Design and build procurement (“D&B”) is a popular choice in the UK construction market, equating to about 41% of all projects in 2015. Engaging a single party to manage the design for a project and carry out the construction offers a simple solution and clarity about the line of communication between the employer and the project team. If the employer wants to give an instruction, make a change or if something is going wrong, the contractor is there to deal with it.
But does the simplicity of the D&B solution and its extensive use throughout the UK prevent employers from looking at the benefits of alternative structures that might fit their requirements more closely?
Design and risk
Many employers recognise that D&B gives them less control over design. The structure is based on an employer (usually with limited technical construction knowledge) appointing an experienced contractor that will lead the design process to meet the employer’s requirements. How those requirements are met is, to a degree, up to the contractor. More sophisticated employers try to re-dress this lack of control by carrying out a considerable amount of design work before the D&B contract is awarded. This would usually require amendments to the form of contract (the employer is liable for design in the Employer’s Requirements under the JCT DB 2016) to maintain the contractor’s single point responsibility, but this leads to risk pricing.
If design control is important to an employer, would a structure where the employer engages the design team, such as a traditional JCT SBC 2016 or construction management, be more appropriate? The employer is more likely to benefit from the high-quality end-product that they desire and, although they will take the risk of cost fluctuations if there are necessary design changes.
There is also a question of insurance; does asking a single party to take all the risk have an impact on works, professional indemnity or public liability insurance? Although the Employer can place contractual controls over the Contractor’s approach to insurance, is there a safety net if things go wrong?
In a D&B model, the contractor is incentivised to “value engineer”. Although this sounds like a technical process, it often simply represents an attempt to deliver the works for less outlay. If the contractor can deliver the employer’s requirements through lower cost materials or by developing the design in a different way then, if they do so in compliance with the contract, they will improve their profit margin. Given the exceptionally low profit margins that contractors usually work to, there is every incentive to find legitimate ways to cut costs wherever possible.
There is a myth that D&B offers a fixed price solution, and although D&B contracts offer tight controls on cost increases, often outturn cost will be different to the agreed contract sum as a result of changes that occur during construction.
NEC offers a range of standard pricing options in its suite of contracts, including a target cost option whereby the parties share (in agreed proportions) any savings or cost overruns. Although this option has its drawbacks (like agreeing the target cost) the shared burden and benefit allows the contractor and the employer to focus on the respective benefits of a particular way of delivering the project, rather than just focussing on its cost.
Other procurement structures may also facilitate the faster completion of a project. A D&B structure does give relative certainty on completion dates, but these are only set after the design process has advanced significantly, the contractor has independently analysed the employer’s requirements and the site and has added a substantial enough “float” to protect from delay damages claims. Other procurement structures, such as construction management, may enable certain trades to commence their works before detailed designs are prepared, with the result of an earlier completion date.
Making the choice
D&B structures remain an important tool for a range of commercial and residential developers. Rightly so given the relative ease of use of D&B and the range of experienced contractors that use D&B to deliver quality, good value projects for their clients. D&B will be the right answer for many projects, but it is important to ask if there are better alternatives when planning works.
Stuart Wilson is a Partner specialising in construction contracts.
Dan Hall is a Partner specialising in construction disputes.
12 September 2019
This Legal Update is published as a general guide only and it is not intended to contain definitive legal or professional advice, which should be obtained as appropriate in relation to any particular matter. This publication relates to matters prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.