DesignBuild: The Suretys Perspective

1
Design-Build The Suretys Perspective
2
What is Design-Build?

• A/E Services
• Design
• Construction
• Warranties

Owner
Contractor
3
Types of Design-Build Entities
In-house A/E Professionals Contractors
Integrated Firm
Contractor with A/E Sub
Prime
A/E with Contractor Sub
A/E Contractor
Joint-Venture
4
Design-Build Buzz Words
Cost Savings
Time Savings
Cost Savings
Time Savings
Cost Savings
Time Savings
Cost Savings
Time Savings
Improved Risk Management
Improved Risk Management
Quality
Improved Risk Management
Quality
Quality
Improved Risk Management
Quality
5
Design-Build Characteristics
Owner
DB Contractor
A/E Services
Construction
6
Points to Consider

• Type of design entity
• Length of time with the carrier
• Type of coverage
• Amount of coverage
• Experience of D/B entity
• Experience of the owner
• Payment

7
Advantages Disadvantages

• Cons
• Contractor assumes ALL cost, quality, schedule,
  risk issues
• Requires master budgeting, scheduling
  management reporting systems

• Pros
• Owner has single point of accountability
  liability
• Team approach
• Fixed price
• Fast-track

8
What is Surety Bonding?

• A careful, rigorous, and professional process in
  which surety companies prequalify CONTRACTORS and
  assure project owners that these contractors will
  perform the contract and will pay certain
  laborers, subcontractors, and suppliers
  associated with the project.

9
Surety Dilemma

• The emphasis of surety bonding is prequalifying
  contractors not design

10
Concerns Regarding Design-Build
Surety company design/build entity become
insurers of design liability
No financial basis or technical expertise to
handle claims
Decrease in availability of bondable
design/build entities
Decrease in Competition
Increase in Project costs
11
Things to Consider Before Bonding Design-Build

• Design sufficiency is subjective
• Scope and costs are unknown
• No progress conformance verification
• Unclear performance guarantee
• Bond premiums are inadequate to assume defense
  costs and losses associated with design liability
  exposures
• Long-term tail on liability

12
Surety Suggestion

• For a quality, cost-effective, and successful
  design-build project, bonding specifications must
  be tailored with appropriate design risk
  management requirements.

13
Options

• Separate the design construction contractually
• Release DB entity from design liability
• Cap design liability to the extent of recoverable
  insurance
• Limit the bond to construction post construction

14
In Surety Terms

• The bond does not cover any responsibility for
  negligence, errors or omissions in design OR
  warranty of design. Coverage under the bond is
  limited to only the construction phase and post
  construction phase of the contract. The bond
  premium is based upon the value of the
  construction and post construction phase of the
  contract and not upon the design aspect of the
  contract.

15
Successful Design-Build For Contractors

• Work with experienced A/E firms
• Establish partnering relationships
• Pay close attention to contract negotiations
• Purchase EO insurance
• Work closely with producer underwriter

16
Additional Sources Of Information

• SIO www.sio.org
• SFAA www.surety.org
• NASBP www.nasbp.org
• DBIA www.dbia.org
• AGC www.agc.org
• AIA www.aia.org

17
For More Information

• Surety Information Office
• 1828 L St. NW, Suite 720
• Washington, DC 20036
• 202-686-7463 Fax [phone]
• www.sio.org sio_at_sio.org