substructure and Construction Issues

Mohiuddin Ali Khan Ph.D., M.Phil., DIC, P.E. , in Accelerated Bridge Construction, 2015

9.8.2 Design-bid-build

The traditional design-bid-build (D-B-B) process separates design and construction. The oldest and most well-known contracting method for construction projects, D-B-B is still popular with some owners. With D-B-B, the contractor does not enter the process until after the design is complete. The drawings are put out for competitive bid to general contractors and the one with the lowest price is typically awarded the project.

In the mid-1800s, many states adopted "low bid" requirements to protect taxpayers from extravagance, corruption, and other improper practices by public officials. In 1938, the Federal Highway Act required competitive bidding. In 1968, the Federal Highway Act revised Title 23 USC to award construction contracts only on the basis of the lowest responsive bid.

The general contractor coordinates and manages all subcontractors from start to finish, and often self-performs critical portions of work to provide greater value to the owners, usually the transportation agencies. There is at best a partial ABC requirement for an early project completion and delivery using the D-B-B system. It is gradually being replaced by the design-build (D-B) system.

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Procurement of Energy From Waste Systems

Marc J. Rogoff PhD , Francois Screve Meng, MBA , in Waste-To-energy (Third Edition), 2019

9.2.1 Design, Bid, Build Approach

The DBB approach is the one most generally used for large public-benefit projects. For a typical project, the government agency or private owner first procures the services of an architectural or engineering (A/E) firm that is then responsible for preparing the plans or system specifications and certain design elements of the particular project. These materials are then distributed by the community as part of an advertised competitive-bid process.

Once the winning bidder is selected, the A/E firm, which prepared the project specifications and plans, or another similar type of firm, is oftentimes retained by the community to monitor the construction of the project, prepare operating manuals, and assist in the start-up and acceptance testing of the project. Once the project is accepted by the community as meeting contractual obligations, the community is then responsible for either operating the project itself or contracting out this responsibility to a private firm. This approach requires multiple contracts between the local government and its architect/engineer, general construction contractor, and equipment suppliers.

This conventional DBB approach has been modified slightly by some local governments or owners in their procurement of WTE projects. Unlike the traditional DBB approach of bidding each individual piece of equipment for the project, the entire process line and turbine generator equipment, commonly referred to as the "chute-to-stack" in mass burn facilities, is bid as a single package. The A/E firm is still responsible for designing the ancillary facilities, which can then be broken out as individual bid packages such as site civil and structural foundations, and building construction to minimize contractor/vendor markups for profit and risk. This approach has the advantage of minimizing the number of potential vendors that the local government or private owner must deal with, while providing a mechanism for government for sharing the risk of project performance with a private entity.

Typically, contractors responding to these design packages demand that their liabilities (warranties, liquidated damages) under construction contracts be, at the outside, capped to their own contract amount. That is, in the event the project is awarded through separate lots, any contractor's liabilities are capped in proportion with the value of each lot. Normally, contractors usually refuse liability for indirect damage (loss of profit, financial loss, repute damage, consequential damage, etc.). Therefore the owner has to look for insurance coverage of such damage under this scenario. In that case contractors generally accept the burden of insurance deductible. Further, within the limits of each contract value, contractors have to provide the owner with relevant sureties (surety bond, performance bon, warranty bond). Contractors generally require payment bonds from the owner, amounting to owner's maximum or average debt exposition.

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The genesis of a construction project

Sidney M. Levy , in Construction Process Planning and Management, 2010

Considerations in selecting a project-delivery system

Some practitioners refer to design-bid-build more accurately as design-bid-redesign-rebid, which is a costly process. Tracking design development with a realistic database of costs from either an architect who is well versed in that type of construction, a builder, or an estimating service is key to avoiding that recycling process of redesigning and rebidding.

The design-build delivery system appears to be best suited to an owner with past experience in similar projects that can be accurately conveyed to the design-builder. But this does not rule out the first-time owner who has a very clear picture of the company's requirements. Discussions with a construction-management firm as a new project is under consideration may either enforce an owner's opinion that CM is the way to go or direct him or her to look for other options.

Many problems that arise with all delivery systems can be traced back to whether a realistic budget has been established in the first place. Consultation with an architect, builder, or estimator early on is an important step to take.

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Recent Developments in ABC Concepts

Mohiuddin Ali Khan Ph.D., M.Phil., DIC, P.E. , in Accelerated Bridge Construction, 2015

2.12 Design-build contracts and role played by the Design-Build Institute of America

Design–build (or design/build , and abbreviated D–B or D/B accordingly) is a project delivery system used in the construction industry. It is a method to deliver a project in which the design and construction services are contracted by a single entity known as the design–builder or design–build contractor . It is now commonly used in many countries and forms of contracts are widely available. Design–build is sometimes compared to the "master builder" approach, one of the oldest forms of construction.

The traditional approach for construction projects consists of the appointment of a designer on one side and the appointment of a contractor on the other side.

In contrast to "design–bid–build" (also known as design–tender),

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Design–build relies on a single point of responsibility contract.

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It is used to minimize risks for the project owner.

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It reduces the delivery schedule by overlapping the design phase and construction phase of a project.

The design–build procurement route answers the client's wishes for a single point of responsibility in an attempt to reduce risks and overall costs.

Master builder concept: Comparing design–build to the traditional method of procurement, the authors of the Design-build Contracting Handbook (2001, published by Construction Law Library), Robert F. Cushman and Michael C. Loulakis, noted that "from a historical perspective the so-called traditional approach is actually a very recent concept, only being in use approximately 150   years."

In contrast, the design–build concept–also known as the "master builder" concept, has been reported as being in use for over 4 millennia.

2.12.1 Growth of the design–build method

A study from the US Department of Transportation (reference Special Experimental Project 14, SEP-14) claims that

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Design–build delivery has been steadily increasing in the U.S. public building sector for more than 10   years, but it is still termed experimental in transportation. To date, under Special Experimental Project 14 (SEP-14), the FHWA has approved the use of design–build in more than 150 projects, representing just over half of the states.

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Proprietary manufacturing companies with many branches in USA and worldwide (as listed in Section 2.1 of this chapter) have boosted the manufacturing of bridges and the design–build system.

The European countries have used design–build delivery for longer than the United States and have provided the scan team with many valuable insights. The primary lessons of projects using design–build are:

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Use of best-value selection

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Percentage of design in the solicitation

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Design and construction administration

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Third-party risks

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Use of warranties

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Addition of maintenance and operation to design–build contracts

2.12.2 Debate on the merits of design–build versus design–bid–build

The results and cost associated with the two methods are not the same. Even if a fraction of 1% savings is possible, it is worthwhile to research the pros and cons of the new method. It will also help to develop comprehensive technical specifications and special provisions for year-around work on hundreds of projects.

It will be noted that not every project's administration is best suited for design–build. Construction technology is geared to the size and magnitude of projects as well as the difficulties of staged construction. The rise of design–build project delivery has threatened the traditional design hierarchies of the construction industry. As a result, a debate has emerged over the value of design–build as a method of project delivery. A recent example of this type of debate can be seen in the June 2011 issue of Construction Digital.

2.12.3 Difficulties in implementation of design–build

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Design–build limits clients' involvement in the design.

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Contractors are likely to make design decisions outside their areas of expertise.

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It is also suggested that a designer, rather than a construction professional, is a better advocate for the client or project owner.

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By representing different perspectives and remaining in their separate spheres, designers and builders ultimately create better buildings.

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The design–build procedure is poorly adapted to projects that require a complex and elaborate design for aesthetical or technical purposes.

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Design–build does not always make use of competitive bidding in which prospective builders bid on the same design.

2.12.4 Advantages of design–build

Proponents of design–build advocate the following:

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Design–build saves time and money for the owner, while providing the opportunity to achieve innovation in the delivered facility.

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Design–build allows owners to avoid being placed directly between the engineer and the contractor. Under design–bid–build, the owner takes on significant risks because of that position.

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Design–build places the responsibility for design errors and omissions on the design–builder, relieving the owner of major legal and managerial responsibilities. The burden for these costs and associated risks are transferred to the design–build team.

The decisions can be made by the owner or the agency based on their confidence in the performance and ability of contractors used in the past. The nature of the project and its size or emergency fixing requirement may decide the responsibilities shared by the contractor and designer.

A written General Contractor Agreement will prove invaluable in the event of disagreements, misunderstandings, or litigation. (For useful publications such as "Design–Build Manual of Practice" please, see DBIA Website.)

2.12.5 Performance of the Design–Build Institute of America

DBIA takes the position that design–build can be led by a contractor, a designer, a developer, or a joint venture, as long as the design–build entity holds a single contract for both design and construction.

The "design–builder" is often a general contractor but, in many cases, a project is led by a design professional (engineer or other professional designers). Some design–build firms employ professionals from both the design and construction sector.

Where the design–builder is a general contractor, the designers are typically retained directly by the contractor. A partnership or a joint venture between a design firm and a construction firm may be created on a long-term basis or for one project only.

There are incentives built into the payment clauses for early completion and disincentives if the project is not completed in time. Unit costs for certain items are subject to increase due to inflation. Payments are made as the job progresses. The quality of the work must be approved by the owner's engineers prior to payment.

2.12.6 Functions of design–build institutes

In 1993, the Design–Build Institute of America (DBIA) was formed. Its membership is composed of design and construction industry professionals as well as project owners. DBIA promotes the value of design–build project delivery and teaches the effective integration of design and construction services to ensure success for owners and design and construction practitioners. The Design-Build Institute of America is an organization that defines, teaches, and promotes best practices in design–build. The following includes some of the tenets of the Institute as currently reported by the Specialized Construction Institute.

DBIA will be the industry's preeminent resource for leadership, education, objective expertise, and best practices for the successful integrated delivery of capital projects. DBIA promotes the value of design–build project delivery and teaches the effective integration of design and construction services to ensure success for owners and design and construction practitioners.

Ethics and Values: Following these values should lead to quality performance and products. They should lead to professionalism, fairness, and the highest level of ethical behavior.

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Excellence in integrated design–build project delivery, producing high-value outcomes

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An environment of trust characterized by integrity and honest communication

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Mutual respect for and appreciation of diverse perspectives and ideas

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A commitment to innovation and creativity to drive quality, value, and sustainability

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Green Business Development

Sam Kubba Ph.D., LEED AP , in Green Construction Project Management and Cost Oversight, 2010

12.10.5 Unit Price Contract

Here the contractor is paid as the contract proceeds by requiring that the actual quantities of work completed one measured and these quantities are multiplied by a pre-agreed per-unit price. Tender estimates provided by contractors are based on specifications and estimated quantities supplied by the owner. However, during and after the work, the price is based on actual quantities completed and not estimated quantities. For the contractor this removes some of the risk in the bidding process because payment is based on actual quantities and not lump sum. The contractor's unit price must cover both direct and indirect costs, overheads, contingencies, and profit. For this reason, the owner usually provides fixed quantities for contractors to use as the basis of their unit-price costing. However, when additional work is required, a separate invoice should be presented (Figure 12.5).

Figure 12.5. An example of the type of billing form used for additional work completed.

This type of contract is typically suitable for projects where the quantities are ill defined and therefore cannot be accurately measured before the project starts, such as highway type projects. Thus, the owner could provide quantities for excavation, pipe laying, and backfill. The contractor would quote a dollar amount per cubic yard for soil excavation, a dollar amount per linear foot of piping laid, and a dollar amount per cubic yard of backfill installed and come up with a total bid based upon the quantities that the owner provided. The project's final price will not be known with certainty until the project is completed. Additionally, it is prudent for the owner or the owner's representative to "track" actual quantities by some method of measuring—counting truckloads of materials, weighing steel, etc.

Negotiated

This type of contract is not dissimilar to the design-bid-build method in that the project's design and construction are performed by different firms. In some cases a negotiated contract may be used in lieu of the tendering process, especially when an owner has had previous experience with a certain contractor. That contractor may be invited to submit a proposal or offer to the owner or the owner's representative based on the contract documents. This is followed by negotiations regarding price, scope of work, time to execute the project, and other contractual issues. If agreement is reached, a contract is signed for constructing the project. Negotiations may also form part of a tendering process. Upon evaluating the submitted tenders, a short list of top ranking firms is created. This is followed by negotiations regarding work content, risk, liability issues, and contract-related issues. If the owner decides on negotiating with the top ranking firms after the tenders are opened and analyzed, this must be made clear to all via the invitation to tender.

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Girders

R.K. Bharil , in Innovative Bridge Design Handbook, 2016

2.4 Project development, delivery, and execution

The project delivery method, whether it is a conventional design-bid-build, design-build (DB), engineer-procure-construct (EPC), PPP, or construction manager–general-contractor (or construction at risk), can have an impact on the bridge planning process, but this decision is often deferred. In the past, the amount of project funding precluded certain type of project delivery methods. For example, it used to be considered that DB procurement should be used only for projects costing over US $20 million, and PPP would be worth the additional effort for projects exceeding US $100 million. However, such boundaries no longer apply these days, and the procurement methods have become more of a comfort level of the bridge owners than money and complexity of the project. The procurement method plays a much greater role in the final design of bridges and delivery of the bridge project. By using DB delivery, the bridge owner is no longer limited by the size of the available workforce. Often, outside consultants are hired as the project manager and construction manager to facilitate such deliveries. Another method, known as construction at risk or general contractor - construction manager (GCCM)–is where a contractor is retained earlier in the design process, which helps to sync both the design and construction together so that the cost of the project is more certain. An early determination of probable project delivery methods can be very helpful in the planning process and very cost effective for the bridge owners as well.

The other steps of the bridge project cycle, such as construction and preservation, are described in later sections of this chapter.

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Highway bridges

B.T. Martin , in Innovative Bridge Design Handbook, 2016

2.1.6 Project delivery system

In the recent past, most projects in the United States have used a design-bid-build project delivery system. Even more recently, the United States, like most other countries of the world, has started using a design-build delivery system. This is actually a return to the system used in the early years of bridge building in the United States ( Barker and Puckett, 2007). During the great bridge-building era of the 19th century, an owner would express an interest in having a bridge built at a particular location and then solicit proposals from engineers not only for the design, but also for the construction. In many cases, the engineer would recognize a need and then present the concept to the affected parties. All services, in the areas of both design and construction, were the responsibility of one entity.

The design-bid-build approach was meant to provide a quality product while also providing a system of checks and balances between the designer/owner and the contractor. As is often the case, the problem with design-bid-build is not the concept, but its execution. Often, problems that develop during construction result in an attempt to assign blame rather than seek a practical solution that increases the financial risks of all parties.

Because design-build more clearly defines lines of responsibility, this delivery system is being used more and more in the United States. That being said, the successful application of this delivery system is dependent on a knowledgeable owner that has staff capable of judging the quality of work provided. This delivery system seems to work best on large bridge projects, though it is being applied in some jurisdictions to smaller bridge projects that are consolidated into a single contract.

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