Gangjin Li | HKA
Introduction
The design-build (DB) model represents a contemporary approach to project delivery wherein a single contractual entity—the design-builder—is responsible for both design and construction. Unlike traditional models such as design-bid-build (DBB) or construction manager at risk (CMAR), the DB model integrates design and construction under a unified contract, facilitating greater coordination and efficiency.[1][2]
Advantages of DB contracts
One of the principal benefits of the DB contract is single-point responsibility, which fosters enhanced collaboration and accountability throughout project execution. This delivery model is associated with accelerated project schedules, reduced change orders, fewer disputes, and improved cost performance. [3] Change orders for DB projects are typically limited to owner-initiated modifications, as conflicts between design intent and construction feasibility are minimized through early integration. These advantages have led to increased adoption, particularly by public agencies seeking to minimize schedule overruns, cost escalation, and claims.[4]
Limitations and geotechnical risks of DB contracts
Despite its strengths, the DB model is not universally advantageous. It is less effective in environments characterized by high subsurface uncertainty, undefined scopes, or asymmetrical risk expectations.[5] Under such conditions, this model can unintentionally transfer inappropriate levels of risk to the design-builder, particularly when limited data is available during the bidding phase. Of particular concern is the allocation of geotechnical risk, as incomplete or poorly characterized site conditions often lead to disputes and increased costs post award.[6]
For DB projects, owners typically provide limited site characterization data to help prospective bidders develop preliminary designs and cost estimates during the bidding phase. In some instances, bidders are given the option to conduct additional subsurface investigations at their own expense to supplement data included in the request for proposal (RFP). However, most bidders are hesitant to pursue this option due to concerns about risking a competitive disadvantage, especially if the additional findings reveal site conditions that are more unfavorable than those described by the owner.
This reluctance is driven by two main factors. First, unfavorable findings from additional investigations may discourage bidders from submitting competitive financial proposals to win projects. Second, any additional data could potentially weaken the design-builders’ position in the event of future claims or disputes during construction, as it may be used against them to argue prior knowledge of site conditions.
Risk allocation and management in DB contracts
The DB delivery model inherently reallocates risk compared to traditional procurement. In DBB models, contractor risk is clearly defined in the contract, while all residual risk remains with the owner. In contrast, DB contracts often define only owner-retained risks, implicitly assigning all remaining uncertainty to the design-builder.[7]
This practice can lead to unbalanced risk distribution, particularly in relation to unknown physical conditions. Such risk transfer is problematic in the context of subsurface conditions, which are inherently uncertain and often insufficiently explored prior to contract award.
Role of site characterization
Effective site characterization plays a critical role in managing geotechnical risk on DB projects, particularly from a contractual and risk allocation standpoint. Owners are generally expected to provide sufficient subsurface data, such as site stratigraphy, soil and rock properties, and groundwater conditions, to facilitate a reasonable understanding of site conditions. However, because key aspects, including structure types and loading requirements, are typically undefined at the time of procurement, it is impractical for owners to provide all the necessary information for final design. As a result, the responsibility of conducting additional geotechnical investigations often shifts to the design-builder post award.
This division of responsibility creates a legally significant distinction between pre-award and post-award subsurface investigations. Site investigations conducted during procurement are typically less comprehensive than those performed during the detailed design phase. This partial understanding increases the likelihood of encountering unexpected conditions, which can in turn inflate contingency costs and undermine cost certainty.[8]
Mitigation of geotechnical risks
To mitigate the risks associated with uncertain subsurface conditions, DB contracts often include differing site conditions (DSC) clauses, supported by geotechnical data reports (GDRs) and geotechnical baseline reports (GBRs).
Differing site conditions
A DSC clause allows for equitable adjustment in the contract schedule and cost if the actual conditions encountered differ materially from those expected. The two types of DSC are Type I, conditions that differ from those indicated in the contract documents (e.g., unexpected rock elevations, undocumented utilities), and Type II, conditions that are materially different from those typically encountered in similar projects, even if not described in the contract (e.g., unanticipated soil behavior).
To determine the presence of a Type I DSC, the actual site conditions encountered must be compared with those indicated in the contract documents. If a material difference exists between the two, a Type I DSC is established. In contrast, a Type II DSC is identified by comparing the actual conditions with what a reasonably prudent and experienced contractor would have anticipated, considering all relevant factors typically evaluated when estimating the nature, scope, and method of performing the work. Eligibility for DSC relief generally requires prompt notification, proof of material difference, and documentation of a physical condition.
Geotechnical reports
In DB procurement, contract documents typically include two types of geotechnical reports prepared by the owner as part of the preliminary site characterization: the GDR and the GBR. The GDR, usually issued during the bidding phase, provides a factual summary of available geotechnical data for bidders’ reference. In contrast, the GBR presents a contractually binding interpretation of subsurface conditions specific to the project.
The GDR typically includes descriptions of site investigations, logs from fieldwork, results from laboratory and in situ tests, and, in some cases, relevant historical data obtained from desk studies. A key feature of the GDR is that it contains no interpretations, analyses, or recommendations; it is strictly limited to raw data and factual information. Any interpretation of this data, such as anticipated ground behavior or construction implications, is reserved for the GBR.
In the hierarchy of contract documents, the GBR takes precedence over the GDR in cases of conflict or ambiguity. If the GBR is silent on a particular issue, the GDR may be consulted for relevant supporting data.
The GBR serves as a contractual reference that defines the expected—or “baseline”—subsurface conditions for the project. This baseline represents a shared understanding of the ground conditions among all parties prior to the commencement of construction. If actual conditions are more adverse than those described in the GBR, the owner may be held liable under the DSC clause. Conversely, conditions that match or exceed the baseline fall within the contractor’s risk.
By clearly defining anticipated ground conditions, the GBR forms the basis for evaluating claims and change orders related to subsurface issues. This baseline approach promotes risk allocation, reduces the need for excessive bid contingencies, and facilitates dispute resolution. The GBR is particularly critical in projects involving tunneling or other subsurface work, where ground variability is a major concern.[9]
Alternate risk-sharing mechanisms
There are several alternative methods to manage site condition risks in DB contracts, including scope validation periods, contingency funds, and deductible-based DSC claims.
Many agencies have implemented innovative contractual strategies to address site condition risks in DB projects. For example, the Virginia Department of Transportation (VDOT) employs a scope validation process that grants the design-builder a defined period after contract award to review the contract documents and identify any discrepancies or deficiencies that require correction. This process covers both site condition investigations and preferred design elements outlined by VDOT in the RFP.
Another common approach among project owners is to establish a contingency fund—often set at a percentage of excavation costs—to cover specific types of potential DSC. This fund is allocated to cover certain predefined DSC claims. At project completion, any unused funds are shared equally between the owner and the design-builder. This approach eliminates the need for the design-builder to maintain a separate contingency reserve and motivates the design-builder to limit DSC claims, with the prospect of receiving a financial bonus. Additionally, some owners use a deductible-based model, agreeing to cover certain legitimate DSC claims only after the contractor has absorbed an initial deductible amount, ensuring compensation is triggered only beyond a specific threshold.
Conclusion
The DB delivery method offers compelling advantages in terms of cost, schedule, and project coordination. However, its success hinges on appropriate risk allocation and comprehensive site characterization, particularly with regard to uncertain subsurface conditions. The inclusion of GBRs and DSC clauses enhances fairness and predictability, ensuring unforeseen physical conditions are managed in an equitable manner. Absent these provisions, owners risk overpaying for contingencies or engaging in post-award claims and litigation. A balanced, informed approach to geotechnical risk is thus critical for realizing the full potential of DB project delivery.
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