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Design and Construct Contracts: What are they and when should they be used?

What is a design and construct contract?

Design and Construct (D&C) is a widely accepted project delivery method and contract form primarily used for major construction contracts.

Under an ordinary “design-bid-build” (often called ‘construct only’) delivery method, the plans for the construction of the project are prepared by a third party designer engaged by the principal, these designs are then used as the basis upon which contractors formulate their tender bids. A contractor is then awarded the project and goes on to carry out the construction.

Under a D&C contract however, the same entity is responsible for commissioning the design of the project and the actual physical build. Typically, the principal will engage design consultants to carry out the preliminary designs and assist in preparing the principal’s project requirements.

(The principal’s project requirements are often a defined term in standard form construction contracts, such as the AS4300-1995 or AS4902-2000, and refers to the documents which constitute parts of the contract and set out the purpose for which the works are being commissioned.)

These preliminary designs are then used as the basis upon which prospective contractors formulate their tender submissions, which will include a design which is developed to a sufficiently advances stage so as to allow for a lump sum offer to be proposed.

D&C contracts are often referred to as “package deal” or “turnkey” contracts, meaning that the principal, having very minimal input throughout the entire process, will simply be able to arrive on site following completion and “turn a key” to use the works for their intended purpose.

The D&C delivery method can be varied so that the contractor also assumes maintenance responsibilities once the works are completed. This is known as the design, construct and maintain (DCM) delivery method.

Why choose a D&C delivery method?

As one contractor is responsible for costing the entire project, principals have the benefit of having a contract price negotiated before any work is undertaken.

In practice however, the responsibility for certain aspects of the design is often amended where the principal chooses to engage particular designers, architects or engineers directly.

A significant advantage of D&C contracts is the fact that all site related difficulties and challenges can be identified by the contractor at the preliminary stages and may be factored into the designs, resulting in ease of construction and efficient delivery of the works.

Several standard form contracts exist for the implementation of a D&C delivery method, including:

  • AS4902-2000, which is a variant of the AS4000 which includes design obligations on the contractor and is more applicable to D&C delivery;
  • AS4903-1995, which covers design and construction, design development and construction, and design novate and construction project delivery methods; and
  • AS4303-1995 (General Conditions of Subcontract for Design and Construction), which covers a contractual situation whereby the head contractor engages a subcontractor to provide some or all of the design or construction of the project.

Risks associated with D&C

D&C contracts allow for a more streamlined approach, however, they are not without their flaws, and the risks vary depending which side of the build you are on.

Risks for contractors

Contractors take on significantly greater risk when delivering a project under a D&C contract, as they are responsible for the design, the design development, the documentation and the construction of the project for an amount that is agreed upon before either the design or construction begin.

The contractor assumes the time and cost risks associated with modifying a design which may be impractical or employing a different method of working which becomes necessary to achieve completion.

D&C Contracts typically include an implied warranty that the works will be fit for purpose, meaning they will be able to be used for the principal’s intended purpose.

Risks for principals

The primary risk for principals is the lack of involvement in the entire process, as the contractor is in charge of the project from its inception. As such, it is crucial that the principal does not let the fast-track nature of a D&C contract impinge on the thorough definition of design criteria, performance standards and intended purpose of the works.

As contractors generally assume far greater risk when operating under a D&C contract, the contract price will often be higher so as to compensate the contractor for the extra risk.

Where the principal’s vision for the works and the contractor’s end result diverge, the principal can be thrown into a situation where it suddenly becomes very involved and is required to direct significant variations to the works, causing the already significant contract price to climb rapidly.

If you have any questions regarding project delivery methods or the most appropriate contract under which to carry out a project, please contact Morrissey Law + Advisory.

This article was prepared by Michael Morrissey and Pat Ireland.

Disclaimer: This publication by Morrissey Law & Advisory is for general information and commentary only and should not be considered or relied upon as legal advice. Formal legal advice should be sought in relation to any matters or transactions that may arise in relation with communication.

2018-08-20T10:31:18+00:00 August 20th, 2018|Uncategorized|