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The success of a construction project can depend on the selection of the appropriate project delivery model. A “project delivery model” is a system that defines the relationships and responsibilities of the parties, allocates risks between them and structures the general sequence of activities required to deliver a project. Determining the appropriate project delivery model requires careful consideration at the earliest stages of a project. Below we generally outline four project delivery models: design-bid-build, design-build, construction management “at risk”, and “traditional” construction management.
In this model, the owner directly engages a consultant to prepare design and construction documents for the project. Once complete, a general contractor is separately engaged by the owner to build the project based on the design and construction documents. Generally, the consultant will stay involved in the project and continue to act for the owner throughout construction. The consultant will administer the contract on the owner’s behalf and ensure that the project is being built to its design. If there are defects in design, the owner will have the right to bring a claim against the consultant. If there are defects in construction, the owner will have the right to bring a claim against the general contractor.
The design-bid-build model is suited for projects where the design is developed first as part of an initial project phase, an owner wants more control over the design, and for simple or fixed-price projects.
· Allows the price of construction to be known before it begins.
· Potentially fewer contractor-initiated change orders which effect price due to design certainty.
· Potentially attracts a larger pool of bidders with the skill and resources needed to perform the work.
· Can result in schedule inefficiencies, less innovation, and issues with constructability of the design due to the separation of roles.
· If the owner has not been previously involved with the general contractor then the general contractor is a relative unknown at the time construction begins.
· Potential for “finger-pointing” to occur between the general contractor and the consultant when issues arise.
In this model, the owner engages a single design-build entity to prepare the design and build the project based on the owner’s statement of requirements or performance specifications. The owner should still directly engage its own consultant to advise on and assist in preparing the owner’s requirements or specifications if it does not have the capacity to do so in-house. The success of a design-build project will often depend on the proper preparation of the baseline specifications. Although the design-builder does have responsibility for design of the project, realistically when design disputes or defects arise the design-builder will often argue that the issue resides in the specifications. As a result, even a design-build arrangement does not permit the wholesale transfer of design risk.
The design-build model is suited for more complex projects where more innovation is required, or in circumstances where the owner is not set on a particular design.
· Relatedly, the owner is able to shift significant risk for both onto the design-builder.
· Potential for less conflict and fewer constructability issues due to both design and build services being provided by the same entity.
· Provides opportunity for concurrent design and construction activities, which allows a project to be “fast-tracked”.
· No opportunity to obtain competitive prices for construction work after design.
· Greater risk that the project will not fully meet the owner’s expectations or preferences as the design-builder will typically prioritize price over value.
· Price of construction cannot be precisely determined until design is finalized, which could potentially result in more contractor-initiated change orders.
In this model, the owner engages a construction manager at an early stage to provide certain advisory services and potentially construction services for its project. Once the design is complete, the construction manager may act as a ‘pure’ manager that engages trades on behalf of the owner (the “traditional” model) or the construction manager may effectively become a general contractor and enter into contracts with individual trades (the “at-risk model”). Either way, the owner directly engages a consultant to prepare the design. The construction manager does not take on any design risk. If there are defects in design the owner will have the right to bring a claim against the consultant.
The construction manager acts as an agent of the owner during pre-construction and possibly during construction. If retained during construction, the construction manager provides advisory services to the owner and acts as a limited agent in administering and overseeing the trade contracts on the owner’s behalf, but the owner retains all of the contracting risk. The construction manager’s only risk is with respect to the quality of the construction management services rendered. The construction manager is not at risk if the cost of construction exceeds its budget, although generally the construction manager will develop a construction budget.
· The Owner can rely on a professional to act on the owner’s behalf and in the owner’s interest, without competing interests of their own.
· A construction manager can help compensate for an owner’s lack of construction experience.
· The construction manager has very little actual responsibility for the project. The construction manager does not take any risk for cost, schedule, or quality of work.
The construction manager acts as an agent of the owner during pre-construction, but once construction begins the construction manager assumes the risk for construction and acts as a general contractor. Under a CCDC 5B, the construction manager will develop a construction budget at the pre-construction phase, and generally following completion of design, the construction manager and the owner will execute a change order to finalize their agreement on the price and terms of the construction scope if they opt to proceed with that option.
· The construction manager serves as a single point of responsibility for all construction work.
· Can provide enhanced design constructability due to the opportunity for early collaboration and “fast-track” construction.
· The construction manager is generally required to share the trades bids / proposals, providing transparency and allowing the owner to choose.
· The transition from construction manager to general contractor can be confusing and result in issues. The two roles have different risk profiles and it can be unclear where one scope ends and the other begins.
· As a result, the CCDC 5B requires extensive amendment to the transitional and construction provisions in order to protect the owner. This requires transactional costs and lead time at the beginning of a project.
Regardless of the project delivery model selected, owners should note that cost of most risks flow directly or indirectly to the owner of a project. Construction contracts allocate responsibility for certain risks, but there will typically be a cost associated that is reflected in price. Knowledgeable contractors will, as a condition of accepting risk, add a risk premium to a fixed price contract to cover the possibility that the risk will occur. If risk is not transferred under a contract, then the owner retains responsibility for that risk and will pay for it if it transpires. As a general principle, construction contracts thus seek to allocate risk to the party who is best able to manage that risk, in order to minimize the overall cost to the project of the risk. This is an important overarching consideration in selection of a project delivery model.
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