Learning from the Mistakes of Others: When Design Build Has Gone Awry

Kerry L. Kester

The array of contract disputes described in recent judicial decisions reveals that many substantial disputes arising out of projects delivered through the design build system are the result of failures in the downstream relationships that comprise the design build “team.” The relationships among participants in this team of design professionals, construction managers, trade contractors and subcontractors, and equipment suppliers are the focus of this paper. And, while reference also is made to disputes between owners and design builders, these disputes illustrate, and often flow from, failures in the downstream relationships.

This paper describes a number of the lessons learned from failures in design build team relationships and the subcontracting process including: (i) the failure to integrate and coordinate design and construction; (ii) the failure to adequately describe the overall project performance requirements and scope of work; and (iii) the failure to properly document the contractual rights and duties flowing out of these relationships.[1]

I. LESSONS LEARNED FROM FAILURE TO COORDINATE AND INTEGRATE DESIGN AND CONSTRUCTION.

A successful design build project requires the integration and coordination of the efforts and contributions of many designers, trade contractors, and material and equipment suppliers, and of course, the owner. The downfall of many design build projects is the failure to achieve these two separate, but related goals. That is, in order to reach its potential, the design build team needs to apply principles of integration and coordination that are relatively new obligations for contractors, and they must do so in a legal environment that differs significantly from the “traditional” or “design-bid-build” system. And it is contractors who seem to be at the forefront of leadership in design build contracting and who are taking on the role of design builder or EPC contractor on the full range of construction projects.

Historically, under the traditional delivery method, the owner and its design professionals are responsible for the coordination of the design input of the various design participants and contributors.[2] In those instances where true integration of design and construction is attempted in the traditional system, ultimate control and responsibility for design remains with the owner and its design professionals. The shift to design build project delivery, however, places responsibility for project design coordination, and for integration of design and construction efforts, on the design builder, a relatively new role for contractors.

Consequently, the contractor/design builders now attempting to coordinate and integrate design and construction activities often do so without the benefit of either a significant historical base of experience or the institutional training and support in those activities. Moreover, the guiding principles of the traditional delivery method do not guarantee success for design build project delivery.[3] As a result, contractors filling the role of design builder now find themselves charged with the duty and responsibility both to coordinate and integrate design and construction relationships in order to realize the benefits of design build project delivery.

A. Failure to Recognize the Consequences of Diffused Design.

The consequences of diffused design in modern construction have been manifest in a number of respects that are pertinent to design build project delivery. Irrespective of the project delivery system employed, modern construction is characterized by an increased specialization of design professionals, trades, and equipment suppliers and manufacturers, particularly in complex construction projects involving many different design sources and contributors. Specialized material and equipment increasingly are designed not by the project architect or the design builder’s primary designer, but by the equipment or material manufacturers and wholesalers themselves.[4]

For example, the “electrical design” on a complex process facility may be comprised of the collective efforts of a number of specialists including electrical engineering, electrical construction (details), control system programming, instrumentation engineering, and control system engineering, among others.[5] Add to these disciplines the manufacturers themselves and the number of “design inputs” quickly becomes substantial with respect to only the electrical and related portions of the project. Thus, the task of coordinating and verifying overall project design is an increasingly daunting task even in the traditional project delivery system. Add to that, the coordination needs of design build project delivery, and the magnitude of the task increases exponentially.

1. Failure to recognize critical sources of design.

One consequence of the increasingly diffused nature of design is the burden placed on design builders to identify early in their involvement (i) the critical elements of the project design and (ii) the identity of the providers of these critical elements. Design elements may be “critical” for any number of reasons including (i) long lead times required for the design, (ii) their impact on the integrated design and construction schedule as “restraining” activities or events, (iii) the nature of the design approval process, such as environmental, zoning, and planning requirements of governmental bodies, and (iv) their impact on the ability of the project to meet overall performance requirements and function successfully. Any one of these factors may impart “criticality” to a particular element of design.

For example, in Glacier Tennis Club v. Treweek Construction Co.,[6] the design builder failed to recognize the potential impact of a poor subsurface drainage design that ultimately made the tennis facility unusable due to the presence of excessive radon gas and water leaks.[7] In Old Dominion Electric Cooperative v. Ragnar Benson, Inc., the design builder failed to recognize the potential cost and schedule impacts of the local governmental approval process,[8] the turbine designer’s start-up requirements,[9] and a poorly conceived underground utility and piping design.[10] Finally, in In re Donahue Electric, Inc.,[11] the owner’s prescriptive specification of a particular boiler type and size failed to include the critical design assumptions on which the specification was based and, thus, resulted in a defective design specification which rendered impossible the design builder’s compliance with the owner’s performance specifications. While the failures noted in Glacier Tennis, Old Dominion, and Donahue Electric appear in retrospect to be patently obvious and easily avoidable problems, that conclusion only serves to emphasize the nature and pervasiveness of the risk of failing to assess the critical elements of design.

2. Failure to coordinate design.

Design build project delivery – even more so than the traditional system – demands the coordination of many design contributors. Design build requires – indeed, it professes to furnish – design input from the contractor’s side of the traditional equation through collaboration among the designers and constructors. It recognizes that much of the design of modern, complex construction projects originates with mechanical, electrical and other specialty subcontractors as well as equipment suppliers.[12]

The coordination obligation seldom is articulated with either much substance or much verbiage in standard construction contract forms, and often is completely ignored until the project “post-mortem” is performed by the relevant fact finder. In part, that is because coordination is as much a function of those being “coordinated” as it is of the “coordinator.” That reality is borne out by the fact that prior experience on similar projects is seen as a key ingredient in the recipe for a successful project.[13]

At a minimum, design coordination involves the art of honest and continual collaboration through communication, critical thinking, the exercise of sound judgment, and the use of contractual authority, among other factors.[14] The communication element involves the articulation and exchange of information that may affect design such as the owner’s business purpose for the project, the owner’s business cost and economic assumptions, the owner’s design and performance criteria or specifications, and the owner’s priorities among issues of schedule, quality and price. Of course, mere communication without an accompanying commitment and openness to collaboration does not result in optimal coordination.[15]

The consequences of failing to coordinate design through communication of the owner’s design assumptions in a design build context are illustrated in Donahue Electric,[16] where the VA's design build RFP included both prescriptive and performance specifications. The board determined that the VA's specification of a particular boiler for use on the project was prescriptive in nature. Absent the calculations and other design assumptions of the government's design consultant, however, the specified boiler was deficient and precluded the design builder from complying with the performance requirements.[17]

Among other difficulties, the owner in Donahue Electric prohibited its design consultant from even speaking with the design builder, thereby assuring that the underlying design and budgetary assumptions and calculations – the information that might have produced a useful end result for the project – would never be made available to the project design build team.[18] This prohibition neutralized one of the chief benefits of design build project delivery (that is, open and ongoing communications between the design contributors)[19] and frustrated the efforts of the design builder to coordinate all the design elements. In essence, the owner withheld the key information about its design from the project participant vested with the responsibility for meeting the performance criteria. The owner should not have been surprised at the project’s unsatisfactory outcome.[20]

Coordination also involves communication of information regarding institutional factors affecting design such as zoning and environmental requirements, the timing and procedures for meetings of executive or legislative bodies with approval authority over the project, or the sensitivities of the neighboring communities to foul odors generated by the proposed project.

Compliance with these institutional constraints can be a major contributor to problems on design build projects. The design builder in Old Dominion,[21] for example, failed to recognize the need for and failed to provide for the early involvement of its design professionals to deal with the institutional constraints on design. Under the EPC contract, the design builder was required to secure the necessary permits and government approvals. The design builder failed to investigate the requirements and lead time required to obtain the approvals and permits, and failed to involve the designer at an early stage in the dialogue with the representatives of the owner and the permitting agencies. Due to its ignorance of these matters, the designer was unable to properly plan and schedule its work. As a result, the design builder attempted to accelerate the designer’s work which, in turn, led to the submission of woefully incomplete and deficient permitting documents and contributed to further delays.[22]

Critical thinking about design coordination involves the collection, review and evaluation of all the various design components in order to assess whether there are: (i) design gaps; (ii) overlapping designs; (iii) conflicts or inconsistencies in the design of interconnected or interrelated systems; (iv) design elements that are frivolous or unnecessary; (v) opportunities to optimize project utility; or (vi) deficiencies in design that may jeopardize compliance with the specifications.[23]

Old Dominion provides insight into the critical thinking element of design coordination as well. There, the design builder received input from other sources of design information, but failed to critically evaluate the information. For example, the initial geotechnical report provided to bidders indicated the presence of subsurface rock that would require blasting.[24] Rather than investigating the potential impact of the rock on the subsurface and utility work, the design builder ignored the facts that (i) all its excavation and underground piping subcontractors excluded from their bids any costs or schedule impacts of encountering subsurface rock, and (ii) its engineering subcontractor had recommended that additional subsurface investigation be performed.[25]

Additionally, the design builder in Old Dominion held only one or two coordination meetings with its designer despite the size and complexity of the engineering project,[26] and failed to communicate to the designer that the designer’s schedule was about to be accelerated by two months.[27] These failures contributed significantly, in the court’s opinion, to the project delays and the owner’s damages.

Design coordination also requires application of design and engineering principles (i) to evaluate the product of the collective design effort, (ii) to identify missing design elements or features that would impact project performance or feasibility, and (iii) to take steps toward project optimization. Among the project participants, design coordination seeks to recognize and utilize the strengths and weaknesses of various design team members or contributors so as to optimize the contribution of each.

One of many evidences of poor judgment in coordinating project design is the absence of substantial, early interaction with and among the engineers, architects, and other designers to exchange information important to the planning and execution of the initial stages of work. For example, in Old Dominion, despite the information regarding the presence of subsurface rock, the design builder provided its engineer with a copy of the plans from a different project site for use in designing the underground electrical work and made no attempt to assure the exchange of key information regarding subsurface conditions. As a result, the engineer unwittingly routed the utilities through subsurface rock corridors that necessitated the use of blasting techniques.[28] Apparently, there was no effective communication of these key aspects of the site conditions, no critical thinking in regard to the impact of this failure to link design to the physical conditions at the site on the project cost and schedule, and no open communication and evaluation of the factors restraining or limiting project design. As a result, there were substantial adverse impacts to both cost and schedule.

Also important is the need for contractual authority (and obligation) to implement design coordination throughout the cadre of design professionals and contributors involved in the project. Few standard construction contract forms provide any useful articulation of coordination standards, requirements, or objectives. Moreover, absent contractual privity with each design contributor, there is no direct method of legal enforcement of the coordination obligation.[29]

For example, in Weseloh Family Limited Partnership v. K.L. Wessel Construction Co., Inc.,[30] the design builder unsuccessfully attempted to assert claims against the design consultants employed by the design builder’s retaining wall subcontractor. The scope of the retaining wall subcontract included both design and construction, but there were no terms specifying a coordination duty owed to the design builder by the subcontractor’s design consultants, even though there was no question the scope would require specific design functions by such subcontractors and consultants. The court held that the retaining wall design consultants owed neither a contractual nor a tort-based duty to the design builder and ultimately, granted summary judgment to the design consultants.[31] The absence of any contractual obligations on the part of the downstream design consultants left the design builder with no direct recourse against the designers ultimately responsible for the design aspects of the failed retaining wall and with no real ability to enforce the consultants’ coordination obligations.[32]

These examples of failed design coordination demonstrate the critical need for (i) the involvement of designers and subcontractors with successful design build experience on similar projects, (ii) timely and effective communication among all design participants to assure the consideration of key design information and constraints, (iii) communication of the owner’s design assumptions to the design team, (iv) communication (and incorporation) of institutional and regulatory constraints and timing into the design planning and scheduling, (v) critical evaluation of the information relating to design, and (vi) the exercise of sound judgment in evaluating the effectiveness and efficiency of the proposed design elements in meeting the project performance requirements. As confirmed by the case studies mentioned, omission of any of these elements will threaten the success of the project.

3. Failure to distinguish between design and performance specifications.

Diffused design is evident not only from the amount of design information that originates downstream of the design builder, but also from the amount of design originating with the owner through the “bridging” concept. Bridging describes the owner’s provision of a basic or minimal design through the services of a design consultant, usually through the design development phase, from which the design builder prepares and submits its proposal and completes the design and construction of a project. The process permits the owner to prescribe the initial design for either (i) specific portions of a design build project, (ii) a limited percentage of the overall project design,[33] or both. Practically speaking, “bridging” adds another participant to the growing number of design contributors on complex construction projects.

The Spearin-type responsibility and liability attaching to prescriptive design specifications that are included as part of the owner’s “bridged” design complicate an otherwise simple allocation of design and performance liability to the design builder in a pure design build scenario. When the owner through bridging prescribes a design for certain portions or features of a project, or prescribes the use of specific equipment, these prescriptions can and often do impact adversely the project’s performance and the design builder’s costs and schedule. In some cases, the owner’s requirements may preclude the design builder from meeting the owner’s performance specifications. Consequently, recognizing and distinguishing between prescriptive design specifications and performance specifications is important when the prescriptive design element at issue is defective or otherwise adversely impacts project performance.

Owners’ attempts to escape the consequences of their bridging designs or prescriptive requirements have failed, in large part. Courts typically have charged the owner with responsibility for their bridged design and/or prescriptive specifications, and for their interference in the design or construction process.[34] The treatment of Spearin-type obligations in a bridging context is an important aspect of the decision in Donahue Electric.[35] There, the VABCA recognized the importance of the origin and classification of individual specifications and held the owner responsible for breaching its Spearin obligations in regard to equipment specified in the government’s RFP. The owner’s requirement for use of a 196 lb/hr boiler identified in the RFP essentially rendered impossible the design of a project that would meet the government’s performance specifications.[36] The board rejected the government’s position that it bore no responsibility because it had labeled the project as a “design build” project. Rather, the board examined the nature of the specification at issue to determine whether or not it was a prescriptive design specification and determined that the specification required the design builder to use the prescribed equipment, that the government’s prescription was defective, and that the government was responsible for the extra costs resulting from its defective specifications, notwithstanding the “design build” label on the project.[37]

In contrast, the design builder in In re FSEC, Inc.[38] failed to recognize the prescriptive nature of the government’s specification and was required to comply with the specification without additional compensation. The design builder argued that the design build designation of the contract permitted the design builder to disregard a specification and to “re-design” a portion of the project because, it believed, one fan and one dust collector for each of two rooms were sufficient to meet the performance requirement. The board rejected the design builder’s claim for the costs of adding a second fan and dust collector to each of the rooms because the specification was prescriptive in nature.[39] The board noted that (i) the contract contained both performance and prescriptive specifications and clearly delineated which were prescriptive, (ii) the contract required the design builder to coordinate all drawings to ensure the absence of conflicts among design disciplines and between drawings and specifications, and (iii) the specifications unambiguously required four fans and dust collectors.[40]

Such factors should raise red flags for design builders who believe that the performance specifications can be satisfied using different equipment or project configurations from those “specified” by the owner.

The prudent design builder will document any ambiguity in the specifications that could be construed to be prescriptive in nature, as well as the design builder’s interpretation of that ambiguity. For example, the design builder in Record Steel and Construction, Inc. v. United States,[41] recognized a potential ambiguity in the government’s specification as to whether certain over-excavation and compaction provisions were mandatory prescriptive requirements or were merely recommendations. As a precautionary matter, the design builder noted its interpretation of the specification as not being prescriptive and documented its reliance on that interpretation.[42] The government never disclosed a contrary reading of the contract until after contract execution.[43] The court determined that the specifications were ambiguous, that the design builder’s interpretation was reasonable, and that the ambiguity was latent and should be construed against the government which drafted it.[44]

The court in Record Steel noted the following factors in reaching its decision. First, the government solicitation emphasized that design was the responsibility of the proposer so long as design accorded with the government’s design criteria.[45] Second, the report referenced in the specification used permissive rather than mandatory descriptors (“should” and “may” rather than “shall”) in respect to the specifications in question, but used mandatory descriptors in regard to other provisions.[46] Third, the government’s soil borings were not conducted within the actual footprint of the project structure, thus supporting the view that the specification did not require over-excavation of the area unless further soil testing required it.[47]

Consequently, recognition of the nature of the specification as either a prescriptive or performance specification is an important key to the design builder’s success.

4. Failure to account for differences in the design process and deliverables.

The increasingly fragmented nature of project design further complicates design coordination because many of the subsidiary elements of design are conceived and developed as “packages” for specific portions of the projects or for specific systems. That is, the designer’s deliverables are fundamentally different in design build than in the traditional system. Typically, conceptual design is undertaken to facilitate early contractor pricing, and is followed with parallel design of all the project systems through iterative review and republication with the collaboration of the contractor. Subsequently, the system designs are integrated and design details are added only as necessary for effective construction.[48] The need to coordinate the preparation, integration, and publication of these packages necessitates a schedule for these design activities that can be enforced and relied upon by the other designers and by the construction participants alike.[49]

Some of the challenges eminating from the different design requirements for fast-tracking and design build delivery are apparent, again, in the Old Dominion case where the design builder failed to recognize and manage the work product and scheduling for many sources of design information, and failed to obligate the design participants to a schedule for deliverables that supported the overall project completion. In particular, the design builder failed to obtain and provide to its engineer the vendor drawings for design of certain portions of the power plant such as the switchgear and other electrical systems, thus creating a monumental obstacle for the designer to overcome.[50] The electrical design “became an ever-evolving design” and fell nearly one year behind schedule.[51] The magnitude of the problem is revealed in the fact that cable quantities actually doubled from the initial estimates.[52]

The design builder in C.L. Maddox, Inc. v. Benham Group, Inc.,[53] also failed to account for the need for design deliverables that differ from those typical in traditional projects. The progress of the project was plagued by such coordination problems, including the design builder’s failure to timely provide vendor shop drawings to the sub-designers for use in completing design work, and delays in processing the designer’s proposed drawings for approval and submission to the owner.[54] Substantial delays and inefficiencies resulted from the absence of a meaningful schedule for design package deliverables that was integrated with and that supported construction on the project.

Another area of concern revealed by recent case law involves the changing role of the designers in the design build system, including the changing nature and extent of the designer’s liability for design information on which the design builder bases its pricing, and the extent to which designers are held liable for damages far beyond those imposed under the traditional system’s allocation of risks. Among other things, courts are finding implied warranties on the part of the designers in favor of the design builders in regard to design information on which the design builder bases its pricing.[55]

In C.L. Maddox, the designer was held responsible for the damages and increased costs resulting from errors in the information provided to the design builder for its use in pricing the work. The court based this liability on an implied warranty by the designer arising from its having held itself out as capable of performing this type of work.[56] A similar result was obtained by an owner in a construction management at-risk project setting against the designer. In Skidmore, Owings & Merrill v. Intrawest I Limited Partnership, [57] the court rejected the designer’s “betterment” defense and held the designer responsible for the full cost of correcting the design defects. The betterment defense is based on the designer’s position that a “better” design would have increased the contractor’s price for the project, for which the owner would have had to pay but for the design errors. Thus, the argument goes, the designer should not be responsible for the increased construction costs for the “better” design that the owner asserts should have been provided.

In summary, the lessons learned from failing to recognize the consequences of diffused design in modern construction indicate that the design build team must (i) make great efforts to identify and account for the critical elements of design, and those providing such critical elements, at a very early stage of the project, (ii) communicate early and collaborate throughout design and construction with all participants which are sources of significant design input; (iii) carefully evaluate owner RFPs to determine the presence of prescriptive design specifications and carefully evaluate their impact on project pricing, schedule and performance, and (iv) assure that all design participants understand and are committed to the same design process and requirements for design package deliverables.

B. Failure to Integrate Design with Construction.

The failure of design builders to integrate the work of the many designers with the work of the constructors and suppliers is a common thread running through design build projects gone awry. Integration of design and construction is recognized as one of the key ingredients in meeting the challenges of modern, complex construction projects as well as one of the assumed benefits of design build project delivery.[58] The failure to integrate design and construction leave the design build project far short of its potential.

Despite having responsibility for a “design build” project, there is no guarantee that the design builder will do anything other than simply subcontract the design to a design professional and then obtain bids on the designer’s relatively complete plans and specifications. There may never be an attempt to integrate design and construction through repeated and contemporaneous exchanges of information between and among designers and constructors. While this approach may produce an acceptable end product, it will not realize fully the benefits intended and made possible by the design build methodology, and may well result in unnecessary costs and project duration.

Achieving effective design coordination, and true integration of design and construction, requires the acceptance of new roles, the adoption of new ways of thinking, and the development and utilization of new relationships by design builders and their team members.[59] Successful implementation of the design build philosophy demands increased collaboration through increased levels of trust and communication among the participants.[60] The concept of integrating design and construction requires that both designers and constructors change their way of thinking about their individual roles, their communications, and their relationships with one another.

A primary benefit of project integration is the reduction of unnecessary design and redesign efforts, design errors, and constructability and interference problems through early and continual involvement of the construction professionals in planning, design, procurement, and field operations. Obviously, this involves both the development and implementation of a new relationship between constructor and designer, and involves a change in the way these disciplines think about one another.[61]

Design build delivery attempts to reverse the institutionalized separation of design and construction in order to reduce both design and constructability problems, minimize redesign and changes, improve pricing accuracy, and improve project performance.[62] The traditional delivery system, which is the most common base of experience for design builders, actually fosters constructability claims and disputes because the system is structured such that design is complete before the procurement of construction services begins.[63] Conversely, the integration benefit of design build delivery presupposes that the constructor will provide constructability reviews and information regarding costs, material characteristics, and material availability[64] to which design professionals may not otherwise have access, and will provide similar services and input throughout the duration of the design efforts on the project.[65]

Most design build projects are undertaken on the premise of using a “fast track” construction methodology.[66] While constructability reviews are evidence of efforts toward integration of design and construction, the use of phased or fast track construction also necessitates that contractors acting as design builders adopt a new way of thinking. In fast track construction, construction commences prior to completion of final design. Both design and construction proceed in somewhat concurrent “phases,” in order to reduce project duration. In fact, the increased speed of overall project completion is another of the perceived and anticipated benefits of design build project delivery.[67] Fast-tracking, through which this advantage is realized, exacerbates the design builder’s experiential and educational deficiencies in regard to coordinating and integrating design and construction.[68] Not only must design builders shift roles and accept responsibilities for integrating the efforts of the design and construction professionals, they must do so in a fast track environment.

In simplest terms, fast track construction compresses and overlaps construction and design activities, thereby complicating the design builder’s coordination and integration efforts on the project. Complete design cannot be reviewed for constructability issues, errors, feasibility, or cost impacts prior to commencement of construction, and irreversible actions are taken with regard to both design and construction prior to completion of the design. This places a premium on the ability of the design builder to integrate and coordinate the design and construction efforts through collaboration and continual communication of design requirements, cost information, constructability comments, value engineering, and other such concepts.[69]

Fast track construction also complicates the scheduling of design and construction activities. Whereas the traditional method, in theory, contemplates a completed design prior to procurement of construction services, fast track construction precludes it. Fast-tracking necessitates integration of design activities with the construction schedule,[70] an exercise that is less critical in traditional project delivery because of the sequential relationship between design and construction in that system.

An integrated project schedule should include milestone or completion dates and specify maximum durations for all the design and construction activities undertaken by the design builder and its team members. Where the design builder is managing procurement of major equipment for the owner, the design information, shop drawings, and procurement lead time for this equipment should be incorporated into the schedule logic and managed with a high level of commitment to the durations and completion dates. The procurement efforts of the design build team for major equipment and specialized materials must receive similar treatment.

In a fast track context, the design builder also must insure that the shop drawings, vendor drawings and specifications, and other design information are provided to the designers in a timely fashion so as to facilitate review, evaluation and revision by the contractors whose work is implicated. Moreover, the due dates and level of completion must be specified for each of the system design packages necessary to meet and support both preliminary and final pricing deadlines as well as the construction schedule.

Design build delivery also requires the contractor/design builder to adopt a new way of thinking about project planning and management and a higher level of regard for and compliance with the integrated design and construction schedule.[71] The integrated project schedule must reflect the different timing and content of the designer’s deliverables in a fast track setting. Emphasis on the development and communication of the information that will enable the designer to develop preliminary drawings and design packages for the early construction phases is essential. The designer then must work in tandem with the trade contractors, subcontractors, and suppliers to refine design and advance it on a system-by-system basis to facilitate construction. All of these points at which critical information is passed or exchanged are important schedule events, and their timing should be reflected on the integrated schedule.

Disputes over design build projects gone awry chronicle a number of problems in the integration of design and construction. In Old Dominion, the design builder failed miserably in regard to the integration of design and construction schedule. Initially, the designer premised its ability to support the construction schedule on its receipt from the design builder of an integrated design and construction schedule,[72] a schedule that never was created. This failure resulted in the repeated issuance of incomplete design documents that required continual revision and updating.[73]

The design builder in Old Dominion also ignored very early warnings and information from the potential underground subcontractors and designers. Apparently, the design builder made no effort to assemble and gain input from a team of designers and subcontractors that would be affected by subsurface rock in order to assess the design and plans for the underground piping and utilities work.[74] Moreover, the design builder failed to require any constructability reviews or meetings among its designers and constructors to critically evaluate the constructability of the proposed design, obtain information on alternative design and pricing, and manage the potential schedule implications of the subsurface conditions.

Failure to integrate the design and construction efforts led to similar problems in C.L. Maddox.[75] For example, late and deficient drawings resulted in installation of much of the electrical wiring without any plans; untimely submission, review and approval of vendor shop drawings delayed construction; and failure of the parties to integrate the schedules of the designer and the constructor so that design would support construction severely hampered progress.[76]

As these cases illustrate, successful integration of the design and construction aspects of the Old Dominion project, as well as others, might entail a fully integrated project design and construction schedule and other activities including (i) enforceable design package deliverable due dates and review periods, (ii) mandatory planning and scheduling meetings to preview the schedule of design deliverables, (iii) mandatory exchange of both design and construction scheduling information among all participants, and (iv) real collaboration among the designers and constructors to identify problems, jointly develop solutions, and adjust means and methods to achieve project goals.

II. LESSONS LEARNED FROM FAILURE TO ADEQUATELY DESCRIBE PROJECT PERFORMANCE REQUIREMENTS AND WORK SCOPE.

Recent design build cases reveal that the historical tendency of contractors to sign agreements containing inadequate, incomplete, and even erroneous scope and project definitions is not limited to the traditional delivery system. This tendency also leads to a number of problems that foster disputes on design build projects. Further, the relatively recent resurgence of this project delivery system exacerbates the difficulties resulting from such deficiencies.

A. Lack of Project/Program Scope Definition.

It is not surprising that lack of project and work scope definition is a common thread running through the fabric of design build construction disputes. The disputes materialize both between the owner and design builder, as well as among the design build team members and their subcontractors and suppliers.

Commentators have suggested that design build is ripe for disputes over scope of work due to the absence of two of the main features of traditional project delivery, both of which involve the architect’s traditional scope of services.

First, in the traditional system, the architect’s role includes formulation and preparation of a relatively complete set of construction design documents that essentially fix the scope of the project and required work. As a consequence, there is a more complete benchmark for determining scope issues, that is, the construction drawings and specifications.[77]

Second, in the traditional system, the architect is expected to attend to documentation of the project agreements. This feature is a much less prominent aspect of the architect’s role in the design build system due in part to the fact that the orientation of most design builders is from the contractor’s perspective rather than that of the design professional,[78] and because the designer typically is either employed by, or is a subcontractor to, the design builder.

The absence of a relatively complete design captured and documented in the plans and specifications at bid time requires that the design builders – and their teams of subcontractors and suppliers – base their pricing on design “concepts” and/or incomplete design drawings. This requires a fundamental change from traditional pricing methods involving labor and material “takeoffs” developed from 90% complete drawings and specifications.[79]

The art of pricing work from design concepts and very preliminary drawings, often referred to as “conceptual bidding” or “conceptual estimating,” is still developing.[80] In reality, it involves several major undertakings. First, the design builder must identify those portions of the owner’s design concept or project description that are mandatory or prescriptive, if any. Second, the design builder must, in conjunction with its designer, envision and articulate from the owner’s program requirements sufficient “design” information to permit at least some conceptual pricing by subcontractors and suppliers. This “design” must be sufficiently defined to evaluate (i) its cost, (ii) its ability to achieve the performance requirements, and (iii) its compatibility with the overall project completion schedule.

Fast-tracking and the pressure to achieve the advertised cost and schedule savings of design build delivery also increase the complexity of the conceptual pricing process. Given these challenges, it is not surprising that many of the design build-gone-awry chronicles involve the inseparable issues of scope and pricing.

The cases reveal numerous instances where the design builder failed to properly and unambiguously define the work scope for its subcontractors or suppliers. The court in Carolina Steel Corp. v. Palmetto Bridge Constructors,[81] recounts a situation in which the design builder’s undefined scope led to a number of scope and payment disputes with its steel supplier on a bridge project. Design criteria were not well-defined when the design builder signed a purchase order with Carolina Steel Corporation (“CSC”) to furnish and fabricate the required steel for the project. CSC based its purchase order pricing on the five “as-bid” drawings provided by the design builder, but none of the drawings reflected the fact that the project would incorporate a seismic design rather than the State’s standard bridge design.[82]

The purchase order provided that “[s]ubstantial deviation in design may necessitate a change in cost which will be determined on a case by case basis per the Terms and Conditions of the Purchase Order.”[83] The purchase order then described several examples of what would constitute a substantial deviation in design.

Many design changes resulted from the change to seismic design requirements, and CSC supplied nearly twice the quantity of steel estimated for the project than anticipated at bid time. Payment disputes followed.[84] Either the owner had not specified seismic design criteria in its project description, or the design builder failed to incorporate seismic design in the five drawings provided to the supplier for bidding. Yet, irrespective of the original source of the omission, the absence of this basic design information led to a number of the significant disputes.

Similarly, the design builder in Conam Alaska v. Bell Lavalin, Inc.,[85] failed to specify that its design subcontractors needed to comply with the owner’s general specifications.[86] The subcontract documents defining the designers’ obligations did not indicate clearly whether compliance with the owner’s initial design information was mandatory. Not unexpectedly, these circumstances led to disputes between the parties.[87]

Just as a clear and unambiguous scope description is essential to avoiding disputes between the design builder and its subcontractors and suppliers, so too is a well-defined set of project performance criteria from the owner.[88] This is due to the fact that conceptual bidding and pricing is based, in part, on the requirements for achieving the owner’s specified performance levels.

One of the more extreme examples of a dispute stemming from poorly defined project performance standards is found in O’Brien & Gere Technical Services, Inc. v. Fru-Con/Fluor Daniel Joint Venture,[89] where the parties never reached agreement on either (i) “[w]hat documents defined the base scope of the work,” or (ii) “the design stage from which work changes should be measured.”[90] The court observed that, as a consequence:

The parties never resolved these differences. In other words, for half of the time they were together on the project, they operated by agreeing to disagree, without a shared understanding of basic rights and duties under the subcontract.[91]

In O’Brien & Gere, the problems with defining the scope of O’Brien & Gere’s (“OBG”) design and construction work were apparent from the very beginning and even included a classic “battle of the forms.”[92] That battle resulted in the court’s determination that the parties had abandoned their design build contract and that the design builder, OBG, was entitled to quantum meruit damages. Had the joint venture provided a clear program with reasonably fixed design criteria and parameters, it would have eliminated the more vexing problems that doomed the relationship.

The fact that the design builder in Carolina Steel negotiated and entered into the steel supply contract prior to learning of the seismic design requirements for the project is another example of the problems that result from proceeding with design and/or construction with inadequate project definition and without a clear and complete definition of the owner’s project requirements.[93]

Contractors commencing work without a finalized agreement on scope is not at all uncommon, as the cases illustrate. That the project scope is articulated in conceptual terms, and that the design builder and its subcontractors must develop methods and practices for pricing work under these conditions, are by-products of the design build system.[94] The system does not, however, require that work be commenced prior to agreement on the identity of the basic design documents and assumptions, the project criteria, the applicable performance specifications, and the mechanisms and methodologies by which changes will be priced