This article has been written by K. K. Nishchita, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.
What is design-build?
Design-build in general is a scheme of project rendition wherein one party being the design-build team works under an exclusive commitment with the project owner to facilitate design and construction services. One party, one contract, one consolidated sequence of tasks from elementary conception through culmination. Across the whole world, design-build victoriously hands over office buildings, schools, stadiums, transportation, and water infrastructure projects with remarkable outcomes.
Design build’s mechanism is actually quite peculiar and more accustomed to the growing design and construction needs and wants of both the public and private sectors. This technique is symbolized through a high level of association between the designers and contractors and all the peril is endured by this same party. Design build’s upsurge in demand stems from contemporary trends in the building and construction industry:
- A want for heightened quality.
- A want for custom-built designs and strategies.
- A need for lowered rates.
- A need for minimized imports.
Design build is presently utilized in many smaller projects, but can also accommodate more elaborate building projects due to the synergetic approach of the designer and the contractor.
Five fundamental components of a construction contract
The particulars of a construction contract are crucial to the victory of a construction project. This being the reason, it is indispensable to make sure one has a construction lawyer to inspect the contract to establish that it is written in a way that is not only unambiguous and rightful to each and every person involved, nevertheless more significantly, is designed to protect oneself and their best interests. These five basic requisite elements of a construction contract can result in a considerable amount of amenabilities if neglected:
- Complete name, address, and signatures of both the parties
Even though this may sound basic and straightforward, this regularly unnoticed component of construction contracts is mandatory to make the contract legally conclusive. Without the appropriate date or rightful signatures on all the necessary documents, it will become challenging to make way for the design-build contract to hold up in court.
- Work scope
Even though this clause is a component that is usually admitted in many construction contracts, most people fail to understand the need for details. This specific part of the contract should, in immense detail, explain the services to be provided, which also shall comprise a specific detail of quality, materials, work schedule, grade, and alternative stipulations that are related to the construction of the holdings.
- Cost of the project and the terms of payment
This spot of a construction contract should be clear, precise, and simple. There should be no ambiguity as to the cost of the services included and the cost of services far ahead of the ambit of the project. The payment schedule, the due amount, and the terms and conditions of payment should also be distinctly bordered in this clause of the contract.
- Work schedule
A fairly clear and precise notice to the proceeding date, date of commencement of construction, and date of the culmination of the project should be established and it should be made sure to distinguish between calendar days and workdays. It is always advisable to include in the contract that one is not responsible for procrastination created by the owner of the property in obtaining the permits required, approvals, and easements or for any kind of delays as the result of bad weather. One must make it a point to be prepared for unexpected times from the suppliers, and if by chance there are modulations in orders, and be sure to document any extra time they will require.
With so many aspects to cover, it can become problematic to constitute in whom the decision-making authority vested in a construction project. That is the reason it is very important to have and establish clarity as to which person has the vested power to make permissibly imperative decisions before the initiation of the project. This lucid clarity in the contract can reduce a lot of stress and confusion in the course of the construction project.
What is the use of a design-build contract?
The Joint Contracts Tribunal (JCT) Design and also the Build Contract (DB) is designed and planned for using it on construction projects by following the design and build procurement route. This involves appointing a main contractor to design the project and then proceeding with the construction process. This is the opposite of the traditional procurement route in which the client design consultants to design the project and then a contractor is appointed to implement the construction of the project.
Design and build give a single point of answerability for completing and handing over the entire project and can help ensure good flexibility, control of the cost, and speed. Some of the clients, however, consider it is as appropriate for simpler projects, where retaining control over the design is not at all the main priority. The scale and intricacy of design and build projects can differ considerably, but the design-build contract is generally befitting and reasonable for projects where there is a requirement for a detailed agreement, therefore catering towards the collective working method, sustainability, advance payment, third party rights, bonds, collateral warranties and many more.
How to draft a design-build contract?
A sample draft of the design-build contract
THIS DESIGN-BUILD CONTRACT (“Contract”) is made on ___________(Date) and ___________ (Place) by and between ABC, with an address of _____________(Address) and ______________ (“Contractor”), with an address of ________________for the R.T. Nagar waste recycling plant (“Project”) located at ______________ Amayat Nagar, Faridabad, Delhi. Contractor’s Delhi contractor’s license/registration no. is __________. References to the “Contract” include without limitation this document and its exhibits, attachments and any documents incorporated by reference in them. The lead Project designer (“Architect”) is ______________, with an address of ______________. The Architect is a Subcontractor of Contractor.
- The work: Contractor shall perform all kinds of design and construction services, and also provide all the required supervision, labour, materials, tools, equipment, construction equipment, and machinery, water, utilities, transportation, and other such facilities and services that are necessary to properly execute and complete the task described in and reasonably inferable from the owner’s program attached and incorporated as Exhibit A (“work”), whether it is permanent or temporary and also whether or not should be included in the Work.
- Design services: The portions of the Work that are related to design services shall be achieved by a legally registered design expert as and to the extent required by applicable law. Contractor agrees that it will exercise, and will cause the Subcontractors to exercise, that degree of care in performing those portions of the Work that are design services in accordance with the standards prevailing among firms of comparable standing when performing similar services for projects similar to the Project in the jurisdiction where the Project is situated.
- Schedule: The CONTRACTOR, shall immediately after being awarded the contract, shall start the preparation and submit for the OWNER, the Engineer’s information and an estimated progress schedule for the work dated from __________ to __________. The Schedule of the progress shall facilitate the efficient and modest completion of the task, and not cross the duration of time provided for the completion of the project as according to the contract documents. The unfolding lineup shall be refurbished as the flow of work proceeds and also any changes to be made shall be done instantly upon the appeal made by the OWNER. The CONTRACTOR shall likewise develop an organized schedule of submittals that would generate some considerable amount of time for the OWNER or the Engineer to analyze the submittals in turn resulting in a swift completion of the project.
- Contract sum/Guaranteed Maximum Price: In return for the performance of the Work, the Owner will have to pay the Contractor the “Contract Sum,” which is the total of the cost incurred during the works and the fee of the contractor of 15% of the cost of the work. The contract sum is guaranteed by the contractor, wherein the sum will not exceed the “Guaranteed maximum price”, (if anything as such is complied to by the parties as under the relevant section). If there are any expenses that would lead the amount to exceed the Guaranteed Maximum Price, then such exceeded amount shall be paid by the contractor without any reimbursement by the owner.
- Establishing the Guaranteed Maximum Price: Contractor will submit to Owner 50% complete construction-ready drawings and specifications (collectively, the “Construction Documents”) no later than a period of 30 calendar days and Contractor shall submit to the Owner a Guaranteed Maximum Price proposal the earlier of (i) 25 days after submission of 70% complete Construction Documents or _____________. The Contractor’s Guaranteed Maximum Price proposal will consist of the following.
i. Contemplated Guaranteed Maximum Price;
ii. Contemplated Substantial Completion Date and Final Completion Date;
iii. Contemplated Construction Schedule;
iv. Contemplated initial schedule of values;
v.A list of annuity quota and a statement based on that, if any;
vi. A list of unit prices, if any; and
vii. A list of alternates, if any.
If the Owner accepts Contractor’s proposal of the Guaranteed maximum price, the same Guaranteed Maximum Price, Construction Schedule, dates of Substantial Completion Date and Final Completion Date, unit prices (if any), alternates (if any), allowances (if any) and the first schedule of values shall be announced in an amendment to this Agreement (the “GMP Amendment”), using the form set out in Exhibit F. Owner has no obligation to accept Contractor’s Guaranteed Maximum Price proposal, and Owner may eliminate this contract at any point of time pursuant to the relevant sections.
- Payment: Payments of the Contract Sum will be made in monthly progress payments based on the percentage of completion, subject to retainage at seven percent (7%), with final payment upon Final Completion. No more often than monthly, the Contractor shall submit to the Owner a statement for the payment backed up by such essential information ratifying the Contractor’s right to payment exactly as the Owner may wish for. As a condition precedent to payment, the Contractor and the Subcontractors will furnish waivers and releases using the forms attached as Exhibit D. Owner will pay the Contractor’s invoice within fifteen (15) days after the invoice is certified by the Owner. The making of any progress or even the final payment will not constitute a waiver of claims by the Owner.
- Withholding of payment: The Owner may withhold payment in the amount of one hundred fifty percent (150%) of (a) the estimated cost to complete any incomplete Work, (b) the estimated cost to cure any defective Work, (c) the amount of any construction lien or other claim of the Subcontractors or third parties against Owner or Owner’s property originating out of or that is related to this Contract or the Work or (d) the considerable estimated amount of any other damage or loss caused or rationally foreseen to be paid up by the Owner.
- Joint-Payee and Direct Payments to Subcontractors: If the Owner has a justifiable ground to conclude that one or more subcontractors have not been paid amounts due for the task performed on time, the owner may (if so required), after giving a sensible and fair written notice to the contractor, make payments to the subcontractors directly or in the form of joint payee checks. Upon the appeal of the owner, the contract shall at the right time provide to the owner all the required information that is available to the contractor to help in making the payments to the sub-contractors.
- Taxes: The Guaranteed Maximum Price includes all taxes to be due by the Contractor or the Owner stemming out of or associated with the performance of the contractor under this particular contract, which is including but not restricted to the local and state sales, value-added taxes, and its uses if any. The Contractor shall on time forward to the appropriate authorities of the government all such taxes applicable and upon the appeal of the owner shall punctually provide to the owner affirmation of such a remittal. Contractor shall cause to be carried out and concede all the sales and the used tax resale certificates so as to avoid Owner’s deceitful and fake payment of such taxes.
- Records and Audits: The contractor shall keep all accounting records accurate and complete to support all claims and cost billings to the Owner in compliance with the standardly recognized accounting practices and principles. At the Owner’s own cost, the Owner shall always reserve the right to at any point of time audit, examine and copy the records, vouchers, and their primary source documents that relate to any claim or compensation other than pricing elements that are settled in amount by this particular Contract. Such significant documents shall be made available for auditing, examining, and copying for four (4) years after the execution or elimination of this Contract. Any over-collections will be returned back to the Owner within a period of forty-five (45) days from the date of the notice of overcharge.
- Changes: The owner may at any time in writing require changes in, additions to, or deletions from the task to be taken place under this specific contract, as well as changes to the schedule for performing the Work. Changes will be authorized in writing by Owner and set forth in an appliance that shall be signed by the Owner and the Contractor mentioning their consensual agreement on all of the following: (i) a change in the Work, if any; (ii) the amount of the adjustment in the Guaranteed Maximum Price if any; and (iii) the extent of any adjustment in the Contract Time (a “Change Order”). If Owner requests a Change Order as regards a change in the Work, but the Owner and Contractor are unable to mutually agree upon the details of the resulting Change Order, Owner may elect to issue a change directive (“Change Directive”) influencing the Contractor to go ahead with the Work in question. Upon issuance of a Change Directive, the Contractor will have an obligation to proceed with the change in the work, and the effect on the Guaranteed Maximum Price and Contract Time will be determined under the dispute resolution provisions of this Contract. The Contractor shall not move forward with any changes in the Work or the Contract Time in the absence of a Change Order or Change Directive executed by the Owner. The contractor will not be entitled to an adjustment of the Guaranteed Maximum Price or the Contract Time or both.
- Contractor: The contractor shall secure all permits that are required for appropriate completion of the Work, and the Owner will pay the fees for such permits. Pursuant to the relevant sections, the Owner’s obligations under this Section do not include payment of fees for business licenses and registrations.
- Means and methods: The contractor will be the only responsible person for the methods, means, sequences, techniques, and procedures of fulfilling the Work.
- Contractor’s personnel: Employee’s conduct shall be mentioned in this clause. For example, the contractor shall employ only qualified persons who know their tasks and responsibilities. The contractor shall impose strict rules and do his best to maintain disciple and good order among his employees and also the employees of the sub-contractors. Inappropriate behavior and actions such as the use of drugs, weapons, obscenity, etc. by any employee under the contractor shall attract penalization and shall be dragged to court.
- Compliance with law: In this clause, it shall be mentioned and highlighted that the Contractor shall comply and obey the rules and give notices as required by applicable laws, statutes, codes, ordinances, regulations, and rules, and lawful orders of public authorities pertinent to performance of the Work.
- Conflicts among documents: If there is any kind of contradiction, conflict, or inconsistency between or among the provisions of this Contract or the produced exhibits or documents then the Contractor shall enforce the more exhausting description and explanation of the Work and will provide the increased quality and improved quantity of materials, supplies, and equipment indicated, unless Owner implies to the Contractor in writing to do otherwise.
- Submittals: This clause will consist of all the document submissions that have to be made for the sake of review by the contractor. The clause can be drafted in the following manner:
The Contractor will review for compliance with this Contract and submit to the Owner shop product data, drawings, samples, and similar submittals required by the specifications consistent with the Contractor’s construction schedule. The Work will be in accordance with submittals reviewed and approved by the Architect.
- Cleaning up: This clause in particular is about keeping the site of construction clean and tidy. For example, it can be drafted like this. The Contractor shall be responsible to keep the Project site and surrounding area free from accumulation of waste materials, garbage, or rubbish caused by operations under this Contract. The surroundings shall be cleaned every day after the completion of the work so as to ease out the cleaning process.
- Hazardous materials: This clause is important and it will state that if any kind of hazardous chemical or substance is found on or near the construction site that supposedly seems harmful, the ongoing work shall be immediately stopped, and only once the area is declared harmless shall the construction work continue.
- Safety precautions and programs: In this clause it shall be mentioned that the Contractor will be responsible for maintaining, initiating, and supervising all safety precautions and programs in connection with the performance of the Work. The Contractor will take all the reasonable and necessary precautions for the safety of, and will provide reasonable protection to prevent damage, injury, or loss to employees, work equipment and materials, and other property at the site of the project or adjacent to it. If any such damage happens then the contractor will be liable to pay.
- Owner’s right to stop the work: This clause emphasizes that if at all a contractor fails to make right a work that is defective or that is not being done according to the plan then the owner can issue a written order to stop the work.
- Owner’s right to carry out the work: Here under this clause, If the contractor for some reason eventually fails or neglects to do the work properly, then the owner may possess the authority to complete the task according to the original plan and correct any deficiencies thereof.
- Supervision by Contractor: The Contractor shall always supervise and look into the works being carried out at the site with the help of his best skill and attention. The contractor shall be solely responsible to have control over whatever is happening at the site and the means and methods used.
- Review of field conditions by Contractor: If a contractor agrees to the execution of a contract at a construction site, then it implies that the contractor has visited the site and taken a complete understanding of its area and surroundings. It also indicates that the contractor has all the required approvals and licenses provided by the government to carry out work in the jurisdiction.
- Other project site considerations: Here this clause covers other aspects that might have been left out in the previous clauses. It can be drafted as follows:
The Contractor shall protect the working of the employees and subcontractors by preventing any kind of damage to the equipment, structures, and facilities on site. The Contractor shall not interfere with the works of any other third party on-site or in the adjacent areas. The contractor shall see to it that all the equipment and material is stored properly in compliance with the rules, laws, and regulations.
- Warranties and correction of work: Under this clause, the Contractor takes up the warranty that all the raw materials that will be utilized in the process of construction will be of top quality and shall meet the standards prescribed by the concerned authority. The Contractor shall also guarantee that the construction shall be made without any defects and non-conformities within the prescribed period of one year.
- Force Majeure: If the performance of this Contract is at any point of time is restricted by any party or is interfered with something beyond the control of the Contractor such as war, terrorism, national emergency, etc. then the affected party shall be excused from such performance upon submitting a written notice. The notice shall be provided by the affected party in writing 7 days after the notice of the event mentioning the cause of the delay in the construction process.
- Indemnity: To the fullest extent permitted by law, Contractor will indemnify, hold harmless, reimburse and defend Owner (with counsel approved by Owner) and its commissioners, employees, and agents, and the successors in interest of the foregoing, from, for, and against any and all claims, demands, damages, costs, expenses, liens, liabilities, penalties, fines, and lawsuits including reasonable attorneys’ and expert witnesses’ fees and related legal costs, disbursements and expenses arising out of or relating to this Contract or the Work, whether directly incurred or from third parties, to the extent caused by the negligence or other wrongful acts or omissions of Contractor, the Subcontractors, or their respective employees or agents, or the failure of any of them to perform in accordance with this Contract.
- Contractor’s insurance: The Contractor shall act in compliance with the requirements of Exhibit C which shall insure the Contractor.
- Changed conditions: If any unforeseen conditions or circumstances are encountered then the Contractor shall immediately and before such physical conditions are disturbed, and not later than seven (7) days after becoming aware of such conditions, notify the Owner in writing. Owner shall dutifully investigate the conditions, and if it finds that such conditions do materially differ and cause an increase or decrease in the cost of, or the time required for the performance of this Contract, an equitable adjustment will be made and this Contract modified in writing accordingly. If the Contractor fails to provide the required notice, any claim relating to the above-referenced conditions is waived.
- Suspension or termination for owner’s convenience: The Owner under the terms of this contract can without prior notice and without cause suspend or terminate this Contract in whole or in part at any time by giving the Contractor written notice of the suspension or termination. After such suspension or termination, the Owner shall pay the Contractor for all the Work properly executed as of the effective date.
- Termination by owner for a reason: The Owner may terminate or end this Contract if the Contractor (a) refuses or fails to supply enough properly skilled workers or proper materials; (b) fails to make payment to Subcontractors for materials or labor; (c) disregards laws, ordinances, or rules, regulations or orders of a public authority having jurisdiction; or (d) otherwise is guilty of a substantial breach of a provision of this Contract and that breach remains uncured after ten (10) days’ notice and the opportunity to cure.
- Termination by Contractor: If the Owner under this contract for some reason fails to make payment for a period of thirty days, the Contractor may, upon ten additional days are written notice to the Owner, terminate this Contract and recover from the Owner payment for Work properly executed and for proven loss with respect to materials, equipment, tools, and construction equipment and machinery, including reasonable overhead and profit applicable to Work actually and properly executed. However, in no event will Contractor be entitled to profit, markup, or overhead on Work not executed.
- Liens: Owner will have no obligation to forward to Contractor, pursuant to applicable law, copies of lien notices received by Owner. Owner nonetheless will make a good faith effort to forward to Contractor copies of such notices received by Owner. Subject to Contractor’s prior timely receipt of payment from Owner, and within a period of ten (10) days after the written demand by the Owner, Contractor will create any lien on the Project site or on any improvements or land stemming out of or associated to the Work to be removed (i) by payment, (ii) by recording a lien release bond and substitution of alternative security as provided law or (iii) by such other means as are acceptable to Owner in its sole discretion.
- Claims: If Contractor has a claim arising out of the Work or this Contract, including without limitation any claim for a time extension, additional compensation or adjustment of this Contract’s terms, Contractor will notify Owner in writing within seven (7) days following the occurrence of the event thereby giving rise to the claim or such claim is waived. As soon as practicable after claim notification, the Contractor will submit the claim to the Owner with all supporting information and documentation. The contractor will also respond promptly to all inquiries from the Owner about the claim.
- Arbitration/court litigation: The clause can be drafted as below;
In case of any dispute or disagreement arising out of this Agreement, the Parties shall:
- Firstly, an attempt to settle the dispute cordially shall be made.
- In a situation where there is a failure to reach a cordial agreement, the dispute shall be referred to an Arbitrator which shall be conducted under the governance with the provisions of Arbitration and Conciliation Act, 1996, or statutory re-enactment or any amendment thereof, as may be in force.
- and each party to the arbitration shall bear its respective costs and expenses related to the proceedings of the arbitration.
- Performance to continue: Until and unless it is agreed in writing, the Contractor will continue to perform in accordance with this Contract during any dispute resolution proceedings.
- Attorneys’ fees: In a situation wherein there is a dispute between the parties or there is a trial going on, the party that wins can get back the amount that they spent as the attorney’s or the arbitrator’s fees according to the final judgment or the arbitral award.
- Nondisclosure: Contractor and the Subcontractors will not directly or indirectly release, publish, announce, or disclose to any member of the public, press, governmental entity, or any other third party any information or documents concerning this Contract, the Work, or Owner, or any part of any of them, without the prior written consent of Owner, except as required by law or lawful order, or regulatory or similar requirements, or except as necessary to perform the Work or the Contractor’s or the Subcontractors’ obligations related to such performance.
- Work product: All the specifications, drawings, and other work products of the Contractor and the Subcontractors that are a result of this Contract (“Work Product”) shall be provided to the Owner upon his request and will be considered as the exclusive property of the Owner. If any of the Work Product contains the intellectual property of the Contractor or the Subcontractors that are or could be protected by federal copyright, patent, or trademark laws, or state trade secret laws.
- Independent Contractor: The Contractor acknowledges and affirms that the contractor is independent and that all the people employed by the Contractor in relation to the Work performed will be employees of the Contractor or independent subcontractors and not employees of the Owner in any respect.
- Review by owner: Review or approval by Owner or its agents or consultants of Contractor’s performance of the Work will not alleviate the Contractor of the sole liability for any damages that might result from or arise out of the defects in the Work.
- Public Contracting Terms: The contractor will comply with the terms of Exhibit E.
- Performance and Payment Bonds: Before starting the Work, and in compliance with the statutes, the Contractor shall pay for and secure bonds covering the faithful performance of this Contract and payment of obligations arising under this Contract, each in the total sum of the contract amount. The scope of the bonds or the form thereof prescribed in this Contract does not affect or alter Contractor’s liabilities to Owner.
- Exhibits: Exhibits incorporated herein by this reference: Exhibit A: Owner’s Program Exhibit B: Cost of the Work Exhibit C: Insurance Requirements Exhibit D: Waivers and Releases Exhibit E: Public Contracting Terms Exhibit F: GMP Amendment Form
- Entire Agreement: No Disclaimers or Limitations of Liability. This Contract relates back to Contractor’s first provision of services on the Project and supersedes and replaces all prior and contemporaneous proposals, negotiations, discussions or agreements, whether written or oral, and constitutes the full-fledged agreement between both the parties in relation to the subject matter of this Contract, and it may be modified only by the written agreement of such parties. The contractor’s proposed special terms or conditions will expressly not be part of this Contract and will not otherwise cover the Project even if such terms and conditions are attached as an exhibit or not. Any disparity between this Contract and any other attachments shall be solved in favor of this Contract, which indicates that, in the case of limitations and disclosures, no disclaimers shall be allowed.
CONTRACTOR: OWNER: ______________________ ______________________
By: ___________________ By:________________________
Design and build contract is a unique type of contract where the contractor is answerable for design as well as construction on the property. Clients by nature are always only interested in the outcome of the project, and the complete authority and burden of executing such kinds of contracts vest with the contractor every single time. These kinds of contracts are favorable to a promoter who intends to deal with the whole process of design and construction, or for someone to whom getting, the right outcome is of higher significance than the details of design. They are also feasible for promoters who do not want to be involved in any work concerning the construction process, such as education or health authorities. Design and build contracts can present price leverage as the contractor has a chance of reducing his expenses by using standard, easy-to-construct, or priorly used designs that fit right with the help of usual methods of construction and existing plant.
Some demerits of design and build contracts are that the clients can lose the stronghold over the designs for which they are making the payment and may therefore not get the right outcome or plan they desired for all along the waiting period. These contracts should only be used where there is a very low risk of the promoter’s requirements fluctuating during the construction process. If the contractor is taking on high risks including those of design and buildability, prices will surely go up than usual for such a measurement contract. Any pursuit to reach a quick and short finish time for a construction project by the way of using such circumstances might also advance towards high prices and anticipated overruns of time, as not all of the processes of design and construction can overlap all the time.
The developing and wavering attributes of the country’s highway infrastructure development program and the resources at the federal, state, and local levels is depositing high loads of hardship on the public sector’s capability to meet the ever-increasing necessities for renewed and enlarged system capacity. Innovative and creative approaches like design-build have been shown to facilitate powerful and inherent potential to aid transportation agencies by serving these needs better by doing things quicker and in a more cost-effective method. While many of the circumstances that brought forth the exposition of highly antagonistic contracting laws and procedures early in the 20th century, there is no longer any evidence available and proper care must be taken to prevent the repetition of such conditions. This is the reason why the use of techniques like design-build contracting must be studied in detail and entered into with the right understanding that the private and public candidates in this whole process have a shared and common interest and liability for the expected outcome of the process, and are each held responsible for the results.
Design-build contracting assumes a joint effort that blends numerous resources convoluted in the reinforcement of a highway project and bestows incentives for a soaring level of technical performance, flexibility, and consistency with a contractual budget and scheduling terms. It has the potential to yield a more cost-effective project in a short span of time than a process that lawfully shields the participants in the project while dumping most of the project risk on the heads of the contracting agency.
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