Underwriters are watchful for “Design/Build” contracts. If you feel like D/B projects are becoming more common, you’re correct! The concept emerged in the 1980s and was formally codified by the federal government in 1996 after two years of collaboration with the private sector. The Clinger-Cohen Act established a two-step procurement process for such work.
Some sureties balk at the additional risk their clients assume on these projects. Put simply, the contractor becomes responsible for both design and construction. In the event of a performance problem, this really cuts down on the finger pointing!
Bear in mind, it is the contractor (not the designer) who obtains the surety bond. On “contractor-led” D/B projects, the contractor hires a licensed and insured architect to perform the design work. Another option is to form a joint venture between the architect and contractor. In either case, a certain tension exists between these “partners” who have slightly different agendas, and this has implications for the surety – the guarantor of the project.
There is no denying we face unique risks on D/B contracts. Let’s review them.
- The designer must agree that their design (and subsequent revisions) will conform to the project budget “as bid.” Without this, the contractor could be forced to absorb the cost of design changes. Unprofitable contracts are more likely to go into default.
- Similarly, designers must agree to conform to the project schedule. They cannot make changes that require construction timelines unsupported by the contract. Such changes could force the contractor to choose between significant unreimbursed expenses or failure to complete on time.
- The design work must also conform to the project owner’s specifications at all times.
Design/Build contracts require some extra care, but can be bonded successfully. Underwriters need to have the proper procedures and expertise to make these evaluations.
The alternative: Design/Bid/Build
You may encounter contracts specifically called Design/Bid/Build. So is this another new thing we have to learn?!
No, actually D/B/B this is the traditional construction method where the project owner hires and directs the architect. It is nothing new but may be named as such to identify the project as not Design/Build.
We may not have known it by name, but we have been helping contractors bond Design/Bid/Build projects for years!
FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it! Call us with your next one.
Steve Golia, Marketing Mgr.: 856-304-7348
First Indemnity of America Ins. Co.
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