The design-build project delivery method (PDM) has existed for many years in
the construction industry. The attraction for owners of construction projects for this
PDM has been a single source of responsibility with added speed, bringing the project to
completion sooner than other PDMs since construction begins well before the design phase
is 100 percent complete. However, a derivative of traditional design-build that has
gained momentum over the past 10 years is progressive design-build, a slightly advanced
PDM that mimics traditional design-build while integrating design and construction
services under a single contract.
Progressive design-build is similar to the traditional design-build project
delivery in that design and construction proceed together and offer the possibility of
saving both time and cost. Although there is some additional certainty in design and
enhanced communication between parties, professional liability risks are high in both
methods because each consolidates responsibility for design errors or omissions with a
single entity, usually the general contractor (GC) or construction manager at risk
(CMAR).
This article explores the theory and reality of aspects of progressive
design-build that owners and contractors should consider.
Feature Comparison
Progressive design-build has gained momentum over the past 10
years because it offers a more collaborative approach and cost certainty to
construction projects. Progressive design-build comprises two distinct phases.
Phase 1: Preconstruction and design. In
this phase, the owner, GC, or CMAR and design team agree on the project's design
and constructability. A higher percentage of design completion occurring in
Phase 1 provides more project cost certainty. Most progressive design-build
contracts include an "off-ramp" provision in which the owner may terminate the
contract in the preconstruction period.
Phase 2: Construction. Even though some
preliminary site work may occur during Phase 1, this is where the build
happens.
Project owners tend to favor the single point of responsibility
and cost certainty in progressive design-build, as it enables more accurate pricing
of contingencies. For example, if 60–80 percent of the design is completed in the
preconstruction phase, the ultimate project pricing should be much closer to
reality. Under traditional design-build, where design is around 30 percent complete,
that risk is much higher, although not to say it can't be done without incident!
A traditional design-build contract might include contingencies at
3–5 percent of the project value, whereas progressive design-build contingencies are
usually in the range of 1–2 percent. The reduced contingency level has the potential
to allow a GC or CMAR to set a guaranteed maximum price lower and return savings to
the owner.
In theory, progressive design-build allows more collaboration
among the owners, GC, or CMAR and the design team. The PDM does even more by
reducing redesign work and enabling collaboration with subcontractors. When owners
and the construction and design team agree on specifications and scope of work in
preconstruction, specialty subcontractors can be selected sooner, and pricing
becomes clearer.
Also, value engineering is less cumbersome under progressive
design-build, as changes can be made more easily than in the traditional
design-build approach. Continuous cost alignment is possible too in progressive
design-build because it's more collaborative than reactive.
Professional Liability Risks
Progressive design-build mitigates but doesn't eliminate
professional liability risks in a project. Poor communication can exacerbate
professional liability claims, such as miscommunication or breakdowns in
communication among the contractors and design professionals. Mistakes can still happen, but their likelihood
is reduced by the parties' early engagement in Phase 1.
For this reason, insurers generally view progressive design-build
as less risky. However, the off-ramp provision in this PDM is a great concern to
insurers. An owner taking an off-ramp after Phase 1 can lead to an unintended
project-specific professional liability (PSPL) policy because there is no Phase 2
involving construction where the insured can sort of dilute their exposure or risk.
PSPL in this scenario represents a much higher professional risk for insurers.
Furthermore, PSPL insurance is expensive, fully paid at inception,
and has no cancellation provision per se, even if the project or participants take
the off-ramp alternative. On large projects, PSPL policies can have a rate on-line
as high as 60 percent. That means the premium would be 60 percent of the limit
(e.g., on a $10 million PSPL policy, the premium would be $6 million). This pricing
reflects the risk, as professional liability risk can be catastrophic.
One option for financing professional liability risks in
progressive design-build is to contractually require a dedicated limit and cover
Phase 1 exposures under each entity's practice professional liability policies.
Then, once Phase 2 begins, incept the project professional liability program. Most
insurers are willing to backdate coverage to the beginning of Phase 1 under the
project-specific alternative, allowing coverage for both the design and construction
phases. It can even be prudent to put a project-specific policy in place, and doing
so won't eliminate the professional liability risks but might offer some added
protection.
Lining Up Coverage
Insurance questions often arise sooner in progressive design-build
contracts, and agents generally are involved sooner in the process to line up
builders risk and professional liability coverage. With high-risk complex
projects—for example, projects involving infrastructure, government entities, or
things that haven't been built before—owners typically want assurance before
problems arise and insurance can address those.
Why aren't all owners and contractors using progressive
design-build project delivery? Some projects might use elements of progressive
design-build but call it something different. But once owners and contractors
understand the value of this delivery method, it tends to become preferable to the
traditional design-build approach. However, risks still need to be managed, and
working with construction insurance specialists is strongly recommended.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
The design-build project delivery method (PDM) has existed for many years in the construction industry. The attraction for owners of construction projects for this PDM has been a single source of responsibility with added speed, bringing the project to completion sooner than other PDMs since construction begins well before the design phase is 100 percent complete. However, a derivative of traditional design-build that has gained momentum over the past 10 years is progressive design-build, a slightly advanced PDM that mimics traditional design-build while integrating design and construction services under a single contract.
Progressive design-build is similar to the traditional design-build project delivery in that design and construction proceed together and offer the possibility of saving both time and cost. Although there is some additional certainty in design and enhanced communication between parties, professional liability risks are high in both methods because each consolidates responsibility for design errors or omissions with a single entity, usually the general contractor (GC) or construction manager at risk (CMAR).
This article explores the theory and reality of aspects of progressive design-build that owners and contractors should consider.
Feature Comparison
Progressive design-build has gained momentum over the past 10 years because it offers a more collaborative approach and cost certainty to construction projects. Progressive design-build comprises two distinct phases.
Project owners tend to favor the single point of responsibility and cost certainty in progressive design-build, as it enables more accurate pricing of contingencies. For example, if 60–80 percent of the design is completed in the preconstruction phase, the ultimate project pricing should be much closer to reality. Under traditional design-build, where design is around 30 percent complete, that risk is much higher, although not to say it can't be done without incident!
A traditional design-build contract might include contingencies at 3–5 percent of the project value, whereas progressive design-build contingencies are usually in the range of 1–2 percent. The reduced contingency level has the potential to allow a GC or CMAR to set a guaranteed maximum price lower and return savings to the owner.
In theory, progressive design-build allows more collaboration among the owners, GC, or CMAR and the design team. The PDM does even more by reducing redesign work and enabling collaboration with subcontractors. When owners and the construction and design team agree on specifications and scope of work in preconstruction, specialty subcontractors can be selected sooner, and pricing becomes clearer.
Also, value engineering is less cumbersome under progressive design-build, as changes can be made more easily than in the traditional design-build approach. Continuous cost alignment is possible too in progressive design-build because it's more collaborative than reactive.
Professional Liability Risks
Progressive design-build mitigates but doesn't eliminate professional liability risks in a project. Poor communication can exacerbate professional liability claims, such as miscommunication or breakdowns in communication among the contractors and design professionals. Mistakes can still happen, but their likelihood is reduced by the parties' early engagement in Phase 1.
For this reason, insurers generally view progressive design-build as less risky. However, the off-ramp provision in this PDM is a great concern to insurers. An owner taking an off-ramp after Phase 1 can lead to an unintended project-specific professional liability (PSPL) policy because there is no Phase 2 involving construction where the insured can sort of dilute their exposure or risk. PSPL in this scenario represents a much higher professional risk for insurers.
Furthermore, PSPL insurance is expensive, fully paid at inception, and has no cancellation provision per se, even if the project or participants take the off-ramp alternative. On large projects, PSPL policies can have a rate on-line as high as 60 percent. That means the premium would be 60 percent of the limit (e.g., on a $10 million PSPL policy, the premium would be $6 million). This pricing reflects the risk, as professional liability risk can be catastrophic.
One option for financing professional liability risks in progressive design-build is to contractually require a dedicated limit and cover Phase 1 exposures under each entity's practice professional liability policies. Then, once Phase 2 begins, incept the project professional liability program. Most insurers are willing to backdate coverage to the beginning of Phase 1 under the project-specific alternative, allowing coverage for both the design and construction phases. It can even be prudent to put a project-specific policy in place, and doing so won't eliminate the professional liability risks but might offer some added protection.
Lining Up Coverage
Insurance questions often arise sooner in progressive design-build contracts, and agents generally are involved sooner in the process to line up builders risk and professional liability coverage. With high-risk complex projects—for example, projects involving infrastructure, government entities, or things that haven't been built before—owners typically want assurance before problems arise and insurance can address those.
Why aren't all owners and contractors using progressive design-build project delivery? Some projects might use elements of progressive design-build but call it something different. But once owners and contractors understand the value of this delivery method, it tends to become preferable to the traditional design-build approach. However, risks still need to be managed, and working with construction insurance specialists is strongly recommended.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.