The use of delegated design on projects can create many practical benefits. But it can also create additional pitfalls and risks for contractors accepting delegated design responsibilities. Recognizing and understanding these various considerations is important for contractors taking on delegated design roles. This article examines some of these considerations and provides practical advice to address them. However, this article does not cover the entire waterfront of delegated design issues, nor does it address every single potential pitfall or consideration. Rather, it highlights certain issues for contractors to consider on projects with delegated design components.
Under a traditional design-bid-build model, the contractor is generally entitled to rely upon the design it is given (which is typically complete). And the contractor is generally not responsible for defects or errors in that design (a concept often referred to as the Spearin doctrine, based on the famous case of that name). Typically, that design is prepared by the design professional of record (DPR), who remains responsible for the adequacy of that design.
However, there are various instances in which it might make more sense to “delegate” certain design components to a contractor. This is particularly true given the ever-increasing specialization of materials, processes, sub-components, etc. used on construction projects. And in certain instances, the contractor may be better positioned to develop select portions of a design, particularly if it is highly specialized in nature.
In that instance, the DPR generally provides the contractor with specific performance criteria for certain portions of the design. And the contractor must then actually develop that portion of the design to meet those criteria. Again, the contractor may be in the best position to develop that portion of the design—hence, its delegation to the contractor in the first place.
While a delegated design structure may allow for better project execution by allocating specific design responsibilities to the best-positioned parties, it can also create various pitfalls and other hurdles. And it is important for contractors to recognize these issues so that they can better address them during the contracting and execution phases of the project.
Practical Pitfalls
While a delegated design model can certainly offer benefits, it also creates additional practical pitfalls for consideration.
There are more moving parts to control (and more cooks in the kitchen), as additional entities beyond just the DPR become responsible for portions of the design. This can lead to a potential increased risk for design gaps, which then must be addressed during the execution of the project. This can then cause project delays and increased costs—subjects that often make for costly disputes.
To that end, while it may be relatively straight-forward to identify which components of the design were actually delegated (more on that below), many gray areas can still exist. For example, which party is responsible for areas of the delegated design that connect to, or otherwise interact with, other design components that remain within the DPR’s design scope? Sometimes, these interfaces can be complex. And it is not always clear who is responsible for these areas. And even if it is clear, there are still practical considerations regarding necessary coordination between the contractor and the DPR to address interfaces and other potential gray areas.
A delegated design model can also necessitate additional steps in the design process, which can also lead to delays in project execution. For example, because the DPR does not complete the delegated portion of the design, the owner must wait for the contractor to develop and submit those items. That process can take time, and it generally will not begin until the contractor has familiarized itself with the project and the subject performance criteria (and it can also take time for the DPR to fully develop the performance criteria for the contractor to use). In other words, delegated design creates additional steps in the design process. And these additional moving parts can create additional risk.
Further, if there is an issue with the delegated design portions, it may not be immediately clear which party is responsible for that issue. Did the contractor’s design contain an error? Was something in the original performance specifications incorrect? Something else? Again, with additional cooks in the kitchen, it can be more difficult to quickly resolve design-related issues and disputes. In turn, this can lead to project delays, increased costs, and a higher likelihood of formal claims and litigation.
Finally, liability questions can also arise when the DPR reviews and approves of delegated design components developed by the contractor. Does the DPR (or owner) assume some level of responsibility for the delegated design if it reviews and approves the design? Or does the contractor remain responsible? While contract terms may offer guidance, the answer is not always clear. And different courts have arrived at different answers to this question. In those situations, the analysis is usually driven by the specific language of the contract and the surrounding factual circumstances—in other words, the parties usually lack a clear set of brightline rules to apply. And that can lead to uncertainty (and increased risk associated with that uncertainty).
Considerations to Help Mitigate Risk
Again, this article does not cover all the risks and considerations for delegated design components. But the following sections provide some practical guidance that may help reduce risks associated with the above pitfalls.
Negotiate and Understand Key Contract Terms
Recognizing delegated design risks at the outset of the Project can allow contractors to draft and negotiate contract terms to better address these risks.
As a general matter, contractors should understand the terms of their contracts—including (in this context) the terms governing liability for the delegated design. At a basic level, this includes contract sections that define and outline the scope of the delegated design. This allows the parties to better identify and understand what portions of the design have been assigned to the contractor, and which portions remain with the DPR. Careful thought and detailed consideration of this scope can help potentially reduce future risk. (To that end, ConsensusDocs updated delegated design provisions in its form contracts within the past several years).
Contractors should also consider terms regarding review and approval of the delegated design by the DPR (for example, does review and approval free the contractor from liability for errors in the delegated design? Note, usually not), as well as liability for the performance specifications themselves (as a general rule, the contractor is usually entitled to rely on those—but do not assume that is always the case). Again, identification and consideration of these issues upfront can help the parties draft better contracts that reduce risk during the project.
Know the Applicable Laws, Rules, and Regulations
Contractors should be familiar with the state laws and regulations governing their contracts. And how those laws impact the allocation of risk for design liability. For example, the New York State Board of Regents has published Rules for Unprofessional Conduct for the Design Professions, including rules governing delegated design components.[1] These rules outline certain requirements that must be met when design components are delegated. And there are numerous other jurisdictions that have various statutes and regulations that may impact delegated designs on projects.
Delegated design can also create potential issues with state anti-indemnification statutes and their impact on contractual indemnification clauses. A number of states have “anti-indemnification statutes,” which can limit a design professional’s indemnification obligations.[2] While a contractor might not otherwise be subject to these limitations (and therefore, is exposed to broader indemnification obligations), that might not be the case for liability related to the delegated design portions of the contractor’s scope of work.
Overall, even if a contractor carefully negotiates the terms of its contract to address risks with a delegated design, those efforts may be wasted if the contract does not comply with applicable laws and regulations. And the contractor might not enjoy the contractual protections that it otherwise thought it had.
Maintain Open and Frequent Communication
Even if a contractor has an extensively negotiated contract and an intimate understanding of the applicable laws, issues can still arise. And sometimes the easiest way to address these issues is to maintain open and frequent communication with the DPR and the owner. (Considerations for good and practical project communications is entirely separate topic). Strong project communication can help identify issues early on in the process, before they become bigger and harder to manage. And it can better help all interested parties resolve those issues quickly and efficiently.
This includes communication not only with the DPR, but also with the owner—who has a vested interest in seeing the project reach successful completion. And while good communication may not solve every issue, it can certainly help prevent small problems from becoming big problems.
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Conclusion
Again, this article does not cover every imaginable delegated design issue, nor does it address every single potential pitfall or consideration. But it does highlight certain issues for contractors to consider on projects with delegated design components.
Delegated design components can create many benefits for project execution. But they also create additional risks. Understanding these risks—and practical ways to mitigate them—is important for contractors working on projects with delegated design components.
[1] See generally, Rules of the Board of Regents, Part 29, Unprofessional Conduct
[2] See e.g. O.C.G.A. § 13-8-2, which limits a design professionals indemnification obligations only to damages caused by its “negligence, recklessness, or intentionally wrongful conduct.”