Design-build Contracts for Colorado Highway Construction: New Contractual Issues-part Ii

• Jurisdiction: Colorado,United States
• Citation: Vol. 29 No. 3 Pg. 53
• Pages: 53
• Publication year: 2000

29 Colo.Law. 53 Colorado Lawyer 2000.

2000, March, Pg. 53. Design-Build Contracts for Colorado Highway Construction: New Contractual Issues-Part II

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53

Vol. 29, No. 3, Pg. 53

The Colorado Lawyer
March 2000
Vol. 29, No. 3 [Page 53]

Specialty Law Columns
Construction Law Forum
Design-Build Contracts for Colorado Highway Construction: New Contractual Issues-Part II

by Charlotte R. Robinson

During the 1999 legislative session, the Colorado Department of Transportation ("CDOT") obtained statutory authority to enter into design-build contracts for transportation projects. Part I of this article, which was published in the February 2000 issue of The Colorado Lawyer,1 describes the design-build procurement process and discusses potential legal issues between the design-build contractor and CDOT. This Part II discusses legal issues that have arisen between the design professionals2 and construction contractors. These issues fall into four general categories (1) loyalties and conflict of interests of the design professional; (2) relative liabilities of the design professional and the contractor; (3) insurance and bonding issues; and (4) substitution of design-build team members

Loyalties and Conflict Of Interests

The most significant feature distinguishing the design-build process from the design-bid-build process (the traditional process for highway construction contracting) is the change in role of the design professional from the owner's consultant to the contractor's "teammate." Traditionally, design professionals contracted with the owners to design and supervise construction. They had an ethical and contractual duty to identify contractor work that was not in compliance with the plans and specifications for a project

In the design-build process, however, design professionals are accountable to their team members. They are conflicted with contractual incentives to meet the design-build team's goals, which are not likely to be identical to the goals of the owner, CDOT. Because design professionals have a stake in the financial results of the project, incorporation of expensive design elements that are not necessary, but are desired by CDOT, may be valued less than factors such as total cost and constructibility. In the past, the priority would have been the desires of CDOT. Moreover, design professionals may be disinclined to call problems with construction to the attention of CDOT.

In Wise v. State Board for Qualification & Registration of Architects,3 the Georgia Supreme Court recognized the conflict of interests created by the design-build setting. The court upheld a Georgia architect licensing requirement of at least three years of diversified experience in the office of a registered architect. An architect challenged the requirement when the state licensing board would not give him reciprocity for his Illinois experience and license. The architect worked for a design-build firm, and was given only two years' credit for his three years of experience. The court stated:

The job of an architect is to ensure that his plans are followed precisely, irrespective of the additional cost to the contractor. In many respects, the architect is seen as an antagonist to the contractor, as the contractor is seeking the maximum profit, while the architect is seeking the best financial product possible. Individuals working in the setting of a "design/build" firm experience a constant conflict of interests not normally present in the setting of an independent architect.4

The court concluded that the requirement furthered a legitimate state interest in ensuring that all licensed architects are properly qualified.5

Most cases involving a conflict of interest have dealt with fraudulent conduct on the part of the design professional. In Combustion Engineering, Inc. v. Miller Hydro Group,6 a utility company hired a design-build contractor to design and construct an electric turbine generating facility. The performance specifications required the facility to achieve a capacity of 7,800 cubic-feet-per-second flow capacity of water and to generate a power capacity of 14 megawatts.7 The contract provided bonuses for increased energy output over a certain amount and for producing power early. The design-build contractor built the facility to achieve a maximum flow capacity of 9,000 cubic feet per second and a power capacity of 18-19 megawatts.8 This was more power than necessary, resulting in a violation of the facility's operating permit from the Federal Energy Regulatory Commission.9

The design-build contractor claimed it was entitled to a bonus of more than $9 million. The owner refused to make the final contract payment or to award the bonus, claiming that the contractor deliberately over-designed and overbuilt the facility to inflate its bonus.10 The trial court, in a decision affirmed by the court of appeals, refused to award the contractor anything on its claim because the contractor had not acted in good faith.11

For partial protection from the risks of a conflict, a public sector owner such as CDOT can hire a separate design professional as a construction manager to oversee the work of the design-build contractor and ensure that the work is performed in conformance with the construction documents.12 However, a construction manager is not responsible for actions taken by the design-build design professional or for the construction contractor's failure to carry out the work correctly.13 The construction manager's role is "generally limited to making a good faith effort to perform its contractual duties and to exercise reasonable skill and judgment in performing those duties."14 The construction manager's duties may include scheduling, coordinating, inspecting, expediting cash flow, and certifying cash payments.15 Thus, while CDOT may be better protected with its own construction manager, use of a construction manager does not guarantee success of the project.16

For example, Aiken County v. BSP Division of Environtech Corp.17 involved the...