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OP-ED: Design-Build Pitfalls for Owners, contractors and Design Professionals

Daily Journal of Commerce Oregon

October 15, 2021

Overview

As projects become more and more complicated, owners often look to simplify the building process by hiring  a single firm to handle both design and construction. This is perfectly legal and commonly known as the “design-build” delivery method. 

A design-build project has many advantages. There is only one point of contact for the owner to manage. The contractor has significant control over the entire design, procurement and construction process, and therefore has more control over price and quality. And there is coordination between the design team (architect and engineers) and the contractor from the very beginning.

There are downsides as well – with all the owner’s eggs in one basket, if the contractor is not up to the task, it will take longer to discover and correct the problem. Also, the design can become captured by the contractor, and the design team does not have a direct line of communication to the owner to warn of deviations between the design and the contractor’s work.

And it is on this last point that a disconnect often arises between what the design-build contractor promises the owner to deliver and what the design team’s architect and engineers promise to deliver to the contractor. In a more traditional delivery method, where the owner independently hires the design team to develop the plans that then go to the contractor who promises to build what is designed, there is no warranty by the design team to the owner that the design will be perfect. The standard for which designs are made is known as the “professional standard of care,” with that being “services consistent with the professional skill and care ordinarily provided by (design professionals) practicing in the same or similar locality under the same or similar circumstances” (see Section 2.2, AIA Document B101 – 2017 ). Likewise, most contracts between members of a design team and a design-build contractor do not warranty the design services, but limit the standard for the designs to the professional standard of care. 

There is good reason for this limit. While professionals generally are often held to a higher standard of performance and trust, the skills often cross over into the realm of art and also a balance between the current state of building technology and an owner’s expectation in both final product and cost. It is the job of the design professional to balance the owner’s competing interests and advise the owner on the realm of the possible. The limits of design can be pushed, and that is often lauded and seen as progress. But such progress comes with an element of risk, and design professionals are protected to a certain extent from that risk by the limits in the professional standard of care. The flip side of that protection also protects a contractor in a traditional project where, as long as the contractor builds what the owner’s design team designs, then the contractor is not held responsible for errors in the design. 

This protection, however, is not often carried over to the warranties given by the design-build contractor to the owner where the designs are not developed independent of the contractor by the owner, but are developed by a design team directly for the contractor. Often, the limits of the professional standard of care are not carried over in the contractual obligations and warranties provided by the contractor to the owner, and this creates a risk where a contractor essentially promises to the owner a building without defects, but the plans provided by the design team to the contractor contain no such promise – rather only a promise that the design will be consistent with the care of the local profession. 

This raises the possibility that the design-build contractor might be held to a higher standard to the owner for the design of a project than the actual team that produced the design. That could leave the contractor with liability that it cannot pass on to the design team. This can also give rise to a gap in insurance coverage for the risk, because many design-build contractors rely on the professional errors and omissions coverage of the architect and engineers that the contractor hires. But professional errors and omissions coverage only protects from breaches in the professional standard of care and not contractual warranties. Even if the design-build contractor procures its own professional liability coverage, it will only supplement the coverage of the design team. It will not cover breaches in warranty beyond the professional standard of care.

Thus, it is always important – whether you are an owner, contractor or design professional, and especially so with design-build contracts – to review contracts carefully to make sure there are no gaps in the responsibilities and liabilities that flow between the parties and to always seek out the advice of an experienced construction attorney if there are questions or if the standards and warranties are unclear. 

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.

Column first appeared in the Oregon Daily Journal of Commerce on October 15, 2021.

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