A Quick Guide to Design-Build Contract Responsibilities

Design-build is a capital project delivery approach where a single team is accountable for providing all design and construction services. Unlike conventional design-bid-build projects that rely on separate design and construction companies, the design-build method lets a project owner delegate all responsibilities to a single design-build company that facilitates a streamlined workflow from engineering to completion. A design-build contract holds a single design-build team accountable for the schedule, budget, and outcome of the project, thereby saving a project owner from delayed schedule and cost overruns that usually arise in conventional project delivery approaches. 

Below, we discuss the design-build contract responsibilities of project owners and contractors that ensure faster project delivery while allowing the potential for total cost savings.    

An Overview of Design-Build Contract Responsibilities

A typical design-build contract is a two-party contract between the project owner and the EPC contractor that outlines the general contractual obligations of both parties. Under specific circumstances when a specialty piece of equipment is required for construction, the equipment manufacturer can also be included in the contract. While the baseline document of the contract provides an overview of the general responsibilities of the involved parties, the appendix focuses on the project schedule, which defines milestone points. All of the parties are responsible for providing information for these milestone points. 

The following are some of the key design-build contract responsibilities of project owners and contractors distributed throughout the various stages of a capital project.

Front-End Planning

A design-build company isn’t necessarily selected before front-end planning occurs. However, bringing in a design-build contractor during the front-end planning stage helps analyze and evaluate the overall constructability, identify the risks and liabilities involved, and establish the scope of the project. By involving the EPC contractor, along with engineers and other consultants, during this stage, the existing structures can be better assessed before construction begins. After the project scope has been developed, the design-build contract includes the total cost of the project from design to construction that is reviewed, negotiated, and signed by both the project owner and the contractor.     

A design-build contract includes the common categories listed below. The contract takes a front-end design package and starts with detail design, going all the way through construction.

Detail Engineering and Design

One of the key responsibilities of a project owner is to provide detailed input on engineering and design specifications, including the equipment to be used in the project. These detailed piping and instrumentation diagrams (P&IDs) and highly disciplined engineering drawings are instrumental in keeping consistency between design and construction that further translates to completing the project within the predetermined schedule and budget.  

Procurement

A significant part of a project’s execution strategy is based on the procurement and delivery of materials and equipment. Procurement management relies heavily on third parties that require the contractor to establish a robust vendor management system with clearly defined roles and responsibilities of vendors, suppliers, manufacturers, and others. The design-build team needs to carefully plan the procurement schedule while considering long-lead equipment, material supply availability, market volatility, and production and shipping delays. Procurement delays directly impact a project’s schedule, resulting in change orders and costing the EPC contractor more money.      

Fabrication and Construction

In a design-build approach, the EPC contractor can parallelly start the construction of various components of the project while other working packages are still in the engineering or design phases. In this phase, the design-build contract responsibilities of an EPC contractor include designing heavy-lift plans, long-term preservation of critical rotating pieces of equipment, and the care and custody of construction equipment. The design-build team also needs to assess the accuracy of cost predictability in construction by considering the direct and indirect costs involved. The EPC contractor is also responsible for ensuring job site safety with a separate section of the contract dedicated to parameters such as Total Recordable Incident Rate (TRIR). 

The design-build contract responsibilities also facilitate better project controls and transparency between stakeholders by defining specific points in the contract where the project owner needs to provide feedback regarding the contractor’s role and responsibilities during the project’s lifecycle. These points are defined in the schedule that becomes an attachment to the contract and drives the project. The design-build contract also includes risk management measures such as liquidated damages and performance bonds in case the EPC contractor is unable to perform the established responsibilities. With such components, the project owner can ensure the design-build team is performing well on the project while meeting the schedule requirements.      

Design-Build Contract Components

Components often included in a design-build contract include insurance requirements, payment terms, expectations of the contractor, and project requirements. Each of these components is detailed further below.

• Insurance: In a design-build contract, the contractor may be required to maintain insurance that covers bodily injury, sickness or death, loss or damage to property, contractual liabilities, and motor vehicle third-party liability. The project owner may be required to provide builder’s risk insurance that covers all losses of or damage to property, equipment, or fabrications provided by the contractor. 
• Payment terms: Design-build contracts will usually include terms of payment, including what is required from the contractor in order to receive payment from the project owner (e.g. invoices). The costs included in the contract price will also be laid out and may consist of overheads, profits, transportation, handling, storage, and equipment. Payment terms may also include the right of the project owner to deduct from the contractor’s payment any money that is due from the contractor to the owner.
• Expectations of the contractor: The anticipated work and responsibilities of the contractor are detailed in the design-build contract. For example, the contractor may be required to provide procurement and fabrication services, on-site and off-site management, and delivery and transport scheduling of all equipment. Contractors may also be expected to ensure that all hired employees and subcontractors are suitable, fit, and appropriately trained for the type of work they will be performing. Additional responsibilities may include ensuring existing structures in facilities are protected from damage.
• Project requirements: The design-build contract will determine execution requirements for each phase of the project, including mechanical completion dates; materials, equipment, and vendors to utilize; design and engineering packages to be provided by either the contractor or project owner; and inspection and testing. 

Choosing an EPC Contractor Who Can Shoulder These Responsibilities

Design-build contract responsibilities are project-specific. Selecting an EPC contractor with proven experience using the design-build approach in capital project management helps set standards to meet performance and quality while providing cost and schedule certainty.

At H+M Industrial EPC, our in-house engineering and construction teams have more than 30 years of experience in delivering outstanding capital project management services to the chemical, energy, and terminal and logistics industries. We work with you to ensure your project is completed successfully.