Delivery Method Overview

Introduction

The complexity of construction projects calls for a range of options to address the unique needs and challenges that each project can bring.  Several delivery method options have developed in response, leaving owners and practitioners with a comprehensive toolbox of contracting methods, each of which with their own permutations.  The below is a high-level overview of common delivery methods in use today, along with an explanation of the types of projects best suited to each method.  The below is by no means comprehensive, as each project presents risks and conditions that warrant assessment when considering which delivery method is appropriate.

Design-Bid-Build (DBB)

DBB is the traditional delivery method that project owners have long relied upon to deliver a wide range of assets.  In the DBB model, the owner prepares the design of the project in full and then seeks bids to construct the design.  Typically, the lowest responsible bidder wins the contract to construct the project.

Pros: DBB, as the traditional delivery method, is generally the best-known by project owners and contractors.  The procurement process is relatively simple and the owner retains full control over the design.  Low-bid DBB, out of all the delivery methods discussed in this article, tends to yield the lowest initial contract price to perform construction work given that the sole criterion for selection of a contractor is price.  Low-bid DBB procurements can be accomplished relatively quickly once the design is complete and the evaluation of bids is entirely objective, i.e., the lowest price prevails, which not only removes subjectivity from the process, but also is the least resource intensive method of choosing a contractor.

Cons: As project owners have come to learn, sometimes the least expensive option is not always the best or even the most cost effective in the long-term.  The incentive to develop the lowest price may correspond with reductions in quality in everything from materials to labor to project management.  DBB projects incentivize lean staffing, leave little room for costly ingenuity, and facilitate the least costly method of constructing the design.  This is neither the fault of the contractor nor of the owner, but a function of the procurement method.  In addition, retaining full control over the design entails retention of design liability by the owner, meaning that the owner is on the hook for claims of design errors and constructability issues. Over the years, complex DBB projects have been synonymous with extensive claims relating to constructability and design defects following the Spearin doctrine, in addition to other claims relating to extensive scope growth and other problems stemming from the lack of contractor involvement during project development.

Best Uses:  DBB is best used on projects with the following characteristics:

• Projects that do not warrant or support significant innovation from a contractor while the design is being prepared.
• Where the lowest bid must be selected for political or funding purposes.
• Projects that lack extensive input from third-parties, such as local agencies, business stakeholders, permitting agencies, and utility owners.
• Projects with fully defined scope that present a limited possibility for scope creep.
• Projects with sufficient schedule cushion that can take place with design and construction occurring sequentially rather than concurrently.
• Projects that do not present significant constructability challenges, including for sequencing and staging to perform the construction work.
• Projects that do not warrant consideration of the contractor’s experience or technical approach as part of the procurement process.

Design-Build (DB)

DB is often considered a response to the issues in DBB by facilitating greater contractor involvement in the design and planning of the project.  Under the DB model, the owner prepares a partial design, typically to no more than 30% completion, along with technical specifications that govern the final design and construction of the project.  DB technical specifications generally provide prescriptive specifications that specify a particular design concept or construction method, as well as performance specifications that specify an outcome that the design-builder has latitude to achieve with its design and construction methods. 

Through a combination of shifting the design to the design-builder, specifying performance requirements rather than a prescribed design, and allowing for alternative technical concepts during procurement, DB is intended to facilitate innovation from contractors that is not possible with DBB.  Additionally, DB generally affords the design-builder flexibility to commence construction before the full design of a project is complete, expediting project completion through concurrent, rather than sequential, work.  Moreover, the procurement process generally employs a “best value” evaluation, where the owner considers a combination of price and technical factors rather than price alone.

Pros: DB shifts responsibility for design and constructability to the contractor, relieving the owner of liability for design errors and constructability while also allowing the design-builder to innovate in its approach to the project.  The best value procurement process both encourages and offers latitude for design-build proposers to propose innovative design and construction concepts in the interest of enhancing the technical aspect of the evaluation score.  Additionally, along with innovative construction methods, concurrent design and construction can expedite project completion.

Cons: The shifting of design responsibility means that the owner must be prepared to relinquish control over the details of the final design.  Although the owner still retains oversight authority, once the contract price is established, the owner’s role is limited to verifying the design’s compliance with the technical specifications.  Changes to an otherwise compliant design can result in change orders that require paying for extra work and affording schedule relief for impacts to the construction schedule.  Due to this, disputes over the interpretations of technical specifications can occur to the detriment of the project.  Additionally, DB projects lack the ability for contractor involvement in planning for the work prior to the procurement process, meaning that the owner bears primary responsibility for early actions such as coordinating with third-parties and obtaining long-lead permits.  Delays in the issuance of permits and other third-party approvals can impact construction schedules, entitling the design-builder to schedule relief and other additional costs to perform the work.

Best Uses: DB is most suitable to projects with the following characteristics:

• Complex designs that can benefit from contractor-based innovation and solutions.
• Schedule considerations that merit the use of concurrent design and construction to expedite completion.
• Projects that warrant consideration of factors other than price in the selection process, including contractor qualifications and technical approach to the work.
• Projects that facilitate innovation through contractor-proposed alternative technical concepts during procurement.
• Projects without extensive approvals needed from third-parties, including long-lead permits and design acceptance, or projects where the owner can obtain or facilitate obtaining critical approvals without delay to the design-builder’s schedule.
• Projects that have flexibility in design, i.e., those that are not so constrained that they cannot benefit from contractor-proposed innovation.
• Projects with fully defined scope that can form the basis of a lump-sum bid for design and construction.

Construction Manager/General Contractor (CM/GC)

CM/GC (also sometimes referred to as Construction-Manager-at-Risk [CMAR], which is different but similar) is a two-phased delivery method that keeps full design control in the owner’s hands while having a contractor provide input as the design advances and the project is developed.  CM/GC entails procuring a contractor to provide preconstruction services while the design is under development.  The contractor’s preconstruction services generally include constructability reviews, schedule development, sequencing and staging analysis, value engineering, cost estimation and scoping, long-lead materials procurement, early permitting, third-party coordination, and other related services.

The CM/GC procurement process generally focuses on contractor qualifications in the selection with little or no consideration of price.  Significantly, the procurement does not solicit a bid price to perform construction work; rather, a defining characteristic of CM/GC is that the owner and contactor negotiate a construction price as part of the preconstruction services – a price that incorporates risk mitigation efforts performed by the contractor.  The owner retains full control of the design, meaning that the contractor does not provide design services, though the contractor may provide ancillary design support such as the design of temporary works and maintenance of traffic.

Pros: By engaging a contractor early in the design process, CM/GC resolves the problem plaguing DBB projects, which is that the design lacks contractor input.  The preconstruction services provided by the contractor can mitigate critical risks such as constructability, staging, sequencing, third-party approvals, right of way availability and timing, and other issues that have to wait until construction on a typical DBB project.  These benefits appear in two primary ways: (1) the contractor’s constructability reviews de-risk the construction process; and (2) the contractor is better able to understand schedule constraints and risk, such as the timing of third-party approvals, prior to committing to a construction price and schedule, contributing to greater price certainty once under contract.

Cons: CM/GC keeps the design purely in the owner’s hands, meaning that the sort of design “innovation” facilitated by CM/GC is more limited than in DB or PDB (discussed below).  On top of this, because the owner performs the final design, the owner retains liability for design errors.  Additionally, because the contractor and owner negotiate a construction price, there is a perceived lack of competition in the construction pricing process to the extent that a single contractor is “bidding” on the work.  This concern, however, is mitigated by the fact that a CM/GC contractor may (or may be required to) subcontract a significant portion of the work, which introduces competition through competitive bids from subcontractors.  Further, CM/GC requires two contracts: one with a designer and one with a contractor. The owner must manage both of these contracts as well as the relationship between the designer and contractor, who must work collaboratively for the CM/GC method to provide the desired benefits.

Best Uses: CM/GC is best suited to projects with the following characteristics:

• Projects that do not warrant or encourage contractor-led design innovation but would benefit from early contractor involvement.
• Where the owner wants or needs to retain control over final design.
• Projects with potential constructability challenges, including limited staging areas, sequencing constraints, environmental limitations, and other constraints on performance of the construction work.
• Projects with significant involvement of third-parties, including third-parties with approval rights such as permitting agencies and third-parties whose cooperation is necessary to prevent delay, such as utilities.
• Projects without a defined final scope, whether for budget or other reasons, where the contractor’s cost estimation and scoping activities during the preconstruction phase can help establish the final scope.
• Projects where contractor experience is essential to the work to be constructed.

Progressive Design-Build (PDB)

Progressive Design-Build (PDB) is often considered a hybrid of DB and CM/GC.  Similar to CM/GC, PDB entails a two-phased approach consisting of Phase 1 design and preconstruction and Phase 2 final design and construction.  The primary difference between PDB and CM/GC is that the design and construction are under one contract with a design-builder rather than in CM/GC where there are two contracts, one with a designer and one with a contractor.  PDB affords the innovative benefits of DB by having a design-builder provide design concepts to tackle complex challenges while also de-risking the project before committing to a construction price and schedule.  Similar to CM/GC, a key aspect of the Phase 1 services is negotiation of a Phase 2 final design and construction price.  Additionally, the procurement process focuses on qualifications and does not include a construction price bid.

Pros: By engaging a design-builder early in the project’s development, PDB allows the design-builder to de-risk the project while preparing the design.  The design-builder performs the design during Phase 1 while also engaging with third-parties, evaluating right of way, applying for permits, performing constructability reviews on its design, and performing other risk mitigation activities.  Additionally, during this process, the owner can implement design preferences before a construction price is established, allowing the owner to shape the project without incurring a costly change order during construction, as would be the case in traditional DB.

Cons: Similar to CM/GC, the primary negative is that this process requires negotiation of a final design and construction price by a single design-builder rather than in an open competitive process.  In addition, PDB requires the owner to be engaged to obtain the full benefits of the method; otherwise, the owner loses the opportunity to collaborate and mitigate risk with the design-builder.  Further, the owner must properly scope the Phase 1 services to allow the design-builder to perform the activities it needs to evaluate risk in the construction price.  A Phase 1 scope that is too narrow or too quick may limit the benefits of this method.

Best Uses: PDB is best suited for projects with the following characteristics:

• Projects where innovation is essential to addressing design and construction challenges.
• Projects with numerous third-parties that must issue permits or approve designs, with whom early coordination by the contractor would be beneficial.
• Projects where the ability to negotiate price and schedule can reduce risk contingency.
• Complex projects where consideration of qualifications and technical approach during procurement is vital to ensuring that the right contractor is selected to perform the work.
• Projects where the owner does not need full control over final design but nevertheless desires input and does not want to relinquish as much control as would be necessary for a DB project.
• Projects where a collaborative approach to mitigating risk can lead to greater cost and scheduling certainty.

Conclusion

There are numerous factors that owners must consider when selecting a delivery method.  Generally, the riskier the work, the better suited it is for more collaborative methods like CM/GC and PDB, where the parties can mitigate risk collectively and where the additional time to develop the design before committing to a price and schedule can ultimately benefit the work.  Simpler projects where bid price is a controlling factor are better suited for traditional DBB while projects with complex design and construction issues that can take advantage of concurrent design and construction are often suited for DB. 

Above all, choosing the right delivery method can be vital to a project’s success and is a crucial factor in mitigating claims and disputes.  A dispute resolver must be cognizant of the delivery method when considering disputes, particularly to the extent that risk allocation varies depending on the contracting method.  A dispute resolver must understand how the project’s risks were allocated, the opportunity to mitigate those risks, and which party had the opportunity and knowledge to address a particular risk at the time the construction price and schedule are established.