Design and build contracts: poor management?

Solid foundations

14 September 2018

Are design and build contracts inherently flawed or just badly managed, asks Andrew McSmythurs?

Set up and managed properly, design and build (D&B) contracts can provide excellent value for money, with enhanced, early out-turn certainty across a range of often complex projects and for diverse client groups. For many clients, D&B contracts can offer an attractive and robust form of contracting construction works, with the ability to transfer risk while ensuring more predictable out-turn costs. In the early stages of a development, a project manager can make the difference between a successful contract and one that fails.

The myth persists, however, that these contracts are inherently flawed and fail to meet expectations – Dame Judith Hackitt’s report on her review of the Building Regulations and fire safety following the Grenfell Tower fire, for instance, seems to take this position. Too frequently, such criticisms arise as a result of contracts that are poorly set up or administered. Blaming the contract is merely a convenient option for consultant and client.

Set up and managed properly, design and build (D&B) contracts can provide excellent value for money, with enhanced, early out-turn certainty across a range of often complex projects and for diverse client groups

Failing to follow the simple and basic rules of preparing and managing a contract often result in failure to complete work to time, cost and quality. Clients and consultants typically see D&B contracts as a short cut to procure construction, and then use the skills and experience of the contractor, along with the pressures of the competitive marketplace, to address any shortcomings. This creates an immediate tension in a relationship that needs an inherent partnership as a prerequisite for success.

Given this approach and attitude, it is not surprising that D&B contracts have been criticised as being overly expensive, leading to poor-quality projects that complete later than envisaged.

Procurement pitfalls

In my experience as a project manager working on such contracts and recovering those that were failing, a number of shortcomings in their set-up and administration occur with almost monotonous regularity. As always, the time a project manager spends in preparation is seldom wasted, and by avoiding the most common pitfalls, a robust D&B contract can be procured and fulfilled with a high level of predictability.

Typical of these pitfalls are the following.

  • Confused or incomplete employer’s requirements: too often, these are created from a mixture of historic drafts from previous projects and client’s standard specifications, ending up being self-contradictory and having key specifications missing. This situation simply increases initial costs as contractors include risk pots, and it is not corrected post-contract when change is at its most expensive.
  • Performance specification requirements are unclear: as a result, there are post-contract debates regarding original expectations or installed works that fail to meet these expectations. Including clear and measurable performance targets will help significantly to overcome this issue.
  • Not establishing a robust cost and scope model before going to tender: many clients and their teams still think that competitive tendering will drive prices below market value. While historically this view may have had some truth to it, any contractor that is buying work today will simply look for any opportunity to recover its margin – usually at the expense of providing a quality product – creating an unnecessary opportunity for dispute.
  • Insufficient review of the contractors’ proposals, leading to a failure to identify those that do not comply with or diverge from the employer’s requirements: when employer’s requirements contradict contractor’s proposals, there is often reliance on clauses that permit clients to choose their preferred option at no cost. Again, this leads to contractors building in unnecessary risk, inflating tender prices by sums that can be avoided if both teams properly review the initial proposals.
  • Inappropriate contractor selection: there are a number of contractors that do not understand the relationships needed for a successful D&B contract. Open dialogue between design and delivery teams, extending to key subcontractors, is essential if the original design is to be understood and translated into physical works on site. Selecting a contractor without this attitude inevitably leads to friction and dispute.

Addressing the above will not guarantee success, and even the most structured of contracts require proficient administration. However, success is more achievable if a project is built on solid foundations. This will also dispel the myth surrounding D&B, and stop it from being an excuse for poor-quality work.

Andrew McSmythurs is a director of McSmythurs Consulting

Further information