LAW: The Contractor's Side

Design-build requires changes in law

DesignBuild Article December 28, 2000
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In May of this year I attended a conference on innovative contracting practices. One of the hot topics we discussed was the "design build" approach to constructing transportation projects. As most readers know, under the design-build approach the public owner identifies the end result parameters, establishes the design criteria minimums and then enters into a single contract with the design-build contractor.

The primary objective of this approach is to save time by allowing some construction work to begin before the final design details are completed. Public owners also believe that claims for design errors and other potential claims are significantly reduced.

Many contractors are fearful of design-build and believe it will result in mega projects that will exclude smaller family owned businesses. Other contractors have expressed concern over how the relationship with the designer will work and whether the concept of "low bid" will be lost. Some designers, on the other hand, are concerned about their contracts being awarded based on low bids. Some state DOT officials have expressed concerns over the likelihood of protests over awards of contracts.

Readers are likely aware that the design-build project delivery system potentially violates federal and state competitive bidding statutes, the state version of the Brooks Act and state licensing laws. As a result, jumping into a design-build contract requires a certain amount of analysis and planning.

I understand that the FHWA office of Chief Counsel issued an opinion dated April 2, 1996, stating that the new federal design-build law (Section 302 M of Pub. L. 104-106 Federal Acquisition Reform Act of 1995) approved Feb. 10, 1996 does not apply to the Federal Highway Program.

I have not seen an actual copy of the opinion, but I understand that the FHWA counsel believes that a legislative change to 23 USC ¤112 is required to implement a design-build program on an FHWA-wide basis. Under 23 USC ¤112 contracts for construction shall be awarded only on the basis of the lowest responsive bid submitted by a bidder meeting established criteria of responsibility. FHWA funds are limited to design-build projects under the Special Experimental Project No. 14 (SEP 14) research program authorized by 23 USC ¤307(a).

If the FHWA general counsel believes new legislation is necessary to change the requirements of 23 USC ¤112, then certainly the same type of legislation would be necessary to change the requirements of many state competitive bidding statutes.

The lack of specific legislation authorizing design-build has fostered litigation. In several states, disgruntled offerers and taxpayers have challenged the public body's authority to award contracts on any basis other than to the low bidder. In some cases it has been argued that the contract itself is void. Enabling legislation of some type reduces the likelihood of such a challenge.

Most states have mini-Brooks Acts, which are modeled after the Brooks Act, 40 USC ¤541 et seq. Such statutes require the government to select architects and engineers on the basis of their qualifications and not on the basis of their fees alone. In many instances, the engineer for a design-build project is actually selected by the design-build contractor. It has been suggested by some that this method of selection would violate the requirements of the Brooks Act.

The final hurdle to be overcome concerns state licensing requirements for design engineers. Many state licensing statutes provide that corporations or partnerships may practice engineering provided that the practice is carried on only by professional engineers registered in the state.

In the Design-Build Contract Handbook, published by Wiley Law Publications, the authors of Chapter 3 write that some state licensing laws facilitate design-build activity to a greater extent than other state licensing laws. They further state that still some other state licensing laws effectively prohibit or have been construed to prohibit design-build activity. Finally, they indicate that some courts look at who performs the services while other courts look at who enters into the contract.

In my column next month, I will address how some states are looking at legislation to enable design-build by the state DOT.

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