The Construction Advantage, Project Delivery Methods | Choosing the Right Contract Form
Project Delivery Methods | Choosing the Right Contract Form
Modern contracting arrangements now offer a number of ways to deliver a project to the owner, including design-build, construction management and traditional bid-build. These delivery methods are reflected in standard forms offered by the American Institute of Architects (AIA) and a handful of other professional organizations, including the Design-Build Institute of America (DBIA) and the Engineers Joint Contract Documents Committee (EJCDC), or custom documents can be created by the owner and the contractor for a specific use. As a result, it is important to understand which forms are appropriate for each delivery method.
The first step is to determine how the project will be delivered to the owner. Will the contractor be fully or largely responsible for designing the project, either through its own personnel or outside consultants? If so, the parties should probably be looking at a design-build contract form. Alternatively, the owner’s consultant may provide the design, but seek input from the contractor during the design process concerning materials, constructability, cost estimating or value engineering. If so, the contractor is likely acting as a construction manager, either as an advisor only or as both advisor and the ultimate constructor of the project. In this case, the parties should probably select an appropriate construction management form. The project may also follow a more traditional path where the owner works separately with a design firm to complete (either fully or substantially) a design package for the owner which is then put out to bid to select contractors. In this scenario, the contractor has little or no input in the design prior to the bid and the parties should consider a traditional bid-build contract.
Although almost any pricing mechanism can be applied to each delivery method, design-build and construction management projects are almost always priced on a cost-plus basis. This method assumes that the owner will pay the contractor’s actual costs of completing the work, plus a percentage fee. Cost plus agreements may also set a GMP or guaranteed maximum price for the project. In these forms, the contractor agrees with the owner that the total cost of the work will not exceed the GMP. These are also referred to as “open book” contracts since the owner has the right to review and audit all of the contractor’s costs. By contrast, bid-build contracts generally carry a fixed price which the contractor guarantees to the owner for completing a scope of work which is well defined at the time of its bid. Unlike cost-plus arrangements, bid-build arrangements are not open book. Once the owner accepts the price offered, it has no right to audit the contractor’s costs or expenses.
If you have questions about which form is best for your project, please get in touch with our Construction Practice Group for assistance. We are well versed in all project delivery methods and available forms.
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