Design Build Contract forms

A. AIA Forms for Design-Build B. AGC Associated General Contractors Forms for Design-Build. Prepared by Junius Bracy Cross, Jr. 308 East 8th Street, Little Rock, Arkansas 72202 (501) 374-2512 Fax (501) 324-8938 jbcross@,cei.net Design Build Contract Forms The use of the design build concept is a more and more common way to organize a construction project. The change really concerns the relationship of the designer and contractor to the owner. The actual work is done much the same as in traditional construction by specialty subcontractors, suppliers and the contractor's own forces. The construction site itself acts and looks relatively the same as traditional. There is a vast difference however in the responsibilities of the parties. In order for a building to come into existence, several things must happen. There must be a need, a means to pay for the work, a way to decide what type of building is needed to meet the need, it must be designed, its cost must be determined, and finally it must be constructed. There are problems with the traditional construction organization which are addressed by the design build concept. The first with a traditional form is that it assumes that the owner is relatively knowledgeable concerning building issues. Second the owner will not get a firm idea about costs until late in the game, when the structure is completely designed and the costs of that work have been incurred. These problems are largely addressed by the design build concept. Design Build can have all of the same delivery methods as traditional contracting that is to say, fast track and even a form of construction manager/multi-prime. The emphasis is on a team approach rather than a competitive approach. In a traditional setting the main goal is controlling costs and doing so through competitive bids. In Design Build the cost issue is dealt with by design change. The emphasis is more on quality and function rather than costs. The owner gets the benefit of the designer's knowledge and that of the contractor and in some forms even the special knowledge of subcontractors. Design Build lets the owner participate in all phases of the project not only just design but also cost design. Design build lends itself to purpose-built facilities, hospitals, and nursing homes. Design build has not yet made much of an impact on public works' and utility work such as water or sewer systems. The small improvement districts are still largely controlled by federal grants that require these largely rural programs to use ancient contract forms. The federal government itself is starting to use this concept as well. Design build lends itself to modern development. In a traditional project the owner, goes to a designer, in order to go through the design process, then finally puts the project out for bids and only then learns the firm cost. If the costs are too high, a large amount of work has already been done and expense incurred. The design build contract form usually takes two stages; a preliminary stage and a final stage. The preliminary stage assumes that the project may or may not be built. Generally the project plans are taken only to the schematic stage. At that point the

parties will decide whether to go forward and the final plans will be prepared and the project finalized. There are a number of forms in use in the industry the most prevalent are those prepared by the American Institute of Architects, or AIA. Theirs is not the only form that one can use. There is also a rather complete and very serviceable set of design build documents produced by the Association of General Contractors. I have to admit that in the 15 years that I have been working with design build documents, I have yet to find even a contractor-driven project that actually used the AGC forms. I learned about them from a text book and if you try to locate them you will have difficulty. I finally got the forms I have for today by going to the AGC office and helping them go through their files to find these. The documents are in my opinion excellent, and in a construction form in which the contractor actually has a choice, these should be given some consideration... The principal contract form from the AIA we will use today is the AIA Document A191, 1996 Edition that assumes the design builder is the contractor. The AGC uses a different format, but its series of design build documents are AGC Documents 400 through 460. Luckily there are not 60 documents, but about six including subcontracts. Both AIA and AGC sets of documents use a basic part one and part two organization. The AIA forms are contained in the same folder, but are two separate contracts, each with its own execution page. The AGC Part one is a very simple document on the front and back of one page called the AGC 400. The part two document has both a lump sum contract AGC 415 and a cost plus with a guaranteed maximum, AGC 410. The AGC 410 is a newer document and reflects some serious development and sophistication since the preparation of the earlier AGC 415. Part One The object of the part one agreement in both cases is limited. The parties hope essentially to work up a detailed design and cost proposal for a set fee. The owner is not obligated to proceed further or to pay any more. The language from the AIA A191 is: 1.3.5 The Design Builder shall submit to the Owner a Proposal, including the completed Preliminary Design Documents, a statement of the proposed contract sum, and a proposed schedule for completion of the Project. Preliminary Design Documents shall consist of preliminary design drawings, outline specifications or other documents sufficient to establish the size, quality and character of the entire Project, its architectural, structural, mechanical and electrical systems, and the materials and such other elements of the Project as may be appropriate. The language from the AGC 400 Document is: Preliminary Evaluation. The Contractor shall provide a preliminary evaluation of the Project's feasibility based on the Owner's Program and other relevant information. Preliminary Schedule. The Contractor shall provide a preliminary schedule for the Owner's written approval. The schedule shall show the activities of the Owner, Contractor and Architect/Engineer necessary to meet the Owner's completion requirements. Preliminary Estimate. The Contractor shall prepare for the Owner's written approval a preliminary estimate utilizing area, volume, or similar conceptual estimating techniques. The level of detail for the estimate shall reflect the Owner's Program and any additional

available information. If the preliminary estimate exceeds the Owner's budget, the Contractor shall make written recommendations to the Owner. Schematic Design Documents. The Contractor shall submit for the Owner's written approval Schematic Design Documents, based on the Owner's Program and other relevant information. Schematic Design Documents shall include drawings, outline specifications and other conceptual documents illustrating the Project's basic elements, scale and their relationship to the site. One set of these Documents shall be furnished to the Owner. The Contractor shall update the preliminary schedule and preliminary estimate based on the Schematic Design Documents. In both forms the design builder in exchange for a set fee is required to produce only a preliminary design, schedule and proposed cost. The owner is not obligated to go further and in reality neither is the design builder. Since the use of the terms "proposed" in one and "preliminary" in the other could be taken by the courts to mean an agreement to agree, which is not enforceable. One assumes that human nature will impel the project forward. The owner has spent money to get that far and will not want to have it wasted. The contractor on the other hand has a job and the inside line on getting it and also is not likely to want to let it get away. The interesting thing is that the AIA language for this as you can see is rather summary and the AGC language is far more detailed. However, the AIA part one document is eight pages long and the AGC document is only part of the front and back of one page. The balance of the AIA document deals with the ownership of the documents, time, termination and has a long and more detailed description of 'additional services.' In both the ownership of the documents remains with the design builder. Both do allow for addition services for additional fees which include working with the owner to secure financing. The cooperation called for relates to the preparation of items a bank might want in deciding whether to finance the project. As a practical matter in many instances the work covered by the part one agreement is done as part of the negotiation between the owner and the contractor. Use of the formal document would protect both parties. The owner by making it clear that there is no obligation to proceed or be responsible for lost profits. The design builder on the other hand is compensated for what could be an expensive process between hiring and payment of a designer and document production. I have seen builders who folded these costs into the final price. The other issue is use of the plans; both make it clear the plans are still those of the design builder'. I have seen situations with no part one agreement wherein the owner after a long negotiation simply took a set of the then nearly complete plans and used those to secure a cheaper bid.

Part Two
The part two set of documents for both the AIA A191 and AGC 410, lump sum, and 415 cost plus, documents are rather large and complex documents. Any attempt to review these documents is difficult to do in a way that keeps all of us awake and not in a coma. I will not try to review first one and then the other, but we will use a series of issues addressed in the documents and look at how each addresses those issues:

Ownership of Documents

A point of difficulty over the years is the actual ownership of the contract documents, or plans. The issue of course is just what the owner has purchased when it pays for a set of plans. Industrial plants may have advantages of use with certain designs, and other buildings may have aesthetic or simple commercial appeal. For many years one could not copyright a structure. That has been changed and construction plans may benefit from copyright protection. Who has the right to build additional copies or conversely to prevent additional copies from being constructed? Under the AIA A191 Part 1 and 2, the ownership of the documents actually remains with the architect. It should not be a surprise that in the AIA universe, the architect still retains the advantage. Specifically the AIA A191, Part 2 states: "1.3 OWNERSHIP AND USE OF DOCUMENTS 1.3.1 Drawings, specifications, and other documents and electronic data furnished by the Design Builder are instruments of service. The Design Builder's Architect and other providers of professional services shall retain all common law, statutory and other reserved rights, including copyright in those instruments of service furnished by them. Drawings, specifications, and other documents and electronic data are furnished for use solely with respect to this Part 2 Agreement. The Owner shall be permitted to retain copies, including reproducible copies, of the drawings, specifications, and other documents and electronic data furnished by the Design/Builder for information and reference in connection with the Project except as provided in Subparagraphs 1.3.2 and 1.3.3. Emphasis Supplied The answer with regard to this question is somewhat more complicated in the AGC plan of things. Essentially once the plans are paid for the owner is given ownership of the documents, but not the copyright, for the purpose of completing the project. The plans may not be used for future projects by the owner without written permission, but that permission is not to be "unreasonably" withheld. The language is from AGC 410 is as follows: 3.1.8 OWNERSHIP OF DOCUMENTS Upon the making of payment pursuant to Paragraph 10.5, the Owner shall receive ownership of the property rights, except for copy rights, of all documents, drawings, specifications, electronic data and information prepared, provided or procured by the Design Builder, its Architect/Engineer, Subcontractors and consultants and distributed to the Owner for this Project. ("Design Build Documents") .1 If this Agreement is terminated pursuant to Paragraph 12.2, the Owner shall receive ownership of the property rights, except for copyrights, of the Design Build Documents upon payment for all Work performed in accordance with this Agreement, at which time the Owner shall have the right to use, reproduce and make derivative works from the Design Build Documents to complete the Work. .2 If this Agreement is terminated pursuant to Paragraph 12.3, the Owner shall receive ownership of the property rights, except for copyrights, of the Design Build Documents upon payment of all sums provided in Paragraph 12.3, at which time the Owner shall have the right to use, reproduce and make derivative works from the Design Build Documents to complete the Work. .3 The Owner may use, reproduce and make derivative works from the Design Build

Documents for subsequent renovation and remodeling of the Work, but shall not use, reproduce or make derivative works from the Design Build Documents for other projects without the written authorization of the Design Builder, who shall not unreasonably with hold consent. The position in the AGC 415 is similar, but less developed than in the AGC 410. In both the case of the AGC and AIA documents on this question the Design Builder retains control of the documents, with owner getting a somewhat better deal under the AGC 410. The Design Builder, one will assume that is a contractor, gets 'ownership' of the plans under AGC, while it is the architect under AIA documents that has the final rights.

Confidentiality
The issue with regard to the protection of the owner's information is one that is only addressed in the AGC 410, the newest of the documents. The AIA A191 simply does not address the issue. In that case the usual common law rights regarding fair competition would apply. The AGC document 410 explicitly requires that the contractor not disclose the owner's information. The AGC 410 states: "3.9 CONFIDENTIALITY The Design Builder shall treat as confidential and not disclose to third persons, except Subcontractors, Sub-subcontractors and the Architect/Engineer as is necessary for the performance of the Work, or use for its own benefit any of the Owner's developments, confidential information, know-how, discoveries, production methods and the like that may be disclosed to the Design Builder or which the Design Builder may acquire in connection with the Work. The Owner shall treat as confidential information all of the Design Builder's estimating systems and historical and parameter cost data that may be disclosed to the Owner in connection with the performance of this Agreement."

Substantial Completion
There is an interesting difference in the two sets of documents with regard to the concept of Substantial completion. The AIA A191 is a document from 1996, the year prior to the most recent major renovation of the AIA documents. In the AIA A201, 1997, the term substantial completion is defined, which is generally in conformity to the common law definition. That is to say at that point when the owner can use the project for its intended use, with only minor or inadvertent deviations. The AIA A191, 1996, has a curious disconnect in the document in that there is a section for definitions, but only one term is defined. In general in the AIA the main definitions and provisions are set out in a set of general conditions, for instance the AIA A201, 1997. Therefore this may simply be an oversight. In any event the AGC 410, the newest of the documents does have a long definition section which includes a definition for a number of terms including 'substantial completion.' The definition is slightly, but significantly different. AGC 410 2.3.13 states as follows: Substantial Completion of the Work, or of a designated portion, occurs on the date when the Design Builder's obligations are sufficiently complete in accordance with the Contract Documents so that the Owner can or does occupy or utilize the Project, or a

designated portion, for the use for which it is intended, in accordance with Paragraph 10.4. From a practical stand point this can be important. Under the AIA documents, use is not acceptance and an owner can both occupy and use the building, while still claiming it is not substantially complete. Under the AGC 410, use of the building is substantial completion, this is not 'acceptance' but it does for instance stop the contract time. Whether this change is adopted in other documents or the courts is of course something that only the future will tell.

Tax Exemption
This is a concept addressed only in the AGC documents.[4] It can be significant since sales taxes in Arkansas tend to be higher than in surrounding states. If a contractor depending on an owner's exemption fails to make provisions in its purchase and subcontract agreement for the inclusion of sales and use taxes, and that exemption is later denied by the tax authorities, the contractor may face some stiff penalties. The AGC 410 and AGC 415 documents both make the owner responsible for the claim for exemption. AGC 410 states: "4.5 TAX EXEMPTION If in accordance with the Owner's direction the Design Builder claims an exemption for taxes, the Owner shall defend, indemnify and hold the Design Builder harmless for all liability, penalty, interest, fine, tax assessment, attorney's fees or other expense or cost incurred by the Design Builder as a result of any action taken by the Design Builder in accordance with the Owner's direction." The difference may be that as an industry contractors have a great deal more exposure to sales and use taxes than architects.

Geotech or Soils Studies

The issue of course with regard to soils studies and geo-technical information is liability. The problem is that no one ever really knows what is under the ground. The test borings really only tell you what was in that hole with not guarantee that different conditions may exist. The AIA A191 document takes a similar position to other AIA documents and makes the owner obtain these services directly, even though the design builder determines what studies will be done. A191 states: "2.1.5 The Owner shall furnish the services of geotechnical engineers when such services are stipulated in this Part 1 Agreement, or deemed reasonably necessary by the Design Builder. Such services may include but are not limited to test borings, test pits, determinations of soil bearing values, percolation tests, evaluations of hazardous materials, ground corrosion and resistivity tests, and necessary operations for anticipating subsoil conditions. The services of geotechnical engineer(s) or other consultants shall include preparation and submission of all appropriate reports and professional recommendations."

The AGC documents do not explicitly address the issues but do by implication assume responsibility for site evaluation. In AGC 410 3.1.1 the wording is as follows: "The Design Builder's review shall also provide to the Owner a preliminary evaluation of the site with regard to access, traffic, drainage, parking, building placement and other considerations affecting the building, the environment and energy use, as well as information regarding applicable governmental laws, regulations and requirements." This approach is more than likely what all owners would assume are part of the duties is a designer or contractor.

Time / Consequential Damages

Neither AGC nor AIA contain a blank or mention of liquidated damages for failure to complete the project on time. This is of course not entirely an excuse for timely completion. The liquidated damages set both a floor and a ceiling on time damages. The AIA A191 does not address this issue, although it is addressed in the AIA 1997 and subsequent documents.' The AGC in the 410, 1999 Edition does contain a waiver of consequential damages at Paragraph 11.8: "11.8 MUTUAL WAIVER OF CONSEQUENTIAL DAM AGES The Owner and the Design Builder agree to waive all claims against the other for all consequential damages that may arise out of or relate to this Agreement. The Owner agrees to waive damages including but not limited to the Owner's loss of use of the Property, all rental expenses incurred, loss of services of employees, or loss of reputation. The Design Builder agrees to waive damages including but not limited to the loss of business, loss of financing, principal office overhead and profits, loss of profits not related to this Project, or loss of reputation. This paragraph shall not be construed to preclude contractual provisions for liquidated damages when such provisions relate to direct damages only. The provisions of this paragraph shall govern the termination of this Agreement and shall survive such termination." It is likely that in future additions this trend will be adopted by the other design build documents as well.

Equipment Rental
The use of the contractor's own equipment especially where rental rates are concerned is an issue with many owners. The AIA A 191, which it must be noted is not a cost plus document as is the AGC 410, does in the context of change order pricing allow rental costs to be charged for contractor owner equipment.' The AGC 410 does contain the following limitation for contractor owned equipment. The contract states: " 8.2.9 Rental charges. . . . Rentals from the Design Builder or its affiliates, subsidiaries or related parties shall be reimbursed at the prevailing rates in the locality of the Worksite up to eighty-five percent (85%) of the value of the piece of equipment.

Change Orders
Both the AIA and AGC documents deal with the concept of changes in the work in a similar manner. Both, although they use different terminology recognize differences that are large and small. The AIA A191 places the burden of obtaining change orders on the contractor, while the AGC is silent on this point. The issue of course usually encountered when the contractor claims extra compensation for new work and the owner because there is no written change order. The issue rarely is explicitly addressed by the court due to the waiver holdings regarding change orders.

Hazardous Waste
The presence and costs for dealing hazardous wastes on construction sites is a relatively new future in the construction industry. New rules regarding asbestosis and the new regulation for other materials in the environment make this an issue that must be dealt with. The AIA A191 really does not address the issue of hazardous wastes, although other documents after 1997 do contain provisions for hazardous wastes. The AGC documents 410 and 415 both contain language that places the responsibility for the costs of dealing with hazardous materials on the owner. AGC 410 3.6 states as follows: "3.6 HAZARDOUS MATERIALS 3.6.1 A Hazardous Material is any substance or material identified now or in the future as hazardous under any federal, state or local law or regulation, or any other substance or material which may be considered hazardous or otherwise subject to statutory or regulatory requirements governing handling, disposal and/or clean-up. The Design Builder shall not be obligated to commence or continue work until all Hazardous Material discovered at the Worksite has been removed, rendered or determined to be harmless by the Owner as certified by an independent testing laboratory approved by the appropriate government agency. 3.6.2 If after the commencement of the Work, Hazardous Material is discovered at the Project, the Design Builder shall be entitled to immediately stop Work in the affected area. The Design Builder shall report the condition to the Owner and, if required, the government agency with jurisdiction. 3.6.3 The Design Builder shall not be required to perform any Work relating to or in the area of Hazardous Material without written mutual agreement." Regulatory Changes [410 9.8] Both the AIA and AGC sets of documents make the contractor responsible for the cost of compliance with regulations in effect when the contract was signed. Both also make the owner responsible for changes in the regulatory environment after the contract is underway.' Disputes The way in which disputes are handled in the construction industry is a changing concept. In the last 3 decades alternative dispute resolution has gone from a rare and unfavored remedy, to the preferred means. The AIA A191 is like all other AIA

documents firmly on this new trend and mediation and arbitration are mandatory. The AGC documents on the other hand represent a more complex situation. The AGC 415, the lump sum design build document is a 1993 edition. The AGC 415 Article 12, requires that all disputes be dealt with by arbitration if mediation fails. AGC 410, the 1999 Edition, represents a pull back on this issue. Essentially, AGC 410 makes this an explicit election in the contract. Under AGC 410 Article 13 the parties are directed to try mediation and if that fails then the dispute is o be resolved according to the means chosen in a separate Exhibit. The AGC 410 uses an amendment to deal with the final resolution of the dispute. In the package of materials for this contract is an exhibit 1. AGC 410 - Exhibit 1 states in pertinent part: DISPUTE RESOLUTION MENU Pursuant to Paragraph 13.3, if neither direct discussions nor mediation successfully resolve the dispute, the parties agree that the following shall be used to resolve the dispute. (Check the appropriate selection(s). These procedures can be used singularly or progressively as agreed to by the parties.) Dispute Review Board. The Dispute Review Board is composed of one member selected by the Owner, one selected by the Design Builder, and a third member selected by the Owner and Design Builder selected members. This Board shall be selected by the time construction commences, shall meet periodically, and shall make advisory decisions which may be introduced into evidence at any subsequent dispute resolution process. If a Dispute Review Board is selected, it is understood its review will precede mediation. Advisory Arbitration. Advisory Arbitration shall be pursuant to the Construction Industry Rules of the American Arbitration Association. Mini Trial. Each party, in the presence of senior management, shall submit its position to a mutually selected individual who shall make a non-binding recommendation to the parties. Such advisory decision may be introduced into evidence at any subsequent dispute resolution process. Binding Arbitration. Binding Arbitration shall be pursuant to the Construction Industry Rules of the American Arbitration Association unless the parties mutually agree otherwise. A written demand for arbitration shall be filed with the American Arbitration Association and the other party to the Agreement within a reasonable time after the dispute or claim has arisen, but in no event after the applicable statute of limitations for a legal or equitable proceeding would have run. The location of the arbitration proceedings shall be at the office of the American Arbitration Association nearest the Project, unless the parties agree otherwise. The arbitration award shall be final. Notwithstanding Paragraph 14.2, this agreement to arbitrate shall be governed by the Federal Arbitration Act and judgment upon the award may be confirmed in any court having jurisdiction. Litigation. Action may be filed in the appropriate state or federal court located in the jurisdiction in which the Project is located." The parties are essentially given a number of options and are required to select one of the options. This avoids one of the problems with the AIA documents in that persons not familiar with their contracts often do not have any idea that they have signed a contract

containing a binding arbitration clause. To the extent that this makes the election an explicit one this represents an improvement.

Time for claims

This concept is mentioned not because there is any contrast in the AIA and AGC documents, but because it is a concept included in both documents. Claims for extra costs are required to be made within 21 days of the event or discovery. This is important because it intended to force the parties to bring and face issues when they arise rather than waiting until the end of the job or until after the original conditions have been disturbed.

Warranties
All of these documents contain provisions that give an owner a one year warranty on the project. This is likely because there is an expectation on the part of owners that there is or should be a warranty. The AGC forms take a more industry friendly stance than the AIA. The AGC 410 and 415 contracts both have a warranty but with an explicit limitation of the warranty, much like virtually every other commercial granted warranty. AGC 410 states: "3.8.2 To the extent products, equipment, systems or materials incorporated in the Work are specified and purchased by the Owner, they shall be covered exclusively by the warranty of the manufacturer. There are no warranties which extend beyond the description on the face of any such warranty. To the extent products, equipment, systems or materials incorporated in the Work are specified by the Owner but purchased by the Design Builder and are inconsistent with selection criteria that otherwise would have been followed by the Design Builder, the Design Builder shall assist the Owner in pursuing warranty claims. ALL OTHER WARRANTIES EXPRESSED OR IMPLIED INCLUDING THE WARRANTY OF MERCHANTABILITY AND THE WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY DISCLAIMED." The reason that the bold language sounds familiar to you is that you have read this on virtually every commercial warranty you have ever encountered. This may reflect an industry bias since designers such as the AIA generally are getting warranties from others for their clients. The design Builder on the other hand is giving the warranty and thus wishes to lower the risk.

Conclusion
Both the AIA and AGC have produced excellent sets of documents for these and many other circumstances. Particularly in the design build situation contractors have as much to say as the designer in contract choice. Whichever set the design builder elects to use, the decision should be based on an intelligent balance of the project, owner and needs of the Design Builder. End Notes 1. Aspen - Construction Law Handbook Part VI Contracting Section 12.02, Page 384 The design build approach traditionally has met with resistance and is seldom used by general law public agencies because of competitive bidding requirements. Charter

public agencies may utilize this approach if their charters so provide. 2. Aspen - Construction Law Handbook, Part XIII Federal Government Construction Contracts Chapter 44 New and Unique Aspects of Federal Contracting Page 1646 "Various federal agencies had long experimented with design-build techniques but without any specific statutory authorization. In 1996, Congress specifically granted the agencies authority to conduct design build procurements. These rules were recently implemented in Federal Acquisition Regulation Subpart 36.3. These represent the first statutory recognition by the federal government of design build processes." 3. AGC 400 "ARTICLE 3 Ownership of Documents - All documents provided under this Agreement shall remain the property of the Contractor and are not to be used by the Owner without the written consent of the Contractor. And see AIA Part One 1.4 wherein ownership is retained by the designer. 4. The AIA A 191 states only that the contractor is responsible for all sales and use taxes, at A191 3.2.10. 5. The AIA A 191 does have a provision in its insurance sections. 7.4 LOSS OF USE INSURANCE 7.4.1 The Owner, at the Owner's option, may purchase and maintain such insurance as will insure the Owner against loss of use of the Owner's property due to fire or other hazards, however caused. The Owner waives all rights of action against the Design Builder for loss of use of the Owner's property, including consequential losses due to fire or other hazards, however caused. The AGC documents have this as well, and it does relate to incomplete buildings but only to a casualty loss. 6. 8.3.2.3 rental costs of machinery and equipment exclusive of hand tools, whether rented from the Design Builder or others;" There is no limit on this amount other than common law 'reasonableness.' 7. See AIA A191 3.3.2 by making it an additional service. AGC 410 9.8 simply assesses the cost for changes to the owner.