Design and build contracts: There's always a risk

According to some, design and build is the right procurement method for all occasions. It started life as a quick and easy way of building industrial sheds where the design was minimal. Giving the contractor the design risk on more complex projects soon became attractive to those employers looking for a one-stop shop approach. But does the imposition of design risk on the contractor always work?

Judging by the number of claims on design-and-build contracts, the answer must be, not entirely. The employer may have avoided the design development risk, but still retains the risk of delay for other reasons, so the potential for a dispute remains.

For instance, in Midland Expressway vs Carillion Construction, the construction of the M6 toll road had been carried out under a design-and-build contract, which gave the entire responsibility for design to the contractor. Disputes arose and there was adjudication and then litigation over several items: were certain works variations to the scope of works; should there be an extra payment for certain archaeological works; should there be a reduction in the price for certain works not done; was the contractor entitled to a share of the discounts received under the New Roads and Street Works Act; and should the provisional sums shown in the contract be deducted in calculating the sums payable for provisional sum items?

If a refurbishment is specified in great detail, the ‘design’ in design and build may be entirely lost

In a judgment that begins intriguingly: “In 43 AD four Roman legions led by Claudius invaded Britain and subdued the indigenous Celtic tribes”, the courts manfully worked their way through these various issues, no doubt at considerable expense to the parties involved. So no, design and build does not prevent claims arising.

Despite the fact that disputes can sometimes arise under a design-and-build-contract, let’s consider whether in two currently active areas design and build could achieve the best result. First, student accommodation: for a new-build construction of this kind, the specification can leave significant discretion to the contractor, to use his buildability and buying skills to achieve the employer’s requirements for accommodation which meets certain standards, while allowing the contractor to complete the design and achieve efficiencies in construction.

Second, an entirely different type of project: the London market is active in the purchase and refurbishment of substantial properties for occupation by wealthy overseas businessmen and their families. Does design and build work equally well in this situation?

If the refurbishment is specified in great detail, there may be little, if any, scope for the contractor’s buildability and design skills. The “design” in design and build may be entirely lost. On the other hand, if the specification contains more general requirements, such as “a high standard of finishes throughout”, there could be an unfortunate mismatch in expectations. The contractor might take the words to mean, say, that the wall coverings should be top of the range at B&Q, whereas what the owner has in mind might be hand-painted silk from the Far East.

Where an employer takes a direct and detailed interest in the finished effect, particularly where they intend to occupy the building themselves, there are ways of engaging with the contractor and obtaining for the employer a finished product of a high standard which also represents value for money. But using a design-and-build contract is not, I would suggest, the best way to achieve that.

As the Midland case illustrates, design and build (or “design and dump” as it is sometimes known) does not prevent contractors making claims for extra time and money where there is delay. The employer may think that he is putting all the design risk on the contractor but, if significant variations are instructed during construction (which is the case for many projects), this risk stays with the employer. Logically, variations are likely to be more expensive because the contractor’s method and sequence of working will be less visible to the employer’s agent; the time and cost consequences of a variation instruction are not as easy to see. So maybe the construction industry has not (yet) found the holy grail of an ideal procurement method for all projects.

Gillian Birkby is head of construction at Fladgate LLP