1 Introduction to design and build procurement

1.1 In design and build procurement, the employer engages a single contractor to prepare and/or complete the design and to construct the works to meet the requirements of the employer. The employer may engage consultants, and the contractor will frequently subcontract both the design and a large amount of the construction. At tender stage, the contractor will normally be given detailed information on the employer’s requirements for the project, and sometimes an outline design. The contractor will normally submit a design proposal before the contract is signed, and will continue with the development of the design in parallel with construction.

1.2 Design and build can be contrasted with traditional procurement in that, with the traditional route, the contractor will normally take on little or no design responsibility. The employer will therefore appoint an architect and other consultants to develop the design and take the project through all the RIBA Plan of Work stages, including obtaining statutory permissions and preparing detailed production information, before tenders are invited from contractors.

1.3 The design and build route involves the contractor from an earlier stage. How early can vary considerably in practice, from situations where the contractor is involved soon after a decision to proceed with a building project has been taken, to situations where the employer engages a design team to prepare a detailed set of proposals, and the contractor is engaged to complete only the technical details and to construct the project.

1.4 The key advantages of the design and build route for the employer are that it provides a single point of responsibility for both design and construction, that there is a single price which covers design and construction, and that no further design information is required from the employer once the tender is let. In addition, as design proceeds in parallel with construction, the overall programme is normally shorter than when following the traditional procurement route. Where the contractor is involved in the design from an early stage, this will normally ensure that the developing design is efficient in terms of ‘buildability’, and some of the resultant savings will be passed on to the employer.

1.5 A key disadvantage for the employer is that there is little control over the details of the developing design, and therefore over the ultimate result. In contrast, under traditional procurement, the design is finalised to a high level of detail prior to tender, and there is full control over any subsequent developments. In addition, under most design and build contracts, any changes to the employer’s requirements will result in heavy costs to the employer. Any assumption that this route gives better price certainty than traditional procurement should therefore be questioned. Under both routes, certainty will depend on a wide variety of factors, in particular how detailed the information is at tender stage and how restrained the employer is in requiring amendments.

1.6 In design and build procurement, advice given by the contractor to the employer will not be ‘independent’, as it would be in the case of professional advice under traditional procurement, where a consultant team is directly engaged by the employer, ensuring that the employer’s interests are served. If the employer decides to engage independent consultants in the initial stages, and then to retain these during the construction phase, this will result in some duplication of fees as the contractor will have already included amounts for developing the design in its tender.

1.7 Design and build contracts first became popular in the UK during the 1970s, and the Joint Contracts Tribunal (JCT) produced the first standard form for design and build, ‘With Contractor’s Design’ in 1981 (WCD81). Other JCT forms that may be used in a design and build context are the Major Project Construction Contract and the Constructing Excellence Contract. Other forms that are currently available and can be used in a design and build context are NEC3 and the FIDIC Yellow Book.

1.8 Design and build has remained popular since it was first introduced, accounting for around 40 per cent of construction projects in the UK (assessed by value, not number¹). Its popularity somewhat levelled off during the 1990s, as in some cases it was found that the final result was not of the expected quality. In addition, newer forms of procurement, such as management contracting, attracted a lot of interest. However, its use has increased over the past few years, especially on larger projects. Design and build is used frequently in the context of public procurement, for example in relation to private finance initiative (PFI) arrangements, and has therefore undergone something of a revival, which shows no signs of abating.

1.9 In larger construction programmes a design and build contract may be linked to an umbrella framework agreement, or used in connection with single-project partnering. Originally developed in the private sector, this is increasingly used also in the public sector, and DB16 includes provisions that reflect this context. There is reference to a framework agreement, which would be used alongside the form. As an alternative, in cases where there is no partnering agreement, several of the optional supplemental provisions, such as collaborative working and key performance indicators, reflect a partnering ethos and could be used as a basis for single-project partnering.

1.10 Design and build often, although not necessarily, involves a two-stage tender process. The tender is split into two stages when insufficient information is available before the first tender period. The first stage will involve the submission of a tender sum and limited information regarding the design. The tender sum is based on preliminaries, and the contractor is asked to calculate a percentage overhead profit of the contract value. The second stage will normally involve negotiations regarding the tender and the submission of more detailed design proposals in order to reach an agreed contract sum.

1.11 As the contractor will normally be advising the employer during this phase, it is good practice to enter into a contract to cover the period. The JCT publishes a Pre-Construction Services Agreement (General Contractor) (PCSA), which is ‘designed for appointing a contractor to carry out pre-construction services under a two-stage tender process’, and a similar form for use with specialist contractors who may be providing advice during this stage (PCSA/SP). Although these are a useful way of engaging a company, it should be noted that they contain a provision that the contractor/specialist will not be liable for design advice given unless they are subsequently appointed for the construction phase, a proviso that could leave the employer in a difficult position should the advice later prove to have been negligent.

1.12 During the second stage of the tender process, the contractor is not in competition with any other contractors. This situation can make the process of establishing a contract sum problematic, but it is unwise to begin construction without a firm price in place (Plymouth and South West Co-operative Society Ltd v Architecture Structure and Management Ltd; Trustees of Ampleforth Abbey Trust v Turner & Townsend Project Management Limited). In addition to the general risk associated with proceeding on a letter of intent, it should be noted that certain obligations in DB16 depend on the contract being executed, for example to provide collateral warranties.

1.13 Where single-stage tendering is used, all information regarding the design proposals and the pricing breakdown will be submitted with the tender, and a lump sum figure will be tendered, although it will often be subject to post-tender negotiation. Details of recommended procedures for design and build tendering can be found in the JCT’s Tendering Practice Note 2012 (JCT, 2012).

The architect's role

1.14 The architect may be involved in design and build procurement in one of several ways, e.g.:

• as a consultant to the employer during the initial stages of a project (advising on or formulating the employer’s requirements, preparing an outline design and specification if needed, appraising potential contractors and assessing tenders);
• as an adviser to the employer during construction (advising on whether the developing design prepared by the contractor appears to meet the employer’s requirements, on the effect of changes to the design and on the execution of the work);
• as the ‘employer’s agent’ acting on behalf of the employer in respect of the construction contract;
• as a consultant to the contractor (preparing feasibility studies and design proposals, preparing contractor’s proposals for tender and developing the design following tender to meet the employer’s requirements).

1.15 Sometimes the architect transfers from the role of employer’s consultant to that of contractor’s consultant around the time that the design and build contact is entered into. This transfer is fraught with legal and practical difficulties. Two distinct ways of making this transfer are detailed below.

Novation

1.16 In this arrangement, the contract between employer and architect will be replaced by a contract on identical terms between the architect and the contractor. A simpler (although less accurate) way of describing the process is that the contractor will replace the employer as client under the original appointment. The contractor accepts all the obligations and liabilities that had formerly been the employer’s under the appointment, and the architect’s prior and future obligations/liabilities are now owed to the contractor. The architect will have no liability to the employer, including for any mistakes made earlier while working for the employer (unless a warranty is entered into). A deed of variation to the appointment is required to reflect this change, which should include any necessary or preferred alterations. All three parties enter into a novation agreement.

Consultant switch

1.17 In this arrangement, the original appointment with the employer as client is brought to an end and a new appointment is entered into between the architect and the contractor. A supplementary agreement between all three parties is necessary to permit this change. The architect will normally remain liable to the employer for any breach of duty under the earlier appointment, but will not be liable to the employer for any default in services performed for the contractor (unless an architect–employer warranty is entered into).

1.18 It is common practice for the term ‘novation’ to be used for both of the above methods of transfer, but this is an inaccurate use of the term, which has a specific legal meaning. Such inaccuracies can cause confusion in practice, since, as can be seen from the above descriptions, ‘consultant switch’ and ‘novation’ are quite different processes with different consequences for the architect in terms of liability. The difference was highlighted in the case of Blyth and Blyth v Carillion, where a contractor unsuccessfully sought to claim against the design team for mistakes made prior to a novation. Employers, consultants and, particularly, contractors should study the implications of this case carefully before entering into any consultant switch arrangement.

1.19 From the architect’s point of view, making this transfer can involve many awkward legal and practical problems. It is often the employer’s hope that, by arranging for this transfer to take place, it will retain control over the developing design through an ongoing link with the architect. However, the architect will in no sense be acting for the employer, as would be the case under traditional procurement. The architect should understand, and explain to the employer, that, from the moment the switch or novation takes place, the contractor takes over as the architect’s client, and that, in future, any communication will be either through the contractor or approved by the contractor. For example, if the contractor sets out requirements for the developing design, this is a matter between the architect and the contractor, and should not be passed on to the employer, even if the architect is less than enthusiastic about these requirements. If the architect is aware that the employer has made a request or instructed a change, the architect has no right to incorporate this into the design until it is passed on by the contractor. In short, the architect will be putting the contractor’s, and not the employer’s, interests first. The JCT Practice Note CD/1A (see paragraph 2.5) put it in this way:

1.20 Although it may not appear to be the case at first sight, the employer may be in a better position if it retains the architect to act as consultant and/or agent throughout the project, than if it attempts to retain control through the difficult and complex system described above. The architect, too, should be aware that he or she may be in a better position to influence the developing design by advising the employer on submissions from the contractor than by working for the contractor directly. Alternative arrangements, whereby the employer and contractor simultaneously engage the architect’s firm to provide services in relation to the project are highly questionable, not least because the interests of the employer and the contractor are frequently opposed. Even if the device of a ‘Chinese wall’ is used, it is unlikely that the firm can avoid prioritising one party or the other in the advice it gives.

1.21 Whatever form the architect’s involvement takes, it is very important that the terms of engagement are drawn up with great care. The architect should:

• ensure that the terms are acceptable to his or her professional indemnity (PI) insurers;
• avoid taking on any ‘fitness for purpose’ liability (see below);
• ensure that liability to the employer under any warranty is not greater than liability to the contractor;
• ensure that liability to the employer under any warranty is not greater than that owed by the contractor to the employer.

1.22 The RIBA Standard Agreement 2010 (2012 revision): Architect may be used as the basis for an agreement with the client to provide design or other services in design and build procurement (refer to the Guide to RIBA Agreements 2010 (2012 revision) for information).² The RIBA also publishes a supplementary Contractor’s Design Services Schedule (SupCD-07), which covers the subject of the architect as contractor’s consultant.

1.23 The Construction Industry Council (CIC) publishes a standard form of novation agreement, a standard form warranty and helpful guidance. When entering into such agreements, the terms should normally be checked with the consultant’s PI insurers, and, in most instances, particularly when agreements are on non-standard forms, it is sensible to take additional legal advice. It is particularly important to check for obligations in relation to the timetable for provision of information to the contractor (see Royal Brompton Hospital v Frederick Alexander Hammond and CFW Architects v Cowlin Construction Ltd) and to identify any non-standard terms and conditions.

1.24 If the architect is to act as the employer’s agent, the terms of appointment must give the architect at least the degree of authority that the employer is given under the design and build contract. It is important that the agency agreement is put into writing, again with legal advice.

1.25 Architects who are more accustomed to working in a traditional procurement environment often fall into one of several traps, which they must take care to avoid. One has already been mentioned – the tendency to continue to treat the employer as client after switching to work for the contractor. Another common problem arises where the architect, while retained by the employer, assumes an authority under the contract to which the architect is not entitled. If the architect does this, in some circumstances the contractor may be entitled to treat the architect as the employer’s agent, particularly if the employer appears to endorse this behaviour. The employer will then be liable for the architect’s actions, and may, in turn, seek to claim losses from the architect. A third problem occurs when, after being appointed as agent, the architect adopts an approach that would be appropriate for an independent administrator in a traditional contract. Not only are the roles quite different, but the specific tasks to be performed differ widely in many cases from the normal duties of a contract administrator. Altogether, the architect should proceed with great caution when appointed in design and build procurement, and make no assumptions about the actions he or she should be taking.

Some general principles of design liability

1.26 Before becoming involved in design and build procurement, it is obviously important to understand some of the basic principles of design liability. Standard forms of contract and appointment will often set out specific provisions regarding design liability, but these have to be understood in the legal context within which they operate. A key point is to determine whether any design liability incurred is a ‘fitness for purpose’ or ‘reasonable skill and care’ level of liability.

1.27 Under the Sale of Goods Act 1979 as amended by the Sale and Supply of Goods Act 1994, all contracts for the sale of goods contain implied terms that the goods sold will be of satisfactory quality. The Unfair Contract Terms Act 1977 stipulates that this requirement cannot be excluded from any consumer contract, and can only be excluded in other contracts insofar as it would be reasonable to do so. If parties have included terms which purport to exclude this liability, the terms will be void. Similarly, if the use to which the goods are to be put is made clear to the seller, the seller must supply goods suitable for that use, unless it is clear that the buyer is not relying on the seller’s skill and judgment. So if, for example, a DIY enthusiast asks a builders’ merchant for paint suitable for use on a bathroom ceiling, the merchant must supply suitable paint, regardless of what is written in the contract of sale. If, however, the buyer were to specify the exact type of paint, the seller would no longer be liable, as the buyer is not relying on the seller’s advice.

1.28 Contracts for construction work are usually for ‘work and materials’ (as opposed to supply-only or install-only) and, as such, fall under the Supply of Goods and Services Act 1982. This implies similar terms to those described above in relation to any goods supplied under such a contract. Therefore, a contractor would normally be liable for providing materials fit for their intended purposes. If, however, an employer or architect specifies particular materials, the contractor would be relieved of this liability.

1.29 The obligation to supply goods or materials fit for their intended purpose would extend to a product or structure which a contractor had agreed to design and construct (Viking Grain Storage Ltd v T H White).³ In all cases, the liability of the contractor will be strict; in other words, the contractor will be liable if the goods, element or structure is not fit for its intended use, irrespective of whether the contractor has exercised a reasonable level of skill and care in carrying out the design. This is a more onerous level of liability than that assumed by someone undertaking design services only, where they would normally be required to demonstrate that they had exercised the skill and care which could reasonably be expected of a competent member of their profession. In other words, if an employer can prove that a building designed and constructed by a contractor is defective, then this will normally be sufficient proof that there has been a breach of contract, whereas, in the case of a design professional, the employer would also have to prove that the professional had been negligent.

1.30 An architect involved with design and build should be careful not to take on a ‘fitness for purpose’ obligation, as it is unlikely that any PI insurance policy will cover this level of liability. In the case of Greaves and Co. Contractors v Baynham Meikle, an architect was found to have assumed such a liability, but it is important to note that this was implied on the particular facts and would not normally be implied as a matter of law.

1.31 It should be noted that in clause 2.17.1 of DB16 the contractor’s liability is limited to that of an architect or other professional designer, i.e. to the use of reasonable skill and care. This means that, in order to prove a breach, the employer would need to prove that the contractor had been negligent. If, for example, the contractor is required to design a heating system to heat rooms to a certain temperature, and, when installed, the system fails to do so, this fact alone would not be enough to prove that there had been a breach of contract. The employer would need to prove that the contractor had failed to use the skill and care expected of a professional person. However, this is dependent on the express terms being unamended.

1.32 Where the contractor carries out work in connection with a dwelling, including design work, this will be subject to the Defective Premises Act 1972. This states that ‘a person taking on work for or in connection with the provision of a dwelling … owes a duty … to see that the work which he takes on is done in a workmanlike or, as the case may be, professional manner, with proper materials and so that as regards that work the dwelling will be fit for habitation when completed’ (section 1(1)). This appears to be a strict liability and is owed to anyone acquiring an interest in the dwelling. Reference to this legislation and the resulting liability is made in DB16 (cl 2.17.2).