American Bar Association
Forum on the Construction Industry
Design-Build: Have We Perfected It
Or Is There Work Left To Be Done?
Eileen M. Diepenbrock
Diepenbrock Elkin, LLP
400 Capitol Mall, Suite 1800
Sacramento, CA 95814
Presented at the 2012 Annual Meeting
Advanced Project Delivery: Improving the Odds of Success
April 26-28, 2012
Bellagio Hotel, Las Vegas, NV
2012 American Bar Association
Traditionally, infrastructure delivery involved a master builder serving as both project
designer and builder. Throughout much of history, this form of design-build project delivery has
been used to develop major infrastructure projects, including pyramids, temples, aqueducts,
cathedrals, and major public buildings.1 During the Renaissance, “the knowledge and skills
involved in project design and construction became increasingly complex, better documented,
and more specialized. This enabled the design function to become more distinct from the
construction function. Along with increased complexity and specialization came concerns over
the accountability and responsibility of the various functions that comprise the project
In response to such concerns for large infrastructure projects in this country, particularly
after such projects as the Transcontinental Railroad showed how “favoritism and process
manipulation could lead to fraud, waste, and abuse in the development of infrastructure,”
government agencies began reforming the contracting process late in the nineteenth century,
culminating in the design-bid-build process.3 Over time, design-bid-build was institutionalized
through laws and regulations and became the traditional form of project delivery.4 However,
with constantly developing technology and complexity of projects and the desire for more
efficient procedures, the benefits of design-bid-build have been perceived to have eroded.5 As a
result, public and private owners began to experiment with the design-build project delivery
approach to reduce the time and cost to complete their projects.6
I would like to acknowledge and thank my partners, Jennifer Dauer and Jonathan Marz, and our
extern, William Allen, a third year law student at Thomas M. Cooley Law School, for their
contributions to this paper.
Today, design-build has become widely used. The purpose of this paper is to examine
whether design-build has developed into the valuable procurement method as promised when it
began to re-emerge on the scene. It begins with a comparison of design-build to other delivery
systems to help an owner understand why it may choose design-build in lieu of another delivery
system, then examines what hurdles still must be overcome in its use and where the conflicts lie
in this delivery system, and concludes with an analysis of whether it has “lived up to the hype.”
Much of this paper will focus on public works contracting because such projects typically face
signification regulation and restrictions, including regulation and restriction on a public entity’s
contracting authority. However, many of the cost/benefit analyses apply equally to private
II. Choosing a Procurement Methodology: Why Design-Build?
In constructing a project, an owner must address five key aspects of the project: its
design, its construction (build), its operation, its maintenance, and its financing. Traditionally,
public works projects have been built using the “design-bid-build” methodology by which the
public entity contracts for the project design, and then conducts “competitive bidding”—award
to the lowest responsive, responsible bidder—to select its construction contractor. Design-bid-
build separates out each of the key functions, resulting in the public entity or other owner
entering into separate contracts to design and to build the project, and then generally (although
not necessarily) operating, maintaining, and financing the project itself. The strict requirements
of competitive bidding can be very restrictive for an owner. On the other end of the spectrum is
the design-build-operate-maintain-finance (“DBOMF”) methodology, often known as Public
Private Partnership (“PPP”). While that methodology offers great flexibility, it may be too
flexible and with too little competition. Between those extremes is design-build, a methodology
that, until recent years was more commonly used in the private sector, and which a public entity
may find provides the right balance between its need for flexibility and responsiveness with its
need for structure and competition.
A. Design-Bid-Build and Competitive Bidding
Absent an express exception, statutory authority governing most public entities generally
prescribes design-bid-build and associated competitive bidding as the method by which a valid
public works contract can be awarded. The philosophy of competitive bidding is to maximize
competition and to promote equal treatment of all bidders. As explained by one key California
The purpose of requiring governmental entities to open the contracts process to
public bidding is to eliminate favoritism, fraud and corruption; avoid misuse of
public funds; and stimulate advantageous market place competition. [Citations]
Because of the potential for abuse arising from deviations from strict adherence to
standards which promote these public benefits, the letting of public contracts
universally receives close judicial scrutiny and contracts awarded without strict
compliance with bidding requirements will be set aside. This preventative
approach is applied even where it is certain there was in fact no corruption or
adverse effect upon the bidding process, and the deviations would save the entity
money. [Citations] The importance of maintaining integrity in government and
the ease with which policy goals underlying the requirement for open competitive
bidding may be surreptitiously undercut, mandate strict compliance with bidding
Similarly, the Supreme Court of Minnesota recently stated:
The Legislature has been cautious of giving agencies substantial discretion
in contracting for public works to avoid “such abuses as fraud, favoritism,
extravagance, and improvidence in connection with the letting of
Design-bid-build maximizes the bidding pool, and thus competition, in part because
solicitations under alternate procurement methodologies frequently limit bidding to those with
experience with the methodology. More importantly, design-bid-build increases competition
because it does not require the contractors to provide services that many will not have capability
to provide in-house, such as the ability to design, operate, or finance the project. Requiring the
bidders to provide such services that are not necessary for a construction contractor limits
competition to those few bidders who have the ability in-house, or those who can contract for the
functions they cannot perform in-house. Design-bid-build focuses on the core competency of the
businesses selected, allowing the public entity to select the designer it considers the best for the
project and the contractor able to offer the lowest price, even if they are not teamed together.
Competitive bidding results in selecting the contractor offering the lowest bid price for the
project, which conceptually maximizes value to the public and minimizes the risk that favoritism
will enter into a subjective judgment as to the value of any proposal.
However, many public entities feel constrained by competitive bidding and the obligation
to award to the lowest responsive, responsible bidder. For example, public entities may be
concerned that a bidder with minimal experience may be the low bidder, but that its inexperience
may cause difficulty during performance. A responsibility determination and/or pre-qualification
may eliminate some less experienced contractors, but not all, particularly if the public entity
cannot judge “relative responsibility.”9 Other public entities perceive that contractors will offer
an excessively low price in order to secure the contract, intending to make up their “loss” in
bidding by submitting multiple change orders. Even where a public entity insists on compliance
with the contract, it is likely that the oversight costs will increase where it has to analyze and
respond to multiple change order requests. In addition, it is more likely that the project will end
up in a disputes-resolution process with its attendant costs. Bidders that honestly and accurately
assess the true project costs may be discouraged from bidding if they perceive that they cannot
submit the lowest bid and win the contract without such change order gamesmanship, thus
reducing the competitive benefits from using the design-bid-build methodology.
In addition to concerns over the quality of the low bidder’s work, many owners, whether
public or private, have timing concerns with design-bid-build. If a project is required by a given
date, the owner practically may not have time to wait to complete the design and then bid the
project, particularly if bid protests of the intended award(s) are expected. Similarly, even if it
appears that sufficient time is available for design-bid-build, if the design work runs behind
schedule, then the owner may be forced to decide either to bid the project with an incomplete
design—resulting in almost guaranteed change orders—or to delay the bid and hope that the
contractor can complete the work in a shorter time—which is likely to increase the construction
costs. Such concerns are particularly common where the owner must hit a construction window,
such as a school district that requires construction to be complete before classes start or a city
that requires construction before adverse winter weather precludes construction.
Design-bid-build also may put the owner in a difficult position with respect to
responsibility for design. Absent statutory authority to the contrary, a public entity is likely to be
found to warrant to the contractor the “constructability” of the plans and specifications and the
“accuracy” of any factual information or reports provided to the contractor.10 If the design
contains errors, particularly errors that a reasonable bidder would not have identified during the
bidding process, then the contractor likely will be entitled to a change order, with its attendant
costs, to correct the error. As noted above, some bidders may presume such changes will be
required, intending to recover other costs or profit through changes in order to lower their bids
and win the contract. However, the owner may not be able to recover from its design contractor
for the error, leaving the owner responsible for the costs of design errors.
For a public entity that wishes to avoid an obligation to award public works contracts to
the lowest responsible bidder, certain legally sanctioned exceptions to competitive bidding exist.
These alternate procurement tools are gaining favor as public entities seek to streamline their
construction projects and make them more like commercial construction projects.
B. Design-Build-Operate-Maintain-Finance or Public-Private Partnerships
On the opposite end of the spectrum from design-bid-build contracts are DBOMF or PPP
contracts.11 These contracts involve agreements between public and private sector entities to
develop public improvements using primarily private sources of funding. DBOMF/PPP projects
are used in a variety of contexts including highway improvements, public utilities (such as power
plants, water facilities and telecommunications), large sports complexes, and courthouses.
Concession contracts also may be a form of DBOMF/PPP contract. While the precise structure
of such agreements will vary from project to project, generally the private entity agrees to
design, construct, operate and maintain a public facility, using private financing, in exchange for
a right to collect a revenue stream from the facility over a period of time. In entering such an
agreement, the private entity gambles that the demand (and revenue stream) for the project will
be sufficient to cover its costs of all phases of construction and operation, including financing
and anticipated profit over the long-term.
The public entity has much more discretion in selecting its DBOMF/PPP contractor than
in traditional design-bid-build because it can award to the best qualified bidder instead of the
lowest responsible bidder. However, electing to proceed with a DBOMF/PPP project
significantly limits competition when compared to design-bid-build. The bidders must have or
contract for construction capabilities; design capabilities; financing, sometimes over decades;
and the capacity to operate the project in the long term once constructed. The number of bidders
willing to take the risk and negotiate with others for such functionality will not be nearly as great
as those willing to simply design or construct a project. In fact, the public entity may find itself
with only one or two bidders interested in the project. In part due to the more limited
competition and in part due to the higher risk, the public entity may very well pay more (over
time) on a DBOMF/PPP project, unless the demand for the project once constructed is
substantially lower than anticipated. Finally, to the extent that the private entity is assuming risk
of its design being cost-effective to construct and manage, and/or the risk of its design generating
demand, the public entity will have less control over the design of the project. Stated another
way, the less the public entity constrains the design, the more it takes advantage of the private
entity’s expertise and the more risk the private entity is likely to assume.
The DBOMF/PPP project delivery methodology may give public entities more control
over selecting a “desirable” contracting partner, but less competition or possible partners to
select. It may allow the public entity to shift risk and gain the benefit of private entities’
expertise, but require an attendant release of control over the project and a likely higher cost over
time. It may allow the public entity to transfer operations obligations to a private entity whose
profit motive can result in innovative and efficient maintenance and operations, but also will
require the public entity to prepare detailed maintenance and operations specifications to ensure
that its standards are met, particularly towards the end of the contract period. While
DBOMF/PPP projects offer very definite benefits for projects generating an anticipated income
stream, they also have certain limitations that make them inadvisable for many public works
projects. Underlying this all, of course, is whether the public entity in fact has contracting
authority to use the DBOMF/PPP methodology.
C. Design-Build Contracting
A design-build contract is now well understood to mean the use of a single private entity
to both design and construct a project, while leaving the operations, maintenance, and financing
of the project to the owner. It is generally a multi-phase process. As one court explained, the
“design-build best-value process differs from the lowest responsible bid process in that it allows
public agencies to consider factors other than cost when awarding contracts.”12
If authorized, “design-build” contracting may offer owners a compromise which is “just
right” between the extremes of separating each phase through design-bid-build or combining all
phases in a DBOMF/PPP contract. However, while states generally have adopted some design-
build authority, its application is frequently limited to certain types of contracts, numbers of
annual contracts, agencies, or local government types. For example, Nevada recently revised its
design-build authority for its Department of Transportation, reducing the threshold for using
design-build to $10 million from $20 million and revising authorization for smaller projects
(between $5 million and, now, $10 million) to allow two such projects annually instead of one.13
Each state and/or local entity will have its own requirements for implementing design-
build. However, design-build statutes tend to have certain features in common. Design-build
authority generally contains detailed provisions governing how the contracting process must
proceed, which usually is a multi-step process. That process involves the public entity
identifying and describing the project that it intends to procure, which may include preliminary
plans and specifications. The public entity may need to get pre-approval to use design-build
from another supervisory authority, and/or make a finding that design-build is appropriate or in
the public’s best interest.14 The methodology often includes a pre-qualification procedure or
phase addressing responsibility factors, such as licensing, experience, financial aspects including
bonding capacity, and any negative history such as suspension, debarments or terminations.15
The public entity then issues a request for proposals (“RFP”) detailing the project, the selection
criteria for the design-build contractor, and sometimes other information such as site
information, the expected cost range, required contract terms (including bonding and/or
insurance), or schedule.16 Frequently, the statutory authority requires that the project be
advertised to notify potential bidding teams.17 The final selection process varies significantly
among jurisdictions. For example, it may be by low bid or best value, depending on the statutory
authority, may require submission of an additional (best and final) proposal, and may involve
interviewing selected top proposals and/or negotiating the contract with the selected proposer.18
After the design-build contract is awarded, the authority may require either competitive bidding
or at least notice and an opportunity to submit bids for the trade contract work.19
Importantly, failure to comply with statutory authority equates to an unauthorized design-
build project. Thus, as public owners have sought to expand their use of design-build in recent
years, some also have found that their creative efforts run too far afoul of the legal parameters.
For example, the Pennsylvania Department of Transportation (“PennDOT”) recently
attempted to award a bridge replacement project using a best-value, design-build methodology
which short-listed bidders, provided them a stipend to prepare final proposals, and then selected
a contractor based on a subjective “best value” instead of lowest cost.20 The Pennsylvania
Supreme Court initially agreed with the Commonwealth Court’s conclusion that public contracts
are required to be awarded using competitive sealed bidding unless an exception to such bidding
existed.21 Although some authority existed to award design contracts using an alternate
methodology, the court found that a design-build contract is a construction contract not subject to
that exception, at least as applied.22 Thus, the Pennsylvania Supreme Court upheld the
preliminary injunction against use of design-build, as implemented.23 When later ruling on
summary judgment, the Commonwealth Court found that because the section of Pennsylvania’s
Procurement Code cited as authority “does not relate to procurement of construction contracts,
but only to procurement of design professionals, Section 905 does not authorize the use of a
short-list process to select construction contractors.”24 That court further found that “the design-
build best-value method used by PennDOT is illegal because it permits subjective evaluation of
construction contractors rather than utilizing criteria that are objectively measurable.”25 The
court granted summary judgment precluding use of the proposed methodology as unauthorized.26
In short, under design-bid-build and competitive bidding, the public entity must award to
the lowest responsive, responsible bidder, even if it believes that another bidder is the better
choice. DBOMF/PPP contracts avoid that inflexibility, but may limit competition too much for
the public entity to believe it is getting a fair or reasonable price for the project. Design-build
contracts offer the opportunity to evaluate the experience and qualifications of the proposer, and
may offer the opportunity to award to the best qualified proposer instead of the lowest
responsible bidder, while still allowing for enough competition to have downward pressure on
price. Thus, design-build allows public entities to behave more like their private counterparts,
who consider not only cost, but also a bidder’s experience, expertise, and past performance in
entering into a construction contract. In this way, it is more like a DBOMF/PPP contract, but,
because design-build does not require the contractor to operate or finance the project over the
long-term, it should generate more competition. Design-build also allows the public entity to
combine its procurements for design services and construction services into one process, thereby
reducing the risk of construction claims based on faulty design. While design-build may be more
complicated to award than either an individual design or construction contract, it may be worth
the risk for the added control over the project, as well as over time, and predictability of budget
from the outset of the project.
D. Design-Build Allows Greater Procurement Flexibility without Sacrificing too Much
In addition to being a happy medium between design-bid-build and DMOMF/PPP, there
are other facts to help an owner evaluate whether to choose design-build over another delivery
system. Among them is that design-build also potentially allows the design-builder to construct
all or a portion of the project based on less elaborate plans, thus saving design costs with (in
theory) no increase in construction costs. In California, local public entities may not hold
bidders responsible for the completeness and accuracy of plans and specifications except through
the design-build process.27 Similarly, proceeding with less elaborate plans allows the public
entity the flexibility to move more quickly with its design, rather than waiting for the design to
be complete before going to bid, which may save time overall. Planning ahead to use such a
process may avoid the dilemma, mentioned above, of having to decide whether to proceed to bid
based on an incomplete design, with its attendant risks of change orders, or delaying the bid
beyond its anticipated or desirable date.
Other methodologies may also allow for procurement flexibility without overly
sacrificing competition. However, in each, the owner must be willing to accept separating the
functions of design and construction and give up some controls over timing and, ultimately, cost.
For example, where statutorily authorized,28 lease-leaseback contracts permit a public entity to
select a contractor to which public property is leased for purposes of constructing or improving a
public facility that will be leased back to the public entity for some period of time. Generally,
lease-leaseback also permits the public entity to select its contractor using a best value
methodology instead of low bid. Lease-leaseback will not provide the same flexibility as design-
build, however, because frequently the design often must be complete before the public entity
seeks proposals for its project.
Construction management (“CM”) or construction-manager-at-risk (“CMAR”) contracts
may also give some flexibility where design is segregated from construction. In such contracts,
the public entity selects its CM—essentially its general contractor—on a best value basis, but it
may still be required to competitively bid the “trade” contracts, either directly or through its CM.
While this may have some benefits in terms of selecting the functional general contractor on a
basis of qualifications, that functional general contractor is selected before the full construction
price is known. Moreover, CM or CMAR contracts also will not provide the same timing benefit
as design-build because, unlike in the latter, the design must be complete in order to permit the
trade work to be bid. However, a public entity can minimize this by selecting its CM or CMAR
and bid the trade work in phases, or disciplines, as needed, and while the design is being
finalized. For example, a public entity could commence demolition and site work with a trade
contractor while its designer was completing the facility design.
Design-build does offer the best of both worlds, permitting a public entity to bid a project
using preliminary designs and to a target completion date, without overly sacrificing competition
making it more likely to secure a fair price.
E. Design-Build Provides Options to Control the Cost of the Project
One key benefit of design-bid-build is a price guaranty for the cost of construction.
Because design-build frequently is authorized only for larger projects, assurance that the public
is getting a fair price may be paramount in deciding whether to use the design-build
methodology. One factor to consider is the possibility of change orders and/or differing site
conditions. That is, competitive bidding only offers a firm, fixed price if changes can be
avoided. However, most projects—especially large projects—involve change orders. Change
orders are even more likely if the public owner has decided to bid the project based on an
incomplete design. Use of design-build should reduce the number of change orders to those
desired by the public entity—as opposed to those required by an incomplete, ambiguous, or
erroneous design. Thus, design-build may offer more predictability as to the final cost of a
project than traditional competitive bidding.
Predictability of the final cost can be increased using design-build either by seeking a
price guarantee or requiring competitive bid of trade contract work. The placement of design
responsibility together with construction responsibility may allow the owner to negotiate a single
project price guarantee. This single project price may be more or less than the owner would
separately pay for design and construction under design-bid-build, and the owner may never
know if it is saving money by design-build. However, many owners (and their lenders) take
considerable comfort from project price guarantees. A project price guarantee secures some of
the benefits of a DBOMF/PPP project. That is, in a DBOMF/PPP project, the contractor is
incentivized to design and construct the project with a particular cost target, based on its budget
projections, to increase the likelihood that it will be able to recover its costs and make its
anticipated profit. With a price guarantee, a design-builder also will be incentivized to design
and construct the project efficiently, in order to maximize its profits under the guarantee.
However, with a price guarantee, the owner must carefully define the project in order to reduce
the risk of unacceptable cost-cutting measures that may make the project less suitable when
constructed or more costly to operate and maintain.
Instead of a price guarantee, a design-build contract may require the design-builder to
competitively bid the trade contract work, or at least to bid among pre-qualified trade
contractors, for subcontractors not identified in the original proposal. By doing so, the public
entity gains two benefits. First, it encourages design-builders to have their primary
subcontractors involved early in the process, and to provide their expertise through input on the
design that may reduce construction and/or operations costs. Second, to the extent that a public
entity is inexperienced with design-build contracting and hesitant to award a construction
contract using a method other than low bid, requiring bidding of subcontracts gives some
assurance that the costs are being tested in the market and are reasonable. These same benefits
may be obtained through lease-leaseback, CM, or CMAR contracts, to the extent that they
require bidding of trade contract work.
F. Past Experience, or Inexperience, May Affect Whether a Public Entity Decides To Use
It is natural for public entities to feel more comfortable using procurement methodologies
that they have used successfully in the past. Thus, public entities that have successfully used
design-bid-build are less likely to try alternative methodologies. This is particularly true if they
have a constituency that is vocal about ensuring the lowest cost and full and fair competition, or
if they have had a prior negative experience with design-build. Conversely, public entities that
have struggled with contractors who lacked appropriate experience, or who submitted very low
bids with the intent to make up anything they “left on the table” through change orders, may be
more likely to try a methodology that gives them greater ability to select a contractor based on
Another consideration is the pool of potential bidders. Where there are limited numbers
of qualified design professionals experienced in the type of project being procured, design-build
may unacceptably limit the field of bidders. Further, in such situations, securing a preferred
design professional may require the public entity to accept a less desirable construction
contractor. In these cases, separating out the design and construction functions may be
Further still, public owners, especially those inexperienced with anything other than
design-bid-build, often have established relationships with consultants, including CM’s.
Stepping into another form of procurement methodology could disrupt those relationships. Thus,
for example, in design-build, the consolidation of the design and construction into a single entity
may eliminate the need for a separate CM to administer the construction on the owner’s behalf.
This may cause unease for an owner who desires an independent entity to be involved.
Securing the most benefits from an alternative methodology requires both the public
entity and the contractor to be familiar, and comfortable, with the differences between design-
bid-build and the methodology selected.
G. Integrated Project Delivery Agreements Provide Collaboration and Help To Reduce
While not a procurement methodology, Integrated Project Delivery Agreements
(“IPDA”) have become a valuable tool to bring certain benefits of the design-build relationship
into any construction contract. While a full discussion of IPDAs is beyond the scope of this
paper, a discussion of its essential elements is provided to help an owner evaluate other project
options in comparison to design-build, as well as to discuss how it may enhance a design-build
project. The key elements of an IPDA are the formation of an Integrated Project Delivery Team,
consisting of representatives from the owner, architect and contractor. The IPD Team is formed
as close as possible in time to the project’s inception, which, in the case of design-bid-build,
would be after contractor selection. The IPDA is signed by all participants, giving the IPD Team
ultimate decision-making authority, with all decisions made in the best interest of the project. To
accomplish this, the IPD Team meets regularly to exchange information, discuss and resolve
questions and reach decisions on a consensus basis.
In a non-design-build project, an IPDA provides another alternative for an owner to help
reduce cost and time by engaging, by contract, the separate entities of designer and builder (and
owner) in a collaborative process in which the parties are fully vested for the joint benefit of the
project as a whole – a similar advantage to the design-build contract. In the design-build context,
the collaborate decision-making provided by an IPDA may give the owner a stronger voice in the
development of the design and selection of subcontractors, as well as in the administration of the
construction. This may help ease concerns an owner may have about placing too much
responsibility over the project in a single entity, especially if the owner will not have an
independent CM involved. Caution should be exercised, however, against undoing the benefits
of a design-build relationship by constraining the design and construction expertise of the
III. Potential Conflicts in Design-Build Contracts
A. Responsibility for Accuracy and Constructability of the Plans and Specifications
It is widely recognized that a significant benefit of the design-build methodology from
the public entity’s perspective is the shifting of risks from the public entity to the contractor. In
the traditional construction model, the public entity warrants to the contractor the
“constructability” of the plans and specifications and the “accuracy” of any factual information
or reports provided to the contractor.29 In the design-build context, however, the plans and
specifications are created by the same entity that will construct the project, and the owner may
provide very little in the way of plans, other information, or reports. Under these circumstances,
it is doubtful that any owner’s warranties arise, and typically any such potential warranties are
disclaimed by contract. Thus, by placing design and construction responsibility together, design-
build avoids the situation where the owner is caught in the middle of a dispute between its
designer and its contractor.
Nonetheless, the owner typically still provides design criteria that define its size or
various aspects of performance and that create performance responsibilities for the design-
builder without creating any real owner warranties. Indeed, the contractor’s unique role in the
design-build context can give rise to liability for its professional negligence in design, and may
also give rise to implied warranties to the owner, rather than from the owner.
This is one area of conflict where the owner seeks to maximize the shifting of design and
construction risk and yet still provides design criteria. The design-builder fairly should (and
should be allowed to) guard against defective owner-furnished information by making clear that
while it is prepared to complete the design consistent with the design documents furnished by the
owner, it will not assume responsibility for errors in the underlying design assumptions furnished
by the owner. Accordingly, the design-build contract should provide that the design-builder can
rely on the design information it is furnished and seek an adjustment of the contract price if the
information turns out not to be correct, causing the design-builder to incur additional costs.30
Related to this is that one of the attributes of the design-build contract is that the design-
builder can be held to a professional standard of care with respect to the design. Since traditional
construction contractors do not, themselves, typically perform design services—and, in fact, are
often precluded from doing so by their insurance—the design standard of care is met by the
design-builder’s architect or engineer. The standard by which design performance is judged is
determined by contract and professional standards. The parties first look to the standard of care
set forth in the design-builder’s agreement with the owner. If no standard of care is expressly set
forth in the design-builder’s agreement, the design-builder must perform its design duties in
accordance with the care and skill ordinarily used by members of the design professional
practicing under similar conditions at the same time and locality of the project.31 However, if the
standard is described in the contract, the contract for design may impose a stricter or higher
standard of care, which if breached would impose liability on a designer even when the designer
had not breached the common law standard of care. For example, if a contract required the
design to achieve certain results, and the designer failed to meet the required result, the designer
would be held liable for the consequences.32 And, this liability could be to either the owner or
the design-build contractor, depending on the consequences of the failure—e.g., a latent defect
after the owner takes final possession or an error that causes increased costs to the design-build
contractor during construction.
And what about liability of an architect or engineer for pre-proposal services? Such
liability can exist to the design-build contractor or to the owner. An example of the former arose
in CRS Sirrine, Inc. v. Dravo Corp.33 There, a general-contractor entered into an agreement with
an engineering firm to prepare and submit a technical proposal to procure a design-build power
plant project. The agreement stated that if the technical proposal was accepted by the owner, the
general contractor would then prepare and submit a bid. Pursuant to their agreement, a technical
proposal was submitted and accepted after which the general-contractor submitted its bid, and
was awarded the contract. The winning bid ended up being much lower than the actual cost of
constructing the power plant causing the general contractor to incur losses of more than
$30,000,000. Subsequently, the general contractor sued the engineer, alleging that it “caused
increased quantities of construction materials needed to build the project over the amount in the
fixed-price bid, which was based on design and technical information provided by [the
engineer].”34 In response to this allegation, the firm pointed to a section in their agreement that
purported to release the firm “from any responsibility for damages resulting from increase in
construction material quantities.”35 The Court of Appeals of Georgia agreed with the trial
court’s conclusion that the section in question “was ambiguous and concluded it was not the
intent of the parties that the section relieve [the engineer] of all responsibility for damages
resulting from increases in construction material quantities caused by errors or omissions in [the
Similarly, as discussed below, the court in C.L. Maddox, Inc . v. Benham Group, Inc.,37
found an engineer liable to its design-build partner for pre-proposal errors that led to the
submission of a too low bid. Because design information is often used by the prime-contractor
to calculate a projects overall bid, it is very important that design liability is clearly stated in the
parties’ contract. If not, a designing engineer may be held liable for bidding errors that result
from its design information.
Design liability also arguably exists on the part of an architect or engineer retained by an
owner to develop design criteria. As a practical matter, unless the owner goes beyond providing
design concepts, it is unlikely that such liability is a real risk. If, however, the owner’s architect
or engineer provides a more developed design, such liability is possible and would be governed
by the same contractual or design industry standard described above. The scenario in which this
could arise as a conflict is when the owner provides design information that the design-builder
reasonably relies upon yet is determined to be faulty. Moreover, as with all design information
typically provided to a contractor, in this situation the owner can be found in breach of implied
warranties to the design-builder but the design failure may not fall below the architect/engineer’s
contractual or professional standard of care.
B. Defining Scope of Work
In design-bid-build, the public entity fully defines the scope of its project through a
complete design. By comparison, in design-build, the project is only partially designed through
a preliminary design and any discussion in the solicitation document. As a result, design-build
projects face a greater risk of misunderstanding of the scope of the project when proposals are
submitted. Thus, it is imperative that the scope of a design-build project is clearly defined. This
is key both to ensure that the owner receives the project intended and that a fair price is given.
But that is not where the complexities end. C.L.. Maddox, Inc . v. Benham Group, Inc.,38
involved a dispute between a design-build contractor and its design-build engineer. The project
involved extensive remodeling of an electrical power plan. The owner entered into a design-
build contract with the general-contractor, which, in turn, subcontracted with an engineering firm
to perform the engineering work. The prime contractor relied on drawings and specifications
prepared by the engineer to determine its price to the owner. The project “did not go well,” and
the prime contractor sued its engineer for damages. The prime contractor contended that the
drawing and specifications prepared by its engineer severely underestimated the amount
materials and equipment necessary to complete the project. As a result, the general-contractor
claimed it under-bid the project by over two-million dollars. The court awarded the prime-
contractor proved damages of over two-million dollars.39
The plain lesson from this is for owners to clearly define the project scope and for design-
build prime contractors to pick their teams wisely. Because design-build prime-contractors rely
heavily on subcontractors to define the scope of work, it is extremely important that the prime-
contractors contract with subcontractors that can: properly estimate the project’s engineering
requirements, ensure objectives are properly defined, properly meet construction schedules, and
provide sufficient experience and knowledge of materials handling.
C. Responsibility for Meeting Performance Specifications
Perhaps a subset of the issues that arise from the scope of work is the performance
specification. As with providing overall project criteria, it is common for an owner to provide
performance specifications. Indeed, this is not unusual in mechanical scopes of work for design-
bid-build work. It is then up to the design-builder, as part of its price to the owner, to provide a
project that meets the described performance specifications. This can prove challenging for
design-builders in developing the cost for the project. Additionally, to the extent possible, the
design-builder should provide that it is entitled to rely on any information from the owner about
the ability to meet those specifications. If the owner provides faulty information, or an
impossible specification to meet, the design-builder should be entitled to an equitable adjustment
of its contract price.
A related area of conflict for the design-builder is the relationship of performance
specifications to subcontracts and purchase orders. For example, in Carolina Steel Corp. v.
Palmetto Bridge Constructors,40 a contractor was awarded a design-build contract to build a
bridge. After receiving the award, the contractor entered into an agreement with a supplier to
detail, furnish, fabricate, prime, paint and deliver certain structural and miscellaneous steel for
use in the project. When the supplier bid on the project, the final design was not complete. The
supplier based its entire bid on five drawings that did not reflect that the project would
incorporate a seismic design.
In the purchase order, the supplier was required to supply 11,514,080 pounds of steel for
the project. When the project was finished, 12,408,919 pounds of steel has been supplied.
Because the project was a design-build project, the purchase order included a clause providing
that a “substantial deviation in design may necessitate a change in cost which will be determined
on a case by case basis per the Terms and Conditions of the Purchase Order.”41 When the
contractor refused to reimburse the supplier for the increase in steel, the subcontractor sued. The
awarded the supplier $1,062,861, plus interest. Although the court recognized that the project
included a performance specification as it related to the seismic design and that the contractor
was obligated to meet that specification vis-à-vis the owner, the court relied on the “substantial
deviation” clause in the purchase order to award the supplier its extra costs.42
Consequently, while it was clear that the seismic performance was a requirement of the
project, the design-builder had not developed it with sufficient certainty at the time it executed
the purchase order. This put the design-builder in the situation of increased costs to pay, but not
the ability to recoup back from the owner. More thorough planning and involvement of all
trades in the development of the performance criteria may reduce this risk for the design-builder.
IV. Is Design-Build Living Up to the Hype?
Given its advantages, despite its conflicts and challenges, and while imperfections in the
contracting process need to be considered, all in all, the evidence points to the fact that design-
build has, in practice, become a desirable procurement methodology.
A. Owner Perspective
1. Obvious Increase in Use
According to the Design-Build Institute of America (“DBIA”), “design-build is an
established and proven method of project delivery and is becoming commonplace in much of the
country.”43 The DBIA touts that “[c]lose to 80 percent of military construction projects,
including housing and offices, are delivered via design-build. Design-build for medical
construction, which includes hospitals, clinics, nursing homes and offices, and design-build for
commercial construction (offices and parking garages) have exceeded 40 percent of market
share.”44 The DBIA finds that “design-build is more likely to be used on larger projects. Over
the course of 2005 to 2010, the use of design-build advanced on projects values above and below
$10 million; however its rise was particularly marked on projects valued above $10 million
dollars, where design build was the delivery method on more than half of the projects.”45
Generally, design-build has had broader use in “vertical” projects than for transportation
or “horizontal” projects. However, its use is expanding to transportation projects. According to
the California Transportation Commission Annual Report to the California Legislature 2010,
“significant from a long-term perspective, it was in 2010 that the Commission authorized the
first design build procurements . . . projects provided for under the landmark Senate Bill 4
legislation signed into law in 2009. These actions—some of which were the product of spirited
debate—have opened the door for California’s transportation community to pursue more
innovative financing and project delivery methods in the years to come. To date, the Commission
has approved one public private partnership and partnership and seven design-build projects.”46
2. Do Owners Recognize the Attributes?
The DBIA believes the reason for the increased use in design-build is that owners do
recognize its attributes, including that it offers:
Faster delivery – collaborative project management means work is completed faster
with fewer problems.
Cost Savings – an integrated team is geared toward efficiency and innovation.
Better Quality – design-builders meet performance needs, not minimum design
requirements, often developing innovations to deliver a better project that initially
Singular Responsibility – one entity is held accountable for cost, schedule and
Decreased Administrative Burden – owners can focus on the project rather than
managing disparate contracts.
Reduced Risk – The design-build team assumes additional risk.
Reduced Litigation Claims – by closing warranty gaps owners virtually eliminate
In a study conducted by the California Legislative Analyst’s Office (“LAO”) to examine
the advantages and disadvantages of the design-build method, the LAO illuminated another
advantage found by owners. In particular, while the award of a design-build contract is subject to
subjective elements in evaluating the best value, design-build still has competitive elements
because contractors compete to show they have the most experience and are best qualified.”48 In
its report, the LAO concluded that views on design-build, for the most part, were favorable. It
explained that “[t]he counties and cities that have used design-build generally expressed
favorable opinions of the process. Almost all reported that compared to the traditional design-
bid-build process, it took less staff time to construct a project and resulted in fewer claims and
less litigation. To a substantial degree, this is because the local agency is removed from disputes
between the architect/engineer and the construction contractor. They also indicated that by
awarding a fixed price contract, design-build provided more price certainty.”49
While some public owners surveyed by the California LAO indicated they did not use the
design-build authority granted to them, they indicated that was because of statutory restrictions,
including the high cost threshold for qualifying projects, limited time under the statute to
coordinate with the timing of the projects needed to be built, and/or requirements for labor
compliance programs.50 All of these owners, however, indicated that they would like to have
design-build authority available to them as an alternative construction delivery method.51
B. Contractor Perspective
Overall, the contractor community similarly appears to have embraced design-build, as
also evidenced by the increased use of the methodology with the corresponding submission of
proposals for consideration. The primary concern is how smaller prime contractors can
participate. This stems in part from statutory restrictions setting minimum design-build project
values, as well as the typical complexity of design-build projects. Moreover, since design-build
contracts tend to be awarded based on qualifications and experience, “this method may tend to
work against small, newly established contractors, who do not have the range of experience of
large, long-established firms. As a result, access to design-build contracts, especially the large
contracts, may be limited for these contractors.”52
In conclusion, the increasingly wide-spread use of design-build is perhaps the best
answer to whether this methodology has “lived up to the hype.” While, with all delivery
methods, there is room for improvement—such as working to eliminate subjective elements in
the selection process, making design-build more available to public owners by reducing or
eliminating threshold values the project must meet, and making it more accessible to smaller
contractors—the cost/benefit analysis to date appears to support its viability as a successful
method for project delivery. To make it successful, however, the owner needs to understand how
design-build compares to other methodologies and understand how their goals can best be
achieved. Additionally, design-build contractors need to be thoughtful in selecting their design-
build partners so they may mutually maximize the benefit of the procurement and reduce the risk
they assume under it.
SAIC, AECOM CONSULT AND UNIVERSITY OF COLORADO BOULDER, DESIGN-BUILD
EFFECTIVENESS STUDY – AS REQUIRED BY TEA-21 SECTION 1307(F) FINAL REPORT PREPARED
FOR: USDOT – GENERAL HIGHWAY ADMINISTRATION at II-5 (2006).
Id. at II-6.
Id. at II-7.
Konica Bus. Mach. U.S.A., Inc. v. Regents of Univ. of Cal., 206 Cal. App. 3d 449, 456-57
Sayer v. Minn. Dep’t of Transp., 790 N.W.2d 151, 156 (Minn. 2010) (quoting Coller v. City of
Saint Paul, 26 N.W.2d 835, 841 (Minn. 1947)).
See City of Inglewood-L.A. County Civic Ctr. Auth. v. Superior Court, 7 Cal. 3d 861, 867
(1972) (declining to allow a responsibility determination to rate “relative superiority” of the
bidders; either they were responsible or they were not).
See generally Los Angeles Unified Sch. Dist. v. Great Am. Ins. Co., 49 Cal. 4th 739, 745 (Cal.
2010); Souza & McCue Constr. Co. v. Superior Court, 57 Cal. 2d 508 (Cal. 1962).
Although PPP contracts need not include all five functions (design, build, operate, maintain,
and finance), the “classic” PPP contract serves most or all of these functions. The purpose of
this paper is not to examine the spectrum of PPP projects. For purposes of the discussion herein,
we are referring to PPP projects which include all five functions, so the terms DBOMF and PPP
are used interchangeably.
Sayer, 790 N.W.2d at 156.
2011 Nev. Stat. 1665-66 (Assembly Bill No. 212); NEV. REV. STAT. ANN. § 408.388 (effective
July 1, 2011).
See, e.g., CAL. PUB. CONT. CODE § 6802(a), (b); COLO. REV. STAT. ANN. § 43-1-1404; MASS.
GEN. LAWS ANN. ch. 149A, § 14; MINN. STAT. ANN. § 16C.33 , subd. 3(a); S.D. CODIFIED LAWS
§ 5-18B-20; VA. CODE ANN. § 2.2-4308(A)(2); W. VA. CODE ANN. § 5-22A-3.
See, e.g., CAL. EDUC. CODE §§ 17250.25(b) (school districts), 81703 (community college
districts); CAL. PUB. CONT. CODE §§ 6805(c), 20175.2(d)(3); COLO. REV. STAT. ANN. § 43-1-
1406(1)(b)(I); MASS. GEN. LAWS ANN. ch. 149A, § 17(c); MINN. STAT. ANN. § 16C.33 , subd. 5;
NEB. REV. STAT. § 13-2906; S.D. CODIFIED LAWS § 5-18B-31; W. VA. CODE ANN. § 5-22A-9a.
See, e.g., ARIZ. REV. STAT. ANN. § 28-7365(C), (E); CAL. EDUC. CODE §§ 17250.25(a)(1), (2)
(school districts), 81703 (community college districts); CAL. PUB. CONT. CODE §§ 6805(a),
6805(b), 20175.2(d); MASS. GEN. LAWS ANN. ch. 149A, § 19; MINN. STAT. ANN. § 16C.33, subd.
3(b); NEB. REV. STAT. § 13-2907 (political subdivisions); NEV. REV. STAT. ANN. §§ 408.3883,
408.3884; S.D. CODIFIED LAWS § 5-18B-29; TEX. GOV’T CODE ANN. § 2267.306; W. VA. CODE
ANN. § 5-22A-10.
See, e.g., CAL. PUB. CONT. CODE § 20164; MASS. GEN. LAWS ANN. ch. 149A, § 17(b); MINN.
STAT. ANN. § 16C.33 , subd. 3(c); NEB. REV. STAT. § 13-2907; NEV. REV. STAT. ANN.
§ 408.3883; S.D. CODIFIED LAWS § 5-18B-31.
See, e.g., ARIZ. REV. STAT. ANN. § 28-7365(G); CAL. PUB. CONT. CODE §§ 6805(b),
20175.2(d); IND. CODE ANN. § 5-30-7-8; MASS. GEN. LAWS ANN. ch. 149A, § 20; NEB. REV.
STAT. § 13-2908; NEV. REV. STAT. ANN. § 408.3886; TEX. GOV’T CODE § 2267.308.
See, e.g., CAL. EDUC. CODE §§ 17250.30(c) (school districts), 81704 (community college
districts); MINN. STAT. ANN. § 16C.33, subd. 6 (providing for competitive bid among
prequalified trade contractors).
Brayman Constr. Corp. v. Pa. Dep’t of Transp., 13 A.3d 925 (Pa. 2011).
Id. at 938-39.
Id. at 939, 940.
Id. at 942.
Brayman Constr. Corp. v. Pa. Dep’t of Transp., 30 A.3d 560, 565-66 (Pa. Commw. Ct. 2011).
Id. at 567.
Id. at 568.
CAL. PUB. CONT. CODE § 1104.
See, e.g., CAL. EDUC. CODE § 17406 (lease-leaseback authority for school districts); CAL.
GOVT. CODE § 25371 (lease-leaseback authority for counties).
See generally Los Angeles Unified School Dist., 49 Cal. 4th at 745; Souza, 57 Cal. 2d at 508.
BENNETT D. GREENBERG, DESIGN-BUILD CONTRACTING – UNDERSTANDING THE BENEFITS
AND RISKS, AND ADOPTING BEST PRACTICES 7 (2007).
Id. at 28.
445 S.E. 2d 782 (Ga. Ct. App. 1994).
Id. at 712.
Id. at 715.
Id. at 788.
88 F.3d 592 (8th Cir. 1996).
444 F. Supp. 2d 577 (D.S.C. 2006).
Id. at 580.
Id. at 586.
Design-Build Institute of America, Publications & Resources,
http://www.dbia.org/pubs/research/rsmeans110606.htm (last visited January 17, 2012).
CALIFORNIA TRANSPORTATION COMMISSION, ANNUAL REPORT TO THE CALIFORNIA
LEGISLATURE 2 (2010); see also SACRAMENTO COUNTY [CALIFORNIA] COMPREHENSIVE
ANNUAL FINANCIAL REPORT FISCAL YEAR 2009 ix (“Fiscal Year 2008-2009 represented the first
full year of construction of the $1.08 billion ‘Big Build’ at Sacramento International Airport
including completion of the first project element: a new remain overnight aircraft parking pad.
The County is using the project delivery approach defined by California law as design-build
contracting and best value procurement. Design-build contracting results in a shorter overall
construction timeframe by awarding a construction contract based on 30% design documents. In
the case of this project a minimum of 18 months was saved on the design and construction
schedule. At an assumed escalation factor of 7%, the overall cost savings resulting from this
delivery method is estimated to be about $60 million. Best value procurement allows for the
contract award to consider not only the initial cost of construction but also life cycle costs of the
asset as well as sustainability and experience of the construction managers with projects of
similar magnitude and scope.”).
Design-Build Institute of America, supra note 43.
CALIFORNIA LEGISLATIVE ANALYST’S OFFICE, DESIGN-BUILD: AN ALTERNATIVE
CONSTRUCTION SYSTEM 6 (2005).
Id. at 10.
Id. at 12.
Id. at 9.