Our law firm, ConstructionRisk Counsel, PLLC represents and assists design firms that are seeing increased claims being made against them by their contractor clients on design-build projects – based on alleged negligence in preparing preliminary designs on which the design-builder relied when preparing its Guaranteed Maximum Price (GMP) proposal to the project owner. We have defended engineers against several such claims. What we are finding is that as the contract terms and conditions between the project owner and the design-builder are getting increasingly onerous, the design-build contractors are incorporating those nasty terms and conditions down into the design subcontracts. When a design-builder gives up its right to rely upon information and documentation provided by the Owner, or when it gives away other rights normally provided to a contractor, that contractor is more likely to make a claim against its design subcontractors to attempt to recover its economic losses. We often see claims alleging that the designer should have provided more detailed and more accurate preliminary plans. What can be done to protect against such claims?
When we review design-build contracts and the designer’s proposed subcontract, we like to use DBIA documents, slightly modified to manage the risk in an insurable manner. Owner-generated design-build forms may create so much risk that it is not tenable for a designer to engage in design subcontracts under such contracts. What we do:
1) When negotiating the Teaming Agreement between the designer and the design-build contract, it is important to simultaneously negotiate the subcontract form terms and conditions and attach the proposed subcontract to the Teaming Agreement.
2) The Teaming Agreement should clearly state that only preliminary designs are being provided at this stage and that the standard of care is what applies to those limited types of designs. Here is a clause we routinely try to negotiate into the Teaming Agreement:
Standard of Care for Preliminary Design Services (Teaming Agreement).
“Designer will provide the services required in accordance with the skill and care which would be exercised by comparable qualified design professionals performing similar preliminary services at the time and place such services are performed. The Parties recognize that the bid quantity estimates for the construction of the Project will be based on preliminary design calculations and past designs prepared for similar projects. Actual quantities determined after final design are expected to vary from the bid quantities derived from the preliminary design. Contractor will compute the bid quantities as accurately as possible and will estimate the anticipated tolerance for each item. Contractor shall be ultimately responsible for the determination of quantities to be included in the proposal and shall determine the appropriate amount of contingency to be included in its proposal to cover variations in quantities and other risk factors. Designer makes no warranties, express or implied, under this Agreement or otherwise, in connection with Designer’s design services.”
(3) Include a limitation of liability clause in the Teaming Agreement specific to the preliminary services provided. This should be a much smaller LoL than what might be negotiated into the subsequent subcontract. Note that it is important that this LoL clause survive and be applied to eventual claims arising out of these preliminary services.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 24, No. 4 (May 2022).
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