Design-Build vs. Design-Bid-Build: What is Best for the Contractor?

There used to be one model for construction project delivery: design-bid-build. In this model, the owner first hires an architectural firm to design the building. The architect hands off the design to the owner, and then the owner has to find a general contractor. The general contractor is usually secured through a bidding process and is chosen by lowest bid, best qualifications, or some combination of the two. Today, the design-build model is becoming more and more popular. Some estimates put the design-build model at 40% of all new non-residential construction today. In this model, the general contractor is involved from the start and manages the whole project. There is a lot of information out there for owners about how to choose the best model for their projects. But what about the contractor? When it comes to weighing design-build vs. design-bid-build, what is best for the contractor?

Design-Bid-Build

This is the traditional approach, and it is probably how most contractors are used to running their businesses. In this model, the contractor is not involved in the design at all. The contractor receives the complete architectural plans from the owner and studies them before making a bid.

We’ve discussed the importance of the bid in some of our other posts. To make the best possible bid, you need as much information as possible about your previous jobs. If you know the cost of each small unit of the construction process, in labor hours, materials, overhead, etc., you can create an accurate bid that will reflect your costs. When you use construction management software like Needo’s product, you will also be able to make changes and adjustments to your bid quickly, which can make the difference between winning and losing the bid process.

Once you win a bid, your responsibility is to execute the plans the owner provides as precisely as possible. Of course, if issues come up, you will have to go to the owner as the middleman, who will then deal with the architect and come back to you with adjustments or solutions. That can be risky for the owner. If anything changes along the way due to your input, the owner may face Change Orders (i.e., cost increases). From the contractor’s point of view, this could slow down a build and, since time is money, it can also cut into profits.

Pros and Cons of Design-Bid-Build

From the point of view of the general contractor, this method is simply the tried and true, time-tested way of doing business. As a construction contractor, you specialize in construction. Especially for more complex commercial projects, design is not really in your skill set (for most contractors). So it makes sense to come to a job, receive your plans, and bid accordingly. But when you take a step back and look at this process objectively, you may find that there are bost benefits and drawbacks for the contractor.

First the pros:

  • It’s a familiar process that most contractors have built their businesses around.
  • It allows contractors to focus on their area of specialty, building.
  • It makes bidding easier because you only have to account for the cost of building and your overhead.
  • You can stay out of the design process. The owner and architect can take care of that.

But there are some cons:

  • Typically, it doesn’t pay as well as a build-design project.
  • If there are changes that need to be made, you don’t have direct interaction with the architect or design team.
  • As a builder, you have first-hand knowledge of what does and doesn’t work in construction, but that won’t be taken into account in the design process.
  • Your bid is based almost entirely on your estimated building costs so your excellent qualifications and decades of experience may be less apparent in your bid.

Design-Build

This is the newest and fastest growing trend in construction project delivery. In the design-build model, the general contractor is the first hired and main person in charge. The general contractor essentially acts as a construction project manager, aiding in the architectural design process as well as the actual building. While you won’t be expected to design a building, you will have input. Much of that input will come in areas that construction contractors know well, such as building materials and methods. This is a newer model and may be unfamiliar to many contractors. So let’s look at the pros and cons to see if this is right for you.

Pros and Cons of Design-Build

First, let’s look at the pros:

  • You get input into the project from the earliest stages, avoiding issues later on in the build phase.
  • You act as a construction manager, which is a new skill set but comes with a bigger paycheck.
  • In some situations, the design team actually works directly for you, not the client, giving you a lot of control you don’t have in the design-bid-build model.
  • The bidding process is different and often allows for more profit due to the nature of the service you are offering.

Now, for the cons:

  • It is a new skill set. You will have to learn a lot more about design and customer relations than the typical construction contractor. Don’t try to do this without getting some education first.
  • You take on new liabilities and will probably need additional insurance.
  • Instead of managing just a set of building subcontractors who do the labor for the project, you are now in charge of a whole new team of design and architectural specialists.
  • The paycheck may be bigger, but you can take on fewer projects. The labor and time commitment is much greater than in the design-bid-build model.

Let’s Talk About Liability

When you take on a design-build project, you take on lots of new risks and liability that is not covered by your typical contractor’s insurance. One significant new area of liability is errors and omissions. This type of liability is typically irrelevant to general contractors but is very relevant to design firms. Some general contractors new to the design-build method may just assume they are covered by the design firm’s professional liability insurance policy, but that may be a mistake. Often these policies carry relatively low limits. Also, if the contractor is not a named as an additional insured, your coverage could be questionable.

Other new risks come from the fact that you are involved in design. If a subcontractor makes changed to an aspect of a project that you helped design, you could be liable for negative outcomes.

Of course, as new trends in arise in construction methods, new products arise in the insurance industry. There are insurance policies specifically designed for general contractors using the design-build method. If you plan to take on a design-build project, talk to your current insurer about ways to extend your coverage. Alternatively, you could get completely new coverage. Either way, make sure you are covered before you dive into a project.

Using Construction Management Software

The design-build process adds more layers of subcontractors to your project. It also means you have a lot more moving parts to keep track of. You don’t just need to manage construction subcontractors. You also need to manage the design team. To aid in this complex management, industry-specific software is a must.

With Needo’s software, you can manage small and large projects, in your office or on the go. With cloud-ready integration, you, your subcontractors, and your customer can access the information they need from any device. So if you are considering the design-build approach or even if you are sticking to design-bid-build, contact us today to learn how we can make your process easier, more efficient, and more profitable.

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