It’s Time to Change the Way You Think About Case Complexity

By on July 17, 2018
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There are few things that lawyers love more than telling war stories. Partially, that’s because many lawyers either only or primarily have friends who are lawyers, and war stories are a way for lawyers to relate to each other—your barber doesn’t understand the pain of reading through 5 paragraphs of irrelevant objections posed to each of 75 interrogatories, but your fellow lawyers will. One common feature of war stories is a note regarding how much was at issue in the case. “I was handling this $25 million claim once….” Lawyers include the dollar figure in dispute as a shorthand for the complexity of the case they’re talking about. “Oh, we’ll be in depositions for a month solid, this is a $10 million case!”

I don’t know where I picked up this habit, but I know exactly how I learned to rethink it. A friend of mine, as in-house counsel, was handling a case worth over a billion dollars. When he told me about it, my jaw dropped. One of the first things I asked him was, how do you manage a case that big? And he told me about the several law firms he had engaged, all the people working on it. But then he said: it’s not really a complicated case. There were only 4-5 real factual questions, and a similar number of legal ones. It’s just that every factual question had a very high price tag associated with it. The high price tag doesn’t make the factual question any more complex, or any harder to litigate. For example, your builders’ risk policy either has coverage for flood damage or it doesn’t. If it does, then it doesn’t matter whether the flood washed the whole building away or just some materials from the laydown area—coverage is coverage, irrespective of quantum.

I recently arbitrated a case where $20 million in claims hinged on the interpretation of a single clause in a single sentence in a 30+ page contract. The quantum of damages that hung on the resolution of the meaning of that clause did not affect how complicated it was to interpret that clause. And at the conclusion of the arbitration, the panel interpreted that clause to mean what most people off the street would have told you it meant. Put differently, the interpretation of that clause, and evidence that could be offered in aid of that interpretation, would have been exactly the same had the claim been $100,000, $1,000,000, or the $20 million actually claimed. The damages claim had no effect on the complexity posed by the interpretation of that sentence.

I do not mean to suggest that damages claims don’t pose their own problems. Sometimes (but not always), as damages claims grow, their formulation does become more complex, although seldom does the complexity increase linearly with the growth of the quantum. I do, however, mean to suggest that lawyers should shed our collective habit of using the claimed damages as a shorthand measurement for the complexity of the case. Sturdza v. United Arab Emirates, 281 F.3d 1287 (D.C. Cir. 2002) is an example of a highly complicated case where the eventual damages, had the plaintiff prevailed, would have amounted to the low six figures. In contrast, the lawsuit by developer Larry Silverstein (the owner of the World Trade Center buildings in New York) against his property insurers posed a simple question (did the Sept. 11, 2001 terrorist attack count as one or two occurrences under the applicable insurance policies), whose resolution was worth $3.55 billion. The $3.55 billion price tag did not make the insurance policies’ language any more convoluted, complicated, or harder to parse than the language would have been had the damages been only $35.5 million.

Even if you otherwise agree with me, you might well ask: okay, it’s a bad habit, but so what? What’s the harm? Ultimately, the answer is simple: the lawyer’s view of the complexity of the case colors every bit of advice he or she gives the client. How many document custodians to harvest ESI from. How many discovery motions to fight, and how hard to fight them. How many depositions to take. Lawyers have a related bad habit of using a certain percentage of the amount as issue (I’ve heard between 10% and 30%) as a “rule of thumb” for budgeting purposes, such that a $10 million case ought to have a legal fees and costs budget of between $1 and $3 million. As long as we keep using the damages claim as a shorthand for the complexity of the case, we’re going to continue to give clients bad advice—advice that is keyed to a level of complexity (high or low) that the case doesn’t actually have.

Rather than asking how much is at issue, lawyers (both in-house and outside) should ask: what factual or legal questions control the resolution of this case? How hard are those questions to answer? Where will the evidence that answers these questions be found? Don’t collect ESI from 20 custodians because it’s a $20,000,000 case; do collect ESI from 20 custodians if each of them is likely to possess information critical to the resolution of key factual questions. In short, stop making decisions based on the quantum of damages being sought, and start making them based on the issues that affect entitlement to those damages. When your strategy is guided by the factual complexity of the case, rather than the quantum of damages being sought, the solutions you craft for your clients will more accurately reflect what really needs to be done in the case.

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Don’t Just Go With the Flow (Down)

By on November 7, 2017
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There are some contract provisions that we see so often that we occasionally stop actually reading them, stop actually thinking about them, and just mentally check the provision off our list of things we expect to see in the contract. They fall into the catchall description “boilerplate,” and indeed often populate a section of the contract referred to merely as “Miscellaneous.” While this is obviously not a best practice, it’s also fair to say that some terms (like integration clauses) are virtually never negotiated, and therefore not worth as much time and attention as others. To paraphrase George Orwell, all contract clauses are equal, but some are more equal than others.

One clause that is often treated this way is the flow-down provision, which usually reads something like “We shall have all rights, remedies, powers, and privileges as, to, or against You which the Owner has against us. To the extent that the Subcontract Documents relate in any respect, whether directly or indirectly, to your scope of work under the Subcontract, You agree to be bound to us in the same manner and to the same extent as we are bound to the Owner.” While such clauses are, indeed, common-place, the reality is that they would frequently benefit from far more fine-tuning than they actually receive. One size does not fit all.

Consider dispute resolution proceedings. On public contracts, dispute resolution between the prime contractor and the owner is virtually always litigation in a local court. A smart prime contractor wants a far more nuanced approach to dispute resolution with its subcontractors. Indeed, very often, a smart prime contractor wants an array of options made available to it, to be chosen as appropriate given the nature of the dispute. Disputes solely between the prime and a sub can be resolved via arbitration, whereas any dispute that the prime believes involves the owner must be resolved via the process outlined in the prime contract, and the sub agrees to be joined to any litigation with the owner in the event that the sub’s work is implicated in that litigation. Such provisions are reasonably common, but often run directly afoul of the flow-down provision, which would mandate litigation in all disputes between the prime and the sub, because litigation is mandated in all disputes between the prime and the owner.

Conflicts like these are often addressed (or intended to be addressed) via an order of precedence clause, which exists to explain which document (the prime contract or the subcontract) governs in the event the two are in conflict. But this solution only masks the real problem: the best order of precedence is not necessarily the same in all situations. With respect to some kinds of clauses (like dispute resolution), the prime contractor usually wants the subcontract terms to supersede the prime contract terms. With respect to other kinds of clauses (like the sort of documentation that must be submitted to obtain a progress payment), the prime contract frequently wants the prime contract terms to supersede the subcontract terms. Therefore, a typical blanket order of precedence clause (“in the event of any express conflict between the terms of this Subcontract and the terms of the Prime Contract, the terms of this Subcontract shall prevail[,]”) will not work. Even worse is the attempt to use “higher, stricter, or better” order of precedence language—which form of dispute resolution requires the higher, stricter, or better performance?

Sadly, the only solution to this problem, like so many problems in life, is thoughtfulness and hard work. Post-contract award, and prior to entering into subcontracts on a project, the prime contractor’s project management and risk management staff need to sit down and have a thoughtful discussion about which prime contract terms ought to flow down, and which should be superseded by the subcontract terms. A simple work product that can be produced in such a meeting is a “flow down chart” that identifies each of the prime contract terms and indicates (via the use of a check-a-box graphic, if so desired) which terms flow down versus which are superseded by the subcontract terms. That chart can then be made part of the subcontract documents.

So, the next time a contract comes across your desk, take a moment to really think about those few, forgotten, but proud terms in the back of the contract. Some of them represent opportunities to add real value, so long as you pause for a moment, and don’t just go with the flow.

Filed under Contracts

The Importance of Situational Leverage

By on November 11, 2016
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George Orwell wrote “all animals are equal, but some animals are more equal than others.” In construction, this is plainly true. The large, multi-billion dollar prime contractor, for example, is unlikely to negotiate subcontract terms with the 7-figure concrete installer. The public agency is unlikely to negotiate design contract terms with the 10-member architectural firm who is designing a new courthouse. But these general guidelines are just that: general (not universal) guidelines (not rules). A party who fails to recognize situations where the leverage has shifted runs the risk of either killing the deal (by demanding that which it is not entitled to) or failing to get as beneficial a bargain as they are entitled to (by failing to appropriately flex their muscle). A brief review of some common situations where the situational leverage differs substantially from ordinary leverage will illustrate some issues to keep an eye out for.

A.  The “Plus Factor” Subcontractor

There are times when a specific subcontractor brings a very specific and rare (or unique) advantage to a project. One example is a subcontractor who holds an SBA, MBE, WBE, DVBE, or LBE designation from the relevant government entity. The prime contractor likely achieves a monetary advantage by contracting with this certified subcontractor, and a smart certified subcontractor will leverage that advantage to bargain for better commercial terms with the prime, whether that takes the form of more money or better subcontract legal terms, or both. Another example is a subcontractor with a special (and rare) material application certification that is necessary for the project, such as a certification to apply an epoxy that is specified in the specifications (and for which a certified installer may also be specified). If the prime contractor adopts its standard, take-it-or-leave-it approach to negotiations with “plus factor” subcontractors, they may quickly find themselves talking to an empty chair. On the flip side of that coin, a “plus factor” subcontractor who accepts an “industry standard” deal is failing to avail itself of the benefits it is commercially entitled to realize.

B.  The “Connected” Subcontractor

Leaving aside jokes regarding East Coast garbage hauling contracts, the fact remains that at times, a subcontractor has a special and useful connection with an important player in the project.  When the design-builder is looking for a design subconsultant, the designer who has designed dozens of projects for the project owner can probably help speed and smooth the process of getting the DB design approved. The electrical subcontractor who performs direct contracts for the public owner of a project can probably help the prime contractor get submittals and test results approved quickly. These advantages are generally less clear and less well known than “plus factor” subcontractors, who enjoy a built-in, knowable, often quantifiable advantage. As such, subcontractors looking to flex this leverage need to be ready to make a convincing case that they actually HAVE the leverage—they need to sell the prime contractor on the existence of the advantage before they try to use that advantage. But subcontractors who have these sorts of connections will be in demand among every prime contractor seeking the work, and so primes would be well-advised to effectively court subcontractors who have a demonstrated, and useful, connection.

C.  The “Competent” Subcontractor in a Busy Market

It seems odd to talk about a subcontractor being competent as though it was a unique advantage. But, as various cities in the U.S. experience construction booms, we can see the repetition of a common cycle. In any up-cycle, the first contractors to become fully utilized (i.e., have all their resources occupied and be unable to take on additional work) are usually the best subcontractors. The last contractors to become fully utilized are usually the newest and/or least experienced. Thus, an owner or prime contractor looking for an excellent contractor or subcontractor to work on a critical aspect of the project may find that the best-qualified candidates are not hungry enough to chase work. These “top tier” contractors will demand favorable commercial terms to work on your project, and in many cases it will be worth it to the owner or prime contractor to accede to a reasonable number of such demands.

Mel Brooks wrote, and Zero Mostel said, “when you got it, flaunt it!” When you find yourself in possession of atypical negotiating power, you are well-advised to strategically, intelligently, and effectively use that power to get a better deal. Similarly, when you find yourself negotiating with such a party, you need to realign your expectations to reflect commercial reality. Failure on either party’s part will result in both of them losing out on a deal that may be beneficial to both parties when strategically negotiated and closed.

Filed under Construction Contracts, Contractor, Negotiations

Drafting Enforceable Termination for Convenience Clauses

By on July 13, 2016
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We all know what purpose a termination for convenience clause is supposed to serve: if circumstances have changed such that the owner (or, in the case of a subcontract, the general contractor) believes it is no longer advisable to proceed, the contract is terminated for convenience, the other party is compensated as provided in the contract, and the parties go their separate ways, presumable at least somewhat amiably. Virtually every construction contract has a termination for convenience clause in it, and for good reason. But how often do we pause to consider whether the clauses we draft, negotiate, and sign are actually enforceable? How often do we even consider the possibility that a termination for convenience clause might be drafted, used, or interpreted in a way that would render it unenforceable?

In Torncello v. United States, 681 F.2d 756 (Ct. Cl. 1982), the Court of Claims considered the claim of a subcontractor of a contractor who was terminated after the contract was awarded, but before any work had been performed. The government originally characterized the termination as one for default, but on review the termination was treated as one for convenience pursuant to the automatic conversion clause in the Federal Acquisition Regulations. The government took the position that, because no work had been performed, no termination payment was owed pursuant to the Federal Acquisition Regulations. The contractor argued that, if the government was able to terminate the contract without making any payment, the contract was illusory, because it imposed no real obligation on the government. In a lengthy, and high-detailed, plurality opinion, the Court of Claims agreed with the contractor. While courts have debated (and attempted to limit) the holding in Torncello almost from its issuance, the core of the opinion, in the words of the court, was that the owner could not use a termination for convenience “to dishonor, with impunity, its contractual obligations.”

But in some respects, that’s exactly what a termination for convenience clause does—it allows one party to walk away, provided solely that they comply with the terms of the clause. And, certainly, no one interpreted Torncello as a death knell for terminations for convenience. Understanding that not everything is enforceable, where is the line drawn? In short, how can we ensure an enforceable clause, and an enforceable termination?

One potential answer is found in the American Institute of Architects’ (AIA) contract documents family. The AIA General Conditions (A201) have long allowed the contractor to recover “reasonable overhead and profit on the Work not executed.” The AIA has taken a lot of flak over this provision over the years, and it is fair to say the AIA is the only major contract family that allows the contractor to recover profit on work it did not perform. BUT, that payment creates an enforceable provision. Because the owner will always be on the hook for some payment, the contract is clearly not illusory, and a termination will be enforced.

The battle over enforceability continues to this day. The Washington Court of Appeal recently decided a case, Sak & Associates, Inc. v. Ferguson Construction, Inc., 357 P.3d 671 (Wash.App. 2015), in which the terminated subcontractor argued that the termination for convenience clause rendered the contract illusory. In analyzing the issue, the court recognized “An enforceable contract requires consideration. If the provisions of an agreement leave the promisor’s performance entirely within his discretion and control, the ‘promise’ is illusory. Where there is an absolute right not to perform at all, there is an absence of consideration. Thus, if a promise is illusory, there is no consideration and no enforceable obligation.” (internal quotations omitted) The court then concluded that, because the subcontractor was allowed to partially perform, and was paid for that partial performance, the contract was not illusory.  But that analysis proceeds from a flawed assumption—that a contract could be illusory at execution and become non-illusory (lusory?) due to performance. A contract either is or is not illusory. There either is or is not consideration. The promisor’s performance either is or is not entirely within his discretion and control. All of these facts can be determined at the moment the contract is executed, and the parties’ later performance can no more save an illusory contract than they could wreck a non-illusory contract.  Put different, a contract cannot become either illusory or non-illusory; it is either one or the other, and the later behavior of the parties cannot affect that.

The Sak & Associates court was kind enough to cite as authority an article I previously wrote on termination for convenience clauses. Without meaning to appear ungracious (a lawyer ought never to argue with a court who has decided to treat him as an authority), part of the point of that article and the accompanying presentation was to warn against the problems inherent in termination for convenience clauses. Relying on a court to rescue an otherwise illusory clause by invoking the later actions of the parties is not a best practice in contract drafting. By far the better course of action is to draft a termination for convenience clause that explicitly ensures mutuality of obligation. An ounce of prevention is, in this instance, worth many pounds of cure.

Filed under Construction Contracts

Mediating With an Opponent Who Has Insufficient Authority

By on March 7, 2016
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It’s a common enough problem: you’ve been in mediation for 7 hours, and the parties are close to getting a deal done. The gap that appeared insurmountable after lunch has narrowed enough that you can almost shake hands across it. And then the mediator returns with your opponent’s most recent offer, and informs you that this is also all the authority that your counterpart has. He or she couldn’t offer you more money if they wanted to. Now what?

This problem occurs most frequently (in my experience) with government agencies that require a long and formal dance in order to coax money out of the appropriate coffers. But insurance companies and publicly-traded corporations are equally subject to the same problem: no one person is vested with absolute authority to pay any sum, no matter what they might say. (An aside: judges believe they can “fix” this problem by simply ordering all parties to send someone with absolute authority.  That is as effective as ordering the sun to set. Such an order only ensures that no one will actually admit that they have limited authority—instead, they’ll simply reject the offer/demand without comment.) So, when your counterpart turns their pockets inside out and says you have all the money they were given to bring, what’s next?

Many lawyers will say that what’s next is to pack your briefcase and go home. But there is at least one more move available: you can offer to leave your last demand on the table for a set period of time, in order to allow your counterpart to get the authority to pay you. BUT such an offer should come with a caveat: you will only do so IF your counterpart will agree to recommend that your demand be accepted and paid.

Consider the endgame: when your counterpart goes back to the funding authority (be it a governmental agency, a claims committee, or a board of directors) and says they need more money, the question “do you think we should pay this?” will inevitably be asked. If your counterpart is not willing to affirmatively recommend that the additional funding be provided so that your demand can be paid, it’s unlikely that additional funding will be forthcoming. To put it differently, it may be that no additional funding can be obtained no matter what, but it will never be obtained if the people familiar with the dispute don’t recommend it. For that reason, your offer to keep your demand on the table while your counterpart tries to get the money to pay it only has teeth if you also insist that your counterpart recommend that your demand be paid. This caveat also has the benefit of shedding some light whether the real problem is that (a) your counterpart doesn’t have enough money, or (b) they don’t want to pay what you’ve demanded. In the former instance, your counterpart will often be willing to agree to recommend that additional funding be provided. In the latter instance, they never will.

I won’t suggest that this move will always work when your counterpart plays the poverty card. No mediation strategy works every time. But when your counterpart says they lack the authority to accept your demand, your mediation is effectively over. This move gives you one more chance to walk out of the door with a (potential) settlement. Like most things in mediation: even if it doesn’t work, there’s no reason not to ask.

Filed under Authority, Demand, Mediation

New Year, New Rules

By on January 7, 2016
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On January 20-22, the American Bar Association’s Forum on Construction Law will hold its annual winter meeting in San Francisco, California. Construction law, like the industry itself, is constantly evolving, and national conferences like this one provide a valuable opportunity for lawyers practicing in the industry to get together and discuss recent developments, trends, and changes in the law.

One of the presentations that will be given at the conference concerns the interface between employment law and construction. The construction industry has a long and checkered past when it comes to employment issues, and current trends suggest the industry will remain at the jagged edge for years to come. Two prime examples illustrate this point.

As our country heads to another presidential election at the end of this year, the issues surrounding immigration—documented, undocumented, skilled, unskilled, temporary, or permanent—have once again come to the forefront, and are likely to remain there for the foreseeable future. By any measure, the construction industry has a deep and complicated past with immigrant workers. As the legal landscape continues to shift—influenced by Executive Orders, court orders, and state-level legislation—construction companies must remain fully apprised of their obligations and common pitfalls. Ignorance of the law, even when the law is constantly shifting, is seldom accepted as a defense.

Another issue likely to make its way to the ballots in several states this year is the legalization of marijuana. Regardless of the outcome of these state initiatives, marijuana will almost certainly remain illegal at the federal level, and subject to DEA seizure and federal court prosecution. For employers, the questions become thornier. Can an employer ban the after-hours use of a substance that is now legal, at least at the state level? Standards exist for measuring impairment of driving when it comes to alcohol, but not to marijuana, so how does an employer adjust its policies to reflect this uncertainty? When an employer has employees in multiple states, some of which have legalized marijuana and some of which have not, whose rules govern the employee? And what if that employee travels between offices?

It is traditionally said that there was an old curse that went “may you live in interesting times.” The story behind the curse is apocryphal—there never was such a saying. But the essential point is still well-taken. Construction industry participants currently do, and will for the foreseeable future, live in interesting times. As such, timely, accurate, executable advice continues to be valuable, and provide some stability, even as the legal landscape shifts under our feet.

Filed under Employment, Liability

Beware of Contractual Solutions to Statutory Problems

By on November 3, 2015
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Every state has a multitude of statutory rules and regulations that apply to construction activities in that state. In many (although not all) cases, the statutory protections provided by state laws cannot be eliminated, restricted, or modified by contracts entered into between the parties. In other words, a party cannot, by contract, surrender the protections the law says he or she enjoys. And yet, many contracts attempt to do exactly that. When these contract provisions fail, they create a double whammy for the party that drafted them: first, that party is deprived of the protections it thought it had; second, that party has lost its chance to secure, through other, enforceable, means, the protections it wanted. A quick look at Florida’s surety bond law illustrates this point.

Florida generally enforces “pay-if-paid” clauses, whereby the prime contractor shifts the risk of owner non-payment to subcontractors, through subcontract language that states that the subcontractor is only entitled to be paid for its work if the prime contractor is paid by the owner for that work. See DEC Elec., Inc. v. Raphael Constr. Corp., 558 So.2d 427 (Fla. 1990). It is common for prime contractors in Florida to insert “pay-if-paid” clauses into their subcontracts. Florida’s statute governing payment bonds on private projects, Fla.Stat. ss. 713.001 et seq., allows a surety on a private project to issue a conditional payment bond, whereby the surety’s obligation to pay subcontractors is conditioned on the owner having paid the prime contractor for the subcontractor’s work. Fla.Stat. ss. 713.245. Thus, on private projects, a surety can avail itself of the same “pay-if-paid” protections…if it issues a conditional bond that complies with the statute’s requirements.

The interplay between these laws illustrates the problem. The payment bond surety on a private project may review its principal’s standard subcontract, note the “pay-if-paid” language, and assume that it will be allowed to “stand in the shoes of its principal” and assert that defense to a payment bond claim. The surety who believes that will find that (1) in order to invoke “pay-if-paid” as a defense, the surety is obligated to issue a conditional payment bond that complies with the requirements of Fla.Stat. ss. 713.245; (2) reliance on the subcontract language is not sufficient to satisfy Fla.Stat. ss. 713.245; (3) by the time the bond has been issued, it is too late to cure these problems, and as a result (4) the surety will be deprived of a defense it thought it had, and that it would have been otherwise entitled to assert.

The lesson is a simple one: don’t assume that contract language will always be effective to invoke, revise, minimize, or eliminate protections or rights that have been created by, or are governed by, statute. Instead, look to the statutory scheme to see if the law itself gives you options.

Filed under Construction Contracts, Contractor, Surety

Gone But Never Forgotten: Antique Insurance Requirements Can Torpedo Your Contract

By on October 9, 2015
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A long time ago, a law school professor of mine remarked that “transactional attorneys are on the cutting-and-pasting edge of the law.” When structuring contracts, there is much to be said in favor of not rewriting the wheel, so to speak. Good attorneys constantly evolve their contract provisions, whereby lessons learned, changes in the law, and shifting industry practices are captured and incorporated sensibly. But, like biological evolution, contract evolution hates to discard pieces that were once useful. This can result in your contract having the equivalent of the human appendix: a piece no longer of any positive use and that harbors the potential for harm.

A prime example in construction contracts is the insurance requirement that the contractor (or subcontractor) obtain an endorsement for what is commonly referred to as XCU risk—that is, coverage for explosion, collapse, and underground liability. This contract language evolved from the 1986 version of the Insurance Services Office’s (ISO) CGL policy, which excluded coverage for liability arising from explosion, collapse, and underground work. In 1986, contractors could indeed buy an endorsement that extended coverage to these types of risk, and therefore contract language requiring the purchase of such an endorsement was important and valuable. However, it has been many years since the ISO CGL policy form contained this exclusion—XCU coverage is now simply part of the standard coverage afforded by this policy, and has been for over a decade. And yet, many contracts still require contractors to obtain an endorsement that no longer exists, in order to solve a coverage problem that they don’t really have.

These sorts of provisions, which set requirements that cannot actually be fulfilled, create the potential for delays in submitting bids and finalizing contracts, and can convince both sides to not carefully review or enforce the insurance provisions in the contract. Finally, although the current ISO CGL policy includes XCU coverage by default, that coverage can be eliminated via an endorsement. Thus, by asking the contractor to provide a positive XCU endorsement (a request that will be met with “that’s not necessary” by most contractors, and “that doesn’t exist” by sophisticated contractors), the contract language fails to inform both parties about the true risk they should be looking for: an endorsement eliminating the standard XCU coverage.

These sorts of outdated contract provisions linger in the “standard form” contracts used by many contractors and owners. The presence of such a provision in your standard contract is a sign that some additional evolution is necessary in order to bring your contract up to current laws, standards, and industry practices.

Filed under Contractor, Insurance

Differences between EPC and Design-Build Delivery

By on May 7, 2015
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EPC (Engineer-Procure-Construct) and Design-Build have both existed as mainstream delivery methods for decades, but what’s the difference between the two? If anything, they seem to share critical similarities. In both cases, the owner has a single point of contact on the construction side. In both cases, the contractor is responsible for the design. In both cases, the contractor takes on more risk than a traditional design-bid-build delivery. But several key (if sometimes subtle) differences differentiate the two:

  1. An EPC project typically results in a turnkey facility. At closeout, the EPC contractor hands over a working facility that’s ready to go. A design-build contract closes out similarly to design-bid-build contracts, with the owner and its construction manager or designer taking an active role in punching out the facility.
  2. EPC contractors are often handed little more than performance requirements (output levels, uptime levels, maintenance expense maximums, etc.), whereas most design-build contracts provide at least some design detail in the bridging documents.
  3. There is no EPC equivalent of the “design-assist” or “fast-track” design-build processes. Once again, this reflects the owner’s more minimal involvement in the EPC design process.
  4. Many contracts transfer far more risk to the contractor in an EPC delivery. Design-build contracts tend to take either a traditional design-bid-build approach to unknowns like hidden site conditions, or to share that risk between the owner and the design-builder. In contrast, it’s not uncommon for EPC contracts to shift these risks entirely to the EPC contractor.

Understanding the differences between these two seemingly quite similar design processes is a key step when assessing which delivery system is right for your project.

Filed under Design-Bid-Build Contracts, Design-Build, Design-Build Contract, EPC (Engineer-Procure-Construct)