Common Delivery Methods

Chapter 3
Common Delivery Methods

3.1 Common delivery methods: Main features

A construction project is a unique individual arrangement of processes that involves various participants with different tasks who are constrained by various factors, hazards and related risks. With that in mind, the right delivery method (form of construction project management and organization) should be selected—with the employer taking the lead role in this decision.

In general, three basic delivery methods are most frequently encountered. Their names may differ, depending on a particular author and country of use. They are most frequently called:

  • General Contracting or Design-Bid-Build (often abbreviated as DBB). General Contracting is a traditional form of project delivery where the employer is responsible for the design that includes drawings, specifications and bill of quantities with rates and prices quoted in the contractor’s bid at their risk. It is a re-measured contract with the works measured on actual need and paid on the basis of monthly instalments for works done. Contract administration is done by the engineer.
  • Design-Build (often abbreviated as DB), including Engineer-Procure-Construct (EPC). The Design-Build delivery method is typical of contractor design responsibility with the employer’s requirements specifying only the purpose, standards, scope and performance criteria for the works. It is a lump sum price contract without a bill of quantities. Payments are made in accordance with a payments schedule. With the Design-Build delivery method, the employer gains higher predictability of price and time for completion. The contractor assumes higher risk, so their bid price usually contains a risk surcharge.
  • Construction Management (often abbreviated as CM), including CM At-Risk and Engineer-Procure-Construction Management (EPCM). The Construction Management delivery method assumes that the employer concludes direct contracts with particular contractors on a lump sum basis. For the sake of their coordination, a construction manager is hired by the employer on a professional service agreement basis. The construction manager is paid on a cost plus basis, so the general contractor’s surcharges are restricted. The construction manager is liable for bad management, planning and coordination but not for bad performance by particular contractors.

‘Multiple-Prime Contracts’, Partnering and Alliancing as separate delivery methods are sometimes found as well.

It is impossible to define the best method and, as a result, hybrid arrangements often tend to appear. Obviously, the most suitable delivery method has to be formulated for every particular project. Financing conditions, employer priorities, project difficulty, the socio-political situation and many other factors are relevant variables which need to be considered.

Particular delivery methods differ mainly in respect of the following:

  • design responsibility;
  • contract price determination;
  • contract administration approach; and
  • risk allocation and admission of claims.

3.1.1 Design responsibility

In terms of design responsibility, we encounter main two options:

  • The employer is responsible for preparing a detailed tender design (drawings, specifications and bill of quantities). Under such an arrangement, the participants of a particular construction project will usually have to deal with a conflict among designers because the contractor usually adjusts the tender design to suit their own implementation design.
  • Contractor’s ‘single point responsibility’ for the design and works. The employer submits requirements with minimal detail at the tender stage, stating only purpose, scope and other technical criteria (such as performance criteria) often on a fitness-for-purpose basis.

3.1.2 Contract price determination

In terms of contract price determination, there are, in general, three main payment bases:

  • lump sum;
  • re-measurement;
  • cost plus.

3.1.3 Contract administration

In terms of contract administration, there are three usual arrangements with the following people:

  • the engineer: this is the employer’s agent whose job is to monitor and supervise the work and make fair determinations on certain matters, e.g. on claims for extensions of time and additional payment. The engineer issues certificates.
  • the employer’s representative: the contract is administered directly by the employer or their representative. If the contractor is to achieve certainty of time and price stipulated, then the involvement of the employer must be limited to a minimum during construction.
  • the construction manager: the employer’s agent hired to coordinate all processes on a professional service agreement basis without direct responsibility for design and works.

3.1.4 Risk allocation and admission of claims

In general, there are three basic rules of balanced risk allocation:

  1. allocate risks to the party best able to manage them;
  2. allocate the risk in alignment with project goals; and
  3. share risk when appropriate to accomplish the project goals.

In certain circumstances, the risk allocation does not need to be balanced but still needs to be efficient. Under such arrangements an efficient risk allocation can still exist even where the majority of risk is shifted to the contractor and almost no claims are allowed. For example, where it is possible to control the risk and where there is enough time to prepare the bid and an allowance is made for an appropriate risk surcharge in the bid price.

Inefficient risk allocation can therefore do the following:

  • lead to project complications;
  • have a negative influence on price, time and quality; and
  • lead to speculative claims, disputes, potential contractor bankruptcy and early project termination.

3.2 General contracting

General contracting, and design-bid-build presume a higher level of employer responsibility for the design by implying that the employer will bear responsibility for its preparation and execution.

Tender documents include detailed designs which contain drawings, technical specifications and a bill of quantities. The contractor will stipulate particular rates and prices in its tender quotations (which become binding during realization), with the risk of errors in estimation to be borne by the contractor. The amount of work to be carried out is measured to reflect the reality necessary for proper completion of the work. It is, therefore, a type of ‘re-measurement contract’. The main advantage of general contracting is that it enables the use of competitive bidding to select the contractor. Many employers are pushed by public procurement law or simply prefer to select the contractor on the basis of lowest price. For this reason, general contracting is the most convenient method. This approach is traditional and well known, more user-friendly, familiar and comprehensible to the participants in international construction projects. In many countries, it is in fact the only delivery method used in public procurement projects—even in cases where different delivery methods would be much more appropriate.

The following are often taken as given in general contracting:

  • The main contractor will execute a part of the contract through their own capability.
  • The employer will prepare the design and be responsible for it. A substantial part of the design will have to be completed before the contractor is selected and then finalized via a detailed design.
  • Standards and quantities are defined in the contract and the contractor will perform the activities as scheduled in the bill of quantities.
  • An engineer will be appointed.
  • An independent quantity surveyor is appointed to supervise the re-measurement of works.
  • The contractor executes the work, being responsible for compliance with the standard of workmanship and abiding by the engineer’s instructions. The works carried out within a particular time (usually a month or 28 days), as surveyed and approved by the engineer in the contractor’s statement are invoiced.
  • It is not the top priority to execute the works as quickly as possible.
  • Risk allocation is balanced and respective claims admitted.

3.3 Design-build

According to the design-build (DB) delivery method, the contractor is expected to be responsible for the design, execution and sequencing of works. The amount of design works depends on a particular project. Sometimes it is also up to the contractor to obtain the building (or other) permits and include this in their package of services.

As a part of the tender documents, there are the employer’s requirements which specify the purpose, scope, design requirements and/or additional technical criteria for the project. The employer’s requirements will usually identify the parts of the works to be designed by the contractor and the criteria the design will reflect (such as the shape, dimensions, technical specifications and standards). The employer’s requirements must be clear and unambiguous. The contractor will submit a proposal within their bid based on the employer’s requirements.

A bill of quantities is sometimes omitted in DB projects and there is no re-measurement of works actually carried out. As mentioned, invoicing will follow the payment schedule or can be contingent upon the completion of predefined parts of the work.

In the case of DB, price bears the characteristics of a lump sum. The bid price tends to be higher than in general contracting, as greater risk passes to the contractor. The employer, however, has an option to commence the works earlier because of the overlap of the design and construction phases. Furthermore, with DB, the probability is higher that the initial estimate of the bid price will be close to the actual final price. This is because the single point contractor’s responsibility for work realization limits contractor claims. The employer also has the added advantage of making use of the contractor’s expertise in design preparation. This can lead to a decrease in the total price. The contractor is responsible to produce a final work fit for required purpose. This may be based on express contractual clause or in some jurisdictions DB contracts may be subject to an implied term of fitness for purpose (for different opinions see the case Trebor Bassett Holdings Ltd v ADT Fireand Security plc [2011] EWHC 1936 (TCC); [2011] BLR 661 (CA) [2012] EWCA Civ 1158).

The following are often taken as given under DB:

  • Responsibility for design rests with the contractor.
  • DB is not suitable for projects where numerous variations are expected and requested by the employer during realization.
  • General contracting provides employers with more control over a construction project. Employer priority may be to waive such control if they decide to implement DB.
  • More certainty that the quoted bid price will reflect the completion price. The DB method is not recommended for high risk projects, as it is inefficient to allocate risks to the contractor where the contractor cannot control these risks.
  • DB will allow quicker commencement of realization by making the overlap in the design and realization phases possible.
  • Risk allocation is balanced, but some risks are shifted onto the contractor such as the risk of design errors and the risk of estimation errors in rates and prices in the contractor’s bid. Claims are admitted but narrowed respectively.

3.3.1 Design-build procurement

The evaluation of bidders is an indisputable problem with the DB method when used in a public procurement context. The bill of quantities is most frequently priced under general contracting, with the lowest price being the only crucial criterion for succeeding in a tender (‘competitive bidding’). This approach is popular because it is very easy and traditional. Also other technical parameters are used in the evaluation of tender participants using the DB method and the subjective nature of selecting individual proposals cannot be eliminated. The problem is how to ensure transparent and objective evaluation when the individual bids are matched against each other.

Procurement of a design-build contract is often a very complex process with plenty of potential pitfalls for inexperienced or unprepared employers. The following issues may be encountered (Clark, 2013):