Design and construct

Issues to consider

There are some matters in which D&C contracts fare no better nor worse than other forms of contract used in the procurement of buildings. Depending on the actual terms of the contract these may include:

• the need for variations to the design as a result of the client's changed requirements after acceptance of or agreement to the contract sum – this may result in disadvantage to the client as the cost of variations can be higher for D&C contracts than for traditional building contracts
• changes in statutory requirements after the acceptance of the price or tender – this may vary according to the terms of the contract
• effects of inclement weather during the contract period
• acts of God/ force majeure
• acts of vandalism, riots, warfare or terrorism
• industrial disputes off site which affect delivery of materials or which occur as a result of state or national strikes
• industrial disputes on site depending on the circumstances or causes of the dispute
• delays, and cost consequences of such delays when they arise, due to any of the causes noted above
• cost increases after acceptance of tender, unless the terms of the contract provide for cost adjustment based on an established formula.

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Tendering and consultants' fees

Design costs are a small proportion of the D&C contract sum for a building. The architect is obliged to complete a substantial portion of the design to allow the contractor to submit a tender.

Increasingly, D&C organisations recognise the value of design as a competitive edge in the tendering process and are willing to pay for it.

In cases where D&C tenders are called as two-stage tenders, design fees are routinely included in the initial assessment, resulting in pressure on consultants to provide competitive fees.

In each case a commercial decision is required to be made by the architect for the outlay of the necessary design time.

Some client organisations elect to pay fees to the selected D&C organisations for submitting tenders. Such fees are commonly paid to the designer and consultants if they are external to the D&C organisation.

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Difference to project management

D&C organisations sometimes represent D&C contracting as a form of project management. Design and construct should not be confused with project management. The principal difference is that the D&C project manager does not act independently in the interests of the client.

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Advantages and disadvantages

Perceived advantages

The advantages of the D&C contract are commonly considered to include:

• that the client is dealing with one entity on a contractual basis throughout the life of the project from inception to delivery
• that this one entity will provide the end product
• the relative ease of the integration of the design expertise and the building expertise
• the increased opportunity for the shorter duration of the project, by not having to follow a normal tendering approval process
• security of knowledge in respect of cost and time of the project at an early stage
• the single total price.

These are seen as advantages when compared to most other contractual arrangements, in particular to traditional forms of contract, which involve separate engagement of architect, consultants and contractors.

Perceived disadvantages

The disadvantages of D&C contracts are commonly considered to include:

• lack of cost competitiveness, or at least the client's control over it
• lack of independent or impartial professional advice by an architect or consultants having no commercial interest in the outcome of that advice
• non-disclosure in the marketing stage of all the ramifications of the 'deal' and resultant reduced performance or quality of finish.
• lack of opportunity for the architect to advocate for good design decisions to the client.

In many cases clients are aware of these shortcomings, but do not necessarily consider them to be of great significance. It is apparent that they believe that careful choice of the contractor in the first instance is sufficient to outweigh the disadvantages. In fact D&C contracts do not specify the quality of all components and rarely define quantity (the drawings are generally between concept and design development).

D&C organisations in many cases counter the claim of lack of cost competitiveness in the calling of tenders for subcontract work and offer the client a share of any resultant savings usually in an agreed proportion.

A lack of independent advice is often overcome by the client’s engagement of independent or audit consultants as advisers. This is outside of the contractual arrangement with the D&C contractor.

The problem of cost competitiveness can be overcome by the calling of tenders for the D&C contract. This is quite common among government authorities who are required to account to the public for budgeting and the expenditure of public money. It is essential that the brief of the client's requirements is properly and accurately prepared and forms part of the tender documents.

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Further reading/reference

Office of the Victorian Government Architect (OVGA), 2021, Government as Smart Client