This is the third in a series of three articles about the 1996 Edition of the AIA’s Design/Build Standard Forms of Agreement. The first article contains an overview and discusses the Owner-Design/Builder Agreement, AIA Document A191. The second discusses the Design/Builder-Architect Agreement, AIA Document B901. And this third article discusses the Design/Builder-Contractor Agreement, AIA Document A491.
This article is an abridged version of Federal Publications’ May 1997 Construction Briefings entitled “A User’s Guide to the 1996 AIA Design/Build Standard Forms of Agreement,” © 1997 by Federal Publications, Incorporated, written by Messrs. Donohue and Scott. A complimentary copy of Construction Briefings may be obtained by contacting our firm. Subscriptions to Construction Briefings are available from Federal Publications, Incorporated, 1120 20th Street, N.W., Washington, D.C. 20036, telephone (800) 922-4330, and from Federal Publications’ Website at http://www.fedpub.com.
This contract form allows the Design/Builder to delegate some of its budget, scheduling, and construction responsibilities to a Contractor. The contractor is included in the process of designing and planning the project, and meets with the Design/Builder and the Architect to review alternate approaches to design and construction, materials, equipment, and time requirements. A491, Design/Builder-Contractor Agreement, Part 1 Agreement, see ¶¶ 2.1.3, 2.1.4 and 2.1.6; and Part 2 Agreement, see ¶ 2.1. The Contractor thus is included in the project team from the beginning. This is one of the benefits of design/build contracting. As in the other agreements, this contract form contains a Part 1 Agreement, which covers the preliminary design, budget, and schedule, and a Part 2 Agreement, which covers the final design and construction of the Project.
• Contractor’s Duties
The Contractor’s duties during the preliminary design phase are to provide a preliminary evaluation of the Owner’s proposal, to consult with the Design/Builder and Architect concerning alternative approaches to design and construction, and to make recommendations concerning construction feasibility, time requirements and cost estimates. See ¶¶ 2.1.2 through 2.1.4. The Contractor’s work product under the Part 1 Agreement therefore is a detailed price and schedule proposal delivered to the Design/Builder to be included in the Design/Builder’s Proposal to the Owner.
The Contractor is made responsible for preparing and updating the proposed project schedule, and for making recommendations concerning phased construction, these for review by the Architect and the Design/Builder. See ¶¶ 2.1.5 and 2.1.6. Upon receipt of the Architect’s Concept Design documents, the Contractor prepares a preliminary cost estimate, followed by a detailed final estimate of Construction Cost when the Contractor later receives the Architect’s Preliminary Design Documents. See ¶¶ 2.1.7 and 2.1.8. The Part 1 Agreement provides that the Contractor’s estimate shall be either a Fixed-Price Proposal or a Guaranteed Maximum Price Proposal, with breakdowns of estimated Construction Costs, a contingency to cover Reimbursable Costs, and an amount for the Contractor’s fee, all for review by the Design/Builder and Architect. See ¶¶ 2.1.9, 2.1.10, and 2.1.11. The Contractor’s estimate is in the form of a Proposal to the Design/Builder. This would form a part of the Design/Builder’s Proposal to the Owner under Part 1 of the Owner-Design/Builder Agreement. If the Design/Builder accepts the Contractor’s Proposal, the Design/Builder and the Contractor execute the Part 2 Agreement. See ¶ 2.1.12. The Part 1 Agreement does not provide for any other Additional Services by the Contractor, although a space is provided in paragraph 9.2.1 to specify any such Additional Services.
• Design/Builder’s Duties
The Design/Builder’s obligations to the Contractor are basically the same as they were to the Architect. The Design/Builder must provide timely decisions, approvals, timely information concerning the Owner’s objectives, schedules and constraints, and is to furnish surveys, geotechnical information, and subsurface information. See ¶¶ 3.1.1, 3.1.2, 3.1.3, 3.1.6, 3.1.7 and 3.1.8. This information is important and must be accurate since the Contractor will likely rely on it. The Design/Builder thus should specify in the Owner-Design/Builder Agreement the consequences of inaccurate site information provided by the Owner.
The Design/Builder agrees to provide the Architect’s concept and Preliminary Design Documents to the Contractor to prepare the Price Proposal. See ¶ 3.1.5. Upon the Design/Builder’s acceptance of the Contractor’s Price Proposal, the Design/Builder agrees to have the Architect revise the drawings and specifications to reflect the assumptions and clarifications contained within the Contractor’s proposal. See ¶3.1.9. This type of “constructability review,” in which the Contractor reviews the design prior to starting the work, is one of the benefits of the Design/Build contracting method.
• Time of Performance
The time for the Contractor’s performance under the Part 1 Agreement is stated in paragraph 10.1, and is based on the overall time for performance established in the Part 1 Agreements between the Owner and Design/Builder and the Design/Builder-Architect Agreement.
Article 9 of the Part 1 Agreement provides the basis of compensation for Basic Services, and subsequent Progress Payments. See ¶¶ 9.1, 9.1.2 and 9.1.3. Compensation for Additional Services and Reimbursable Expenses, as well as interest on late payments is also specified in Article 9. See ¶¶ 9.2, 9.3 and 9.5.
Article 5 requires the Design/Builder to pay the Contractor within 20 days of receipt of the Contractor’s Application for Payment. See ¶ 5.3. The Owner-Design/Builder Agreement requires the Owner to pay the Design/Builder within 10 days of receipt of an Application for Payment. See A191, Part 1 Agreement, ¶ 5.1.2 Thus, the Design/Builder is given ten additional days in which to submit its own Application for Payment to the Owner, and to distribute payment to the Contractor upon receipt of payment. In contrast, the Design/Builder-Architect Agreement does not specify any number of days when payment is due from the Design/Builder to the Architect. The parties must add this themselves. See B901, Design/Builder-Architect Agreement, Part 1 Agreement, Article 5.
The Contractor’s ultimate work product under the Part 1 Agreement is a Fixed-Price Proposal or Guaranteed Maximum Price Proposal to build the Project based on the Architect’s Preliminary Design Documents. The Part 2 Agreement is executed after the Design/Builder accepts the Contractor’s Price Proposal. The Project is actually constructed under the Part 2 Agreement.
• Contractor’s Duties
The Contractor agrees to continue its Part 1 Agreement services of evaluating the Owner’s program, schedule, budget, and consulting with the Design/Builder and Architect concerning approving the design construction.
The overall time for the Contractor’s performance in the Part 2 Agreement is based on the time stated in the Part 2 Agreement between the Owner and Design/Builder. See A191 ¶ Owner-Design/Builder Agreement, Part 2 Agreement, ¶ 14.1. The parties state the Contract Time for completion of the Project in Article 3. You should ensure that these provisions are consistent with the time provisions in the Owner-Design/Builder Agreement.
The Contractor’s Price Proposal may be in the form of a Fixed-Price or a Guaranteed Maximum Price. See A491, Part 1 Agreement, ¶ 2.1.9. The Contractor’s Price Proposal from the Part 1 Agreement becomes the Contract Sum expressed in Article 4 of the Part 2 Agreement. A Fixed Price Contract Sum may be expressed in Paragraph 4.1; a Guaranteed Maximum Price may be expressed in Paragraph 4.2.
• Fixed-Price Contract Sum
The bulk of the Part 2 Agreement pertains to cost-reimbursement provisions in the event the Contractor’s Price Proposal is for a Guaranteed Maximum Price. Thus, where the Contract Sum is a Fixed-Price, the bulk of the Agreement is not applicable. See ¶ 4.1.2. For a Fixed-Price Contract Sum, there is no changes provision, for example. See Article 5, “Changes in the Work” is made inapplicable, by ¶ 4.1.2, where the Contract Sum is a Fixed-Price. Thus, where the Contract Sum is a Fixed-Price in this agreement, it is an absolute obligation by the Contractor to build and deliver a completed Project for the Fixed-Price Contract Sum. Such an unqualified obligation is uncommon in construction. The parties should weigh the risk and benefits of such an unqualified obligation before entering into the contract.
• Guaranteed Maximum Price
Many Design/Build Projects are built on a cost-reimbursement basis, with a Guaranteed Maximum Price. The Part 2 Agreement provides for such a Guaranteed Maximum Price in Paragraph 4.2 and Articles 5 though 12. The Contractor agrees with the Design/Builder that the Cost of the Work, as defined in the Contract, will not exceed the Guaranteed Maximum Price, subject to adjustment for Changes. See ¶ 4.2.2.
The Cost of the Work is defined in Article 6 to include Labor Costs, Subcontract Costs, cost of materials and equipment incorporated in the construction, construction materials, equipment and temporary facilities, and other specified miscellaneous costs, such as building permits, testing and inspection fees. See ¶¶ 6.1.1-6.1.6. Article 7 enumerates costs that are not to be reimbursed, primarily consisting of the Contractor’s home office and field office overhead expenses. See ¶ 7.1.
Since this is a cost-reimbursement method of payment, all discounts and refunds are to accrue to the benefit of the Design/Builder, not the Contractor, and payments for subcontracts are at cost. See Article 8. The Contractor generally may select its own subcontractors with the approval of the Design/Builder. The Design/Builder may recommend a specific subcontractor to the Contractor, but may be required to issue a Change Order to increase the Guaranteed Maximum Price if that subcontractor’s price is higher. See ¶¶ 9.1 and 9.2. Subcontracts are not to be on a cost-plus basis without the prior consent of the Design/Builder. See ¶ 9.3.
Progress Payments are to be made to the Contractor on a monthly basis, and the parties agree to specific dates by which Applications for Payment are due and payment is due by the Design/Builder. See ¶¶ 11.2 and 11.3. The Contractor is required to submit the appropriate invoices, check vouchers and other backup for the costs to be reimbursed, and payment is to be made in accordance with a schedule of values and an allocation of the Guaranteed Maximum Price specified in the Contract. See ¶¶ 11.4 and 11.5. The parties may provide for retainage from Progress Payments if they wish. See ¶ 11.4.4.
Final payment is due when the work has been completed, a final Application for Payment and final accounting of the Cost of the Work has been submitted and approved by the Design/Builder, and the Architect has issued a final Certificate for Payment. See ¶ 12.1. Final payment is due 30 days after the Architect’s Final Certificate for Payment. The Contractor is required to keep detailed cost accounting records and these records are to be reviewed prior to final payment within 30 days after delivery by the Contractor. See Article 10 and ¶ 12.3.
• Other Provisions
Article 14 specifies the payment due on termination at the convenience of the Design/Builder. Article 15 enumerates the Contract Documents governing the construction of the Project. The AIA’s General Conditions are incorporated into the Part 2 Agreement, by Paragraph 15.1.1, but the term “Owner” as used in the General Conditions is defined to mean the Design/Builder. Again, this is a fairly general incorporation of the General Conditions, and you may wish to clarify it for your project. The parties may also enumerate supplementary or other conditions to be incorporated in the Part 2 Agreement, and they may enumerate the specifications, drawings and addenda to be included in the Contract. See ¶¶ 15.1.2 and 15.1.3 through 15.1.6.
The AIA Design/Build contract forms provide a great resource for understanding the major risks and contractual issues involved in the expanding Design/Build marketplace. The agreements are straightforward, and they allocate the most common risks in Design/Build projects. They are somewhat complicated though, because Design/Build is a substantial undertaking. Thoroughly review and understand the agreements before you use them for a project. Make special efforts to delineate the Owner’s duties. We hope these articles will help you make better use of these forms.
— Daniel J. Donohue and John Randall Scott, Esq.
Copyright © 1998 Kilcullen, Wilson & Kilcullen. All rights reserved.