Unfair Risk Allocation on Design-Build Projects

Brian Perlberg | ConsensusDocs

The AGC annual convention included a session entitled “Who’s on the Hook for Design Defects in Design-Build Projects.” Fox Rothschild’s Dirk Haire, Les Synder of Infrastructure Construction Brightline West, and David Hecker of Kiewit presented. Attendees crowded into a standing-only room because more and more builders are facing design liability, especially design-builders on large infrastructure projects. The presentation highlighted how some owners abuse the submittal process on design-build jobs to make changes without compensating the builder with more time, money, or both. One project took a sample of owner comments and extrapolated that just one project generated over 15,000 submittals and generated over 110,000 comments of “concern” or “preference.”

Certain owner-representatives and attorneys for owners have oversold the risk allocation transfer aspect of design-build. The Spearin Doctrine protects a builder from design documents containing errors by entitling them to receive equitable compensation. The design-build project delivery method erodes potential Spearin protections. Ways that an owner may retain some design responsibility and bring Spearin protections back into play for a builder include the following:  

  • Accuracy of reports prepared by owner’s outside consultants
    • Owner’s design approval process
    • Viability of owner’s stated design and project criteria

The more an owner gives input and control on design, the more likely that Spearin compensation for design defects may apply to design-build projects. It is important to assess the RFP and contract language and determine if prescriptive or performance specifications are used. Prescriptive specifications set precise measurements, tolerances, materials, etc. Performance specifications leave the details to the design-builder. They set outcomes or “operational characteristics” that must be achieved but leave discretion on how to achieve such outcomes. Many design-build contracts combine both prescriptive and performance specifications. This further complicates liability for costs and delays caused by defective design.  Generally, an equitable adjustment will be determined by evaluating if the defective design element relates to the specification’s performance or prescriptive portion. 

Factors used to determine if the Spearin Doctrine applies may include:

  • Contract language and clauses
    • Discretion exercised by the design-builder
    • Circumstances surrounding the bidding (limitations on time and resources)
    • Discussions and negotiations
    • Owner reliance on design-builder’s representations and expertise
    • Prior course of dealings between parties and customs of the industry

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Dynamics of Managing Professional Liability Claims for Design Builders

Eric M. Clarkson | SDV Insights

Nearly half of America’s construction projects are now design-build in a continuing shift. As a result, contractors are taking on more professional liability (“PL”) risk than ever before, and the risk management landscape is changing. There are unique challenges to managing PL risks and claims. Specifically, PL coverage requires proactive claim management and project coordination. As a result, design-build projects should involve significant collaboration amongst all of the parties involved in the project.

Claims Made Coverage Considerations
PL policies typically provide three types of coverage:

  1. Professional Liability covers defense and indemnity against claims arising out of acts or omissions of the insured in rendering a defined set of professional services –including construction management, project management, and design work in the design build context.
  2. Protective Indemnity covers protective claims for amounts the insured is entitled to recover from downstream design professionals arising out of their failures in rendering professional services that exceed the downstream party’s own liability insurance.
  3. Rectification or Mitigation Coverage covers the cost to rectify a professional error before a claim is made.

PL policies are written on a claims-made and reported basis, meaning they cover claims made and reported to the carrier within the policy period. An insured must tender notice of any claims or even potential claims to their carrier to preserve coverage. This requirement can create significant practical challenges as construction progresses and issues arise. If a design-builder spends time trying to avoid or fix an issue delaying the notice to its insurer, it can find itself without coverage. This is especially problematic with “mixed” or “ambiguous” claims involving design errors and installation errors.

Design-builders often wisely seek to broaden the definition of “professional services” to allow for greater coverage. However, they need to take care to realize that in doing so, they have also expanded their notice obligations. Because the policies require timely notice of a claim or a potential claim to preserve coverage, anything that could be an indication of a project management or design error may trigger the insureds’ notice obligation.

Notice and reporting issues can compound based on interdependent portions of a given construction project. PL policies typically contain interrelated claims provisions that push any new claim back into a past – and thus, potentially expired – policy period if it is related in any way to circumstances that occurred prior to the current policy. Although this may seem congruent with the intent of claims-made coverage, it makes complying with this condition difficult in the construction context. For example, where delays arise early on in a project that does not implicate PL coverage during one policy period, and redesign or sequencing problems occur during a subsequent policy period, carriers may argue they are interrelated. As a result, coverage might be impacted if the delays were not tendered to the carrier as a claim first made in the initial policy period.

For these reasons, it is critical to provide notice to a PL carrier early on for anything that may even potentially relate to PL risk. A project’s progress, sequencing and/or redesign can shift over the lifetime of a project based on early logistical complications or disagreements. Accordingly, providing notice to PL carriers of anything that might implicate professional risk at some point becomes critical. As all parties to a design-build project take on more professional responsibility, this means developing tools and strategies to allocate and manage PL risk from the outset is critical.

Setting up Design-Build PL Risk Transfer for Success
PL coverage is a valuable and effective tool for addressing construction management and design risk. However, it is critical that your project is set up to take advantage of the coverage that is available. Early and extensive coordination of all parties on a project, especially amongst brokers, risk managers, and operations departments, is essential to accomplish intended PL risk transfer. Before the bid, parties should be working to identify and delegate design risks and lining up insurance products to cover those risks. This should include collaborating with designers and architects, as well as downstream parties that may be taking on more design responsibility than usual, along the way to ensure a coordinated effort at identifying and managing potential PL risk.

It is imperative to educate all parties involved in a project on the need for effective claims management. This may mean designing and implementing protocols to help project managers or people on the ground to recognize issues that could potentially implicate PL coverage. People working in day-to-day operations need to know when and how to elevate things to the risk management and legal teams. Something that first arises as a delay or contract argument amongst project entities or suppliers might be fought over for years when it could have just been addressed by PL coverage in the first instance. However, if everyone on the project is educated and protocols are in place up front for identifying and elevating potential claims, PL coverage can respond effectively.

PL policies are designed to respond where any professional error could potentially give rise to a claim. Particularly, rectification coverage under these policies should help mitigate the costs to correct errors before they result in a claim. However, some PL policies may require rectification claims to be submitted and approved before covered work takes place. This presents logistical issues on a project because keeping up with schedules and sequencing is critical, and the people on the ground are working hard to get problems resolved quickly and efficiently. Accordingly, procedures for identifying and preparing potentially covered costs need to be integrated into project and risk management processes to ensure coverage is captured.

With more parties taking on professional responsibility on design-build projects, greater coordination and collaboration amongst them is needed to effectively manage risk transfer. In the coverage context, and with PL policies specifically, this means early and ongoing management of protocols and procedures tuned to the nature and requirements of the policies is essential.

Conclusions
PL coverage can be a highly effective risk transfer tool in the burgeoning design-build market. However, these policies’ unique aspects require highly proactive planning and ongoing coordination to realize their potential. With all parties to design-build projects potentially benefiting from effective risk transfer, developing comprehensive strategies and protocols to identify and respond to issues that have the potential to implicate PL coverage is essential.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Design-Build – The Owner’s Dilemma

Michael McKenna and Alexander Spilberg | Cohen Seglias Pallas Greenhall & Furman

The recent passage of the infrastructure funding seems likely to lead to a significant influx in construction projects. Given the desire to get “work out on the street,” we anticipate that many owners will be looking to use design-build as the procurement method of choice. Owners and other parties should carefully consider their decision at a project’s onset as design-build, or engineer-procure-construct (EPC), can bring unforeseen challenges from procurement onward; indeed, the more parties understand design-build’s nuances, the better prepared they will be.

Many times, owners have been sold a bill of goods and think that design-build is a panacea akin to “no change order procurement.” Too often, owners fail to understand the design-build process and its limitations, and the misunderstanding then leads to impacts to other members of the team, such as engineers and design professionals. Lack of clarity— or even the inverse of owners trying to be overly detailed—can, and has, led to a growth in claims, and prudent owners would be wise to understand the potential dilemma that can come with using design-build.

Going Hard Dollar

As a basic issue, owners do not seem to understand how much control they lose on a project once it goes hard dollar. There comes a point on a design-build project when the owner and the design-builder sign a contract where the design-builder agrees to perform the work for a certain dollar amount. We refer to this as “going hard dollar.” This is the ultimate hand-shake and the proverbial “meeting of the minds.”

Owners need to understand how much control they give up at that point as it relates to the final nature of the project. At this point, the project is now in the hands of the design-builder. A frequent concern is that the owner and design-builder never truly set a firm understanding, so throughout the project, there remains a difference between what the owner wants and what the design-builder understands to be the scope of work. The owner may not have explicitly and/or appropriately communicated its wants and needs to the design-builder, or, just as common, the owner did not fully comprehend what it wanted for the project until it began to see more of the design coalesce. The owner will often continue to make changes to the design after going hard-dollar while simultaneously not appreciating the financial impacts associated with those changes.

The Owner’s Design Dilemma

A starting point for every owner is determining the scope of the work to be performed. While this is often be done using a scope book in which the owner tells the design-builder what it wants to be performed, there normally is some initial modicum of design work needed to compile the scope book leaving the book with its own set of issues. The owner needs to know that the scope book will be used by the design-builder to determine what needs designing and the construction parameters. The design dilemma may begin when an owner fails to spell out its intent, wants, and needs in the scope book or in any preliminary design given to the design-builder. When there are later changes to the scope book or expressed design, it ultimately leads to the design-builder seeking a change order.

Most projects, however, cannot be sufficiently planned or detailed at a scope book stage or even until they are underway. This leads to an owner inevitably asserting an all-too-common refrain to the design-builder that “you should have known that is what I meant” or “you should have known what I needed.” This dialogue degrades into a dispute over the doctrine of contra proferentem (e.g., trying to hold the recipient’s reasonable interpretation against the drafter of the scope document, e.g., the owner). Ultimately, the owner has a responsibility to plainly state what it needs. If the scope book has ambiguity and the design-builder reasonably interprets what the scope book/partial design calls for, then the owner loses. The owner has the legal burden to detail its needs, although owners seldom appreciate—or fully understand—this responsibility.

As noted, commonly as part of a design-build project’s bid documents, an owner will also have some early design work done by a designer of its choosing. We have seen projects where an owner started out with only four sheets of plans. More typical, though, are situations in which an owner goes much further into the design process, even as far as “30% design drawings,” then seeks a design-builder to bid on completing the drawings and engineering/constructing the project. But whether four sheets or 30% design drawings, they nonetheless present a liability.

This partial design certainly may help to define the scope of work, but owners do not recognize that there are also concomitant liability issues that attach. If these partial designs contain errors, then the owner will remain responsible in the same manner as it does in design-bid-build. Likewise, if the owner then asks for a scope of work that is not reflected in those partial designs or not otherwise defined in the scope book, it remains financially responsible.

Further, one of the principal advantages of design-build is to give design-builder teams the ability to use their ingenuity and creativity in developing design concepts. The more design the owner performs, the more it undercuts the ability of a design-builder to utilize this advantage. Experience has shown that owners do not typically appreciate this give-and-take “design dilemma.” An owner makes significant choice in determining how much design work is done before awarding a contract to a design-builder. The less design that the owner does, the greater the chances the owner will need scope changes to get what it truly wants and needs. However, while the more design that the owner does could better define work scope, it can simultaneously decrease the benefit of shifting design responsibilities to the design-builder. This results in a tenuous balance to make sure the project is properly defined while not unwittingly taking on design risk or undermining the design-builder’s ingenuity.

For example, on one project, a design-builder’s engineer misinterpreted the owner’s criteria for the forces that a bridge pier had to withstand in the event of a marine collision. The engineer wrongly calculated the force based on the stated collision design requirements. This led to an issue between the design-builder and its engineer in which the designer’s errors and omissions policy would be responsible for payment to the contractor. Then, given that previous error, the engineer retained a leading bridge collision consultant. When it did, the bridge collision consultant advised that the owner’s original collision criteria contained in the design given to the contractor was improper as it did not meet necessary standards. The bridge collision consultant then gave the engineer the proper marine collision criteria. This change meant that the bridge pier design that was already increased in size/magnitude to accommodate the first error would now have to be significantly larger. Ultimately, while the design-builder was responsible for the first error caused by its engineer, the owner was responsible for the latter error due to the incorrect criteria in the initial materials given to the design-builder. The project continued to go downhill, leading to a mutually agreed-upon termination for convenience.

The above example is unfortunately not a rare occurrence. Owners are responsible for errors in the scope book or contained in any initial design drawings they provide to the design-builder.

The other side of the coin is just as common: when a dispute arises because an owner does not sufficiently detail its needs, or, during the course of the work, it makes scope changes, these too will inevitably lead to demands for additional compensation.

Other Owner Mistakes

Owner liability can also attach for a plethora of other reasons when parties find themselves in a dispute over design and execution. For example, liability can attach when an owner’s own engineering consultant becomes too involved with the design review process. This can happen, for example, when the owner’s engineering consultant makes changes to the design-builder’s design or when the owner’s consultant does not provide review and/or feedback that extends the time of project performance. Indeed, these issues can result in significant claims.

That said, design-build can be an effective procurement system if managed correctly, with risks properly shared, rather than shoved down to the contractor and designer. Design-build shifts the burden and responsibilities for the majority of design to the design-builder and its design team. This has significant benefits for project success, creative ingenuity, and financial mitigation. It also can be a more timely method of construction and can lead to economic growth, generally, by getting projects off and running more quickly. To reap these significant benefits, however, all parties—including owners—need to go into design-build arrangements with a better understanding of their roles and responsibilities and to provide clarity for expectations and project requirements without limiting ingenuity or overstepping into the design-builder’s responsibilities.

Not All Design-Build Projects Are Created Equal

Nicole Markowitz and Richard Robinson | Peckar & Abramson

As the need for faster and more efficient construction increases, design-build agreements are growing in popularity. Design-build projects may account for 44% of nonresidential building in the United States this year. However, contractors who venture into a “design builder” role may unexpectedly become liable for design errors/omissions that are not covered by their insurance policies.  In turn, they may expose themselves to liability and insurance risks that are neither insured nor managed.

In this article, we’ll discuss how the contractor who becomes a design-builder, or performs design-related work through subcontractors, faces potentially unmanaged risk.  We will also explore indemnity, warranty, and insurance traps by paying attention to contract language in both traditional design-build and design-assist scenarios.

Contractors Acting As Design-Builders Face Design Liability From Inherent “Holes” in Insurance Coverage

Under the design-build arrangements most commonly used in the United States, the contractor is obligated to provide design services for the project. The inevitable question that follows is “how are design builders managing that risk?”  Often the answer lies in the two most common risk management approaches contractors employ – subcontracting and insuring.  But are those risk management tools working as expected?

Contractors may have licensed design or engineering professionals in-house or contractors may subcontract design services through a licensed design-professional. In both situations insurance for the risk is central, either to protect the contractor from errors by its in-house designers or to ensure that funds are available in the event of design errors when subcontracting design services.   There may, however, be significant gaps when relying on such insurance in these situations beyond the limitations commonly known about such insurance policies, such as “claims made” limitations, coverage amounts, and deductibles.

Although Professional Liability policies are at times called “E&O”, or errors and omissions, policies, often professional liability policies do not insure against all defects or deficiencies in the designer’s work.  Instead, the policies are drafted to insure against a finding of liability on the part of the designer, and that liability is based on the failure to meet an applicable standard of care.

Implicit in this critical distinction is the potential for errors to have occurred, but if those errors were not within the designer’s standard of care, there would be no liability. And since the insurance covers “professional liability,” not merely an error, there could be no insurance coverage.

Architects often assert that their standard of care is not one of perfection, specifically stating that errors are permissible to a “reasonable” degree.  Where courts embrace that standard, there could be an error, but no liability for that error and therefore no insurance coverage.

A design build contractor, however, may be fully liable nonetheless if it accepts a different standard.  When that occurs, the two most common mechanisms of risk management anticipated by design-builders, assuming that the risk was shifted to the designer or through insurance, may not function as expected.  In turn the design-builder may face an unmanaged risk.

Design-Build Insurance Solution 

Contractors in design-build agreements may encounter difficulty negotiating contract language to address this problem.  What, then, is a contractor to do?

In those situations, contractors in design-build projects are encouraged to consider Contractors Protector Professional Insurance (“CPPI”).  In general, CPPI coverage is intended to directly insure the design builder from design risks, including some described here, however such policies need to be carefully analyzed since holes can exist in CPPI coverage was well.

A well-developed CPPI policy can offer various avenues of coverage.  First, CPPI provides standard professional liability coverage.  Depending on the wording of the policy, the gaps described in this article can be mitigated.

Second, CPPI provides mitigation, or rectification, coverage. With mitigation coverage, if the contractor/design-builder learns of a design error during construction, it can proactively correct that error or omission prior to the assertion of any claim by the owner. Contractors should be aware that many carriers require immediate notification and may require carrier approval before any money can be spent to mitigate the design errors or omissions.

Lastly, CPPI provides protective coverage.  Protective coverage supplements the design professional’s professional liability insurance coverage by providing direct benefits to the contractor/design-builder for any downstream claims for costs above what will be paid by the design professional’s liability insurance.

Contract Wording Can Create Problems For Contractors Acting as Design-Builders 

When contractors assume design-build obligations, careful attention to contract language is needed to see where exposure for design liability may exist.  For example, two widely used design-build forms include either “design” or “design services” in the definition of the design-builder’s “Work.” Design-build forms created by large institutional or public owners often include similar language. In such cases, warranty and indemnity provisions may be the culprit in creating unmanageable liability for the contractor.

Warranty Problem 

If a contractor’s “Work” in a design-build agreement includes design services, and if the design-build contractor agrees to warrantee that the “Work” will be free from any defects or deficiencies,” a trap could be created.  Another equally dangerous way that such a provision might be phrased is for the design-build contractor to guarantee that it will correct “Defective Work.”  Either one of these provisions could be interpreted to impose the warrantee or guarantee on all defects in the design, and, as discussed above, insurance policies may not cover all defects or errors. Instead, they may only cover the defective work or design errors/omissions if the error was outside of the standard of care for the architect hired by the contractor.  In turn, the contractor may face exposure to uninsured liability.

Warranty Solution 

During contract negotiations in a design-build agreement, a best practice is for the contractor to insist that its warranty of the “Work” be defined to include construction labor and materials but not design services. The contractor can also provide the owner with a separate and insurable standard of care for design services performed by its architect, which would be separate from the warranty. Experienced construction counsel could be of help in making certain that contract language, which protects the contractor, is included prior to execution of a design-build agreement.

Indemnity Problem 

Indemnity clauses are common in construction contracts, typically to trigger insurance coverage for bodily injury and property damage claims, but too often they are drafted more broadly than is necessary for that purpose. For example, when a contractor must indemnify an owner against claims “that may arise from the performance of the “Work,” and “Work” includes design services, the contractor can be seen as effectively providing the owner with complete protection against design errors and omissions by its architect. As  described above, the architect or design-builder may not be insured under its professional liability coverage to the same extent required by such a broadly drafted indemnity clause.  In fact, this is exactly why designers often refuse to accept such broadly drafted indemnity clauses.

Indemnity Solution 

A solution to the indemnity trap is to address it during contract negotiations. By removing design services from the definition of “Work,” and creating a separate indemnity of the Owner against design errors and omissions by the architect, the contractor optimizes the chances that there is parity between liability for a design error or omission and coverage under the architect’s professional liability insurance. As with the warranty trap, experienced construction counsel in the negotiation process can be helpful.

Design-Assist vs Design-Build 

Unlike design-build agreements where the contractor takes the reigns and leads the design and build process—and may carry the lion’s share of responsibility and liability—design-assist agreements can involve a more collaborative framework and do not carry the same level of potentially uninsurable liability.  Design assist is a collaborative model, in which the role of the contractor is one of assisting in the development of the design, but not assuming responsibility for the design.  However, a word of caution is advisable in regard to “design-assist,” because while the term is used with some frequency, it is often used inadvisably or without clear definition.

As a result of the potential cloud regarding the proper use of “design-assist,” contractors need to be wary of the risks posed by unfavorable contract language.  Loose or sloppy language from design-build agreements can find its way into design-assist agreements and create the same assumption of liability and gap in insurance coverage contained in the design-build agreement.  For example, if the owner’s architect for a design-assist project is not required to fully coordinate the work of the design-assist contractors, liability for coordination of design-assist services could arguably fall upon the contractor.

To protect against unexpected and possibly uninsured liability, contractors must strive for contract documents that are carefully drafted to outline and delineate the design liability for design defects/failures of each party involved in the design-assist process.  The contract documents must be clear that the contractor will not take on additional liability for their advisory involvement in the design process and that the risk of liability for design errors and omissions remains with the owner or its designer.

More specifically, in design-assist agreements, special care must be taken to ensure that the contractor: 1) does not inadvertently waive the owner’s implied warranty of the plans and specifications; and 2) requires that the owner’s architect assume responsibility for and coordinate the design services of all design-assist subcontractors.

Surety Solution 

Increasingly, subcontractor trades or crafts may assume design-build responsibility as part of their work.  Although designers do not often provide Performance Bonds, subcontractors commonly do.  A risk management technique for contractors facing potentially uninsured design risk is to mitigate that risk through the combination of imposing similar terms on a design-build subcontractor and requiring that the subcontractor provide a performance bond standing behind that obligation.

In other words, include similar warranty and indemnity obligations in the subcontract, coupled with a bond that would honor the subcontractor’s obligation.  Of course, the amount of the bond, duration and relevant terms should also be considered.

Conclusion 

While both design-build and design-assist agreements present liability challenges, there are ways that savvy contractors can protect themselves from unexpected liability for design errors or omissions.  Most importantly, design-build contractors must be aware of the traps that may exist in relevant agreements, as well as the weaknesses that may exist in risk management strategies previously thought to be sufficient.

Industry Leaders Discuss Construction Delivery Methods and Potential Pitfalls

Alexander Leon | Bilzin Sumberg

On March 3, 2021, Bilzin Sumberg hosted its annual South Florida Redevelopment Conference.  During one of the sessions, the leaders of our firm’s Construction Law Group, Joy Spillis Lundeen and Felix X. Rodriguez, were joined by Brad Meltzer, Chairman and CEO of Plaza Construction, and William O’Donnell, Managing Principal of Desimone Consulting Engineers, to discuss the various construction delivery methods for construction projects.  The panelists discussed the different delivery methods and pros/cons of each, focusing on the following: (1) Design-Bid-Build with a Guaranteed Maximum Price; (2) Design-Assist; (3) Design-Build; and (4) Delegated Design.

Design-Bid-Build with a Guaranteed Maximum Price

The Design-Bid-Build (DBB) format is the most traditional type of project delivery system, wherein the owner retains the services of a project designer to develop drawings that are thereafter put out to bid.  The DBB format allows the owner complete control of the design and the guaranteed maximum price allows control over price subject to change orders. However, owners should be cognizant of the drawbacks of the delivery method on projects with a compressed schedule.  As Meltzer pointed out, “With GMP agreements, it’s all about price and time.  In fact, once the construction starts, the biggest arguments are not over price, but rather over delays that affect the delivery timeline.”

Design-Build

For less experienced developers and projects with a tighter schedule, Design-Build offers alternative benefits.  In a Design-Build, owners engage a single entity to serve as both the designer and the builder.  As outlined by my colleague, Felix X. Rodriguez, “Design-Build is akin to a ‘one stop shop’ for developers.  They give up some control over design, which can be worth it if they need to move quickly on a project for a type of asset they are not too familiar with.”

Design Assist/Delegated Design

Expertise from a specialty subcontractor can provide benefits to owners, designers, and contractors.  As explained by my colleague, Joy Spillis Lundeen, “The use of Design-Assist for complex steel structures has grown significantly over the past few years.” Design-Assist requires a collaborative effort where a specialty subcontractor is engaged early in the design process (pre-bidding) to assist in finalizing the overall design of a complex structure. A specialty subcontractor’s early involvement in the design process provides owners with more certainty as to costs and predictability regarding potential issues once construction has started.  “In addition to potentially minimizing change orders, Design-Assist allows owners to start conversations about financing with investors and lenders earlier since there is more clarity on costs earlier in the process,” Meltzer said.

Conversely, delegated design is where the design responsibility for a certain aspect of a project is shifted entirely from the project designer to a specialty contractor who is generally more familiar with a given construction system. For delegated design projects, the owner must perform significant due diligence to avoid miscommunication of design responsibility.  As O’Donnell explained, “In my experience, delegated design has most value for post-stress tension work.  But the developer has to be highly selective and organized for delegated design.”

CM Agent

In this delivery method, the construction manager acts as the agent (the “CM Agent”) of the owner but has no actual construction liability.  The risk falls to the owner and to the sub-contractors who have a direct contract with the owner.  This method requires a high degree of working trust between the owner and the contractor selected as the CM Agent and is only recommended for highly experienced developers who are comfortable with “directing the traffic” of the construction process.

Regardless of the delivery method selected by an owner for a given project, owners must be careful to outline the contractual obligations and manage the contract appropriately.  “An owner should never have a mentality that a construction contract is so good that they can forget about it after signing.  Owners need to manage the contract, particularly following up on milestones.  If not, then you get the problem of ‘course of dealing’ where the terms of a contract are implicitly changed because of the behavior or lack of action by a party.” Rodriguez said.