Jonathan Harris on Design and Build Contracting of Higher Risk Buildings

Following the introduction of the Building Safety Act, Jonathan Harris explains why Design and Build contracting has a big part to play in the construction of Higher Risk Buildings – but only if clients are willing to carefully consider their procurement strategies. 

I read with interest an article written by Molly Tooher-Rudd in the CIBSE journal – ‘Design and build will have to change’: impact of the building safety regulations – and I found myself agreeing on many of the points made within the article.

Since the introduction of the Building Safety Act, which brings with it the new Gateway processes, there has been much said about the future of Design and Build (D&B) as a viable form of contract for the delivery of Higher Risk Buildings – I am keen to join the conversation.

My background as a practitioner is primarily as an Employer’s Agent and Procurement Advisor, but as one of the owners of calfordseaden, which employs circa 300 Designers, Surveyors and Project Managers, I hope that my views on the topic of traditional (architect-led) vs D&B (contractor-led) delivery is not polemically aligned to one side of the conversation.

Before I launch in, let me set the scene. Over the last few years, I have had the opportunity to lead the process with various clients to re-draft their standard suite of employer’s requirements (this is essentially the client’s performance specification). Whenever I start the processes, I explain to all stakeholders in the room that they should view their existing suite of employer’s requirements like a busy room where everyone is speaking at the same time – clauses have been added over time, often causing conflict, contradiction and lack of clarity (spread over 400 pages of rambling clauses) – for every new idea there’s another clause thrown into the chaos. Rather than trying to untangle the client’s existing document(s), which would be rather like stepping in to break up a pub brawl in Albert Square, we look to create a new room (my template) and invite clauses from the existing unruly room (document) one-by-one to justify their place. For so long clarity has been missing from the D&B process and it starts at the beginning of the Golden Thread with the employer’s requirements!

The Habit of Single-Stage Procurement

It’s no secret that the majority of D&B contracts are still procured under a single-stage tender process, it’s often short-sightedly and incorrectly viewed as the easy option for clients. Much of the time, risk is passed over to the contractor as soon as possible, leading to start on site before risks are fully understood and designed out. Contractors will enter into the contract in panic mode often following a short, single-stage tender period seeking to immediately commence works on site to protect against trade package inflation, which generally forces construction to commence in parallel with the design. This is a terrible mistake as it has consequences on clarity of design, clarity of the build, clarity of record drawings, and inevitably reduces quality and leads to contractual disputes.

Under a single-stage tender, the tenderer is often given three months if they’re lucky to understand and appraise the tender documents, analyse the design carried out to that point, obtain all necessary sub-contract tender returns and then present this in a set of contractor’s proposals. The tenderer is required to provide a fixed contract sum at tender return which more worryingly its supply chain must often stand-by for over two years. If this isn’t difficult enough, many publicly funded clients are required to include various cabinet review and approval processes in their delivery programmes and I’ve often witnessed a further 12 months being added between tender return and commencement of the contract – that’s approaching three years of crystal ball pricing during a 12 week single stage tender period.

For complex projects which are expected to last a long period of time after tender I often implore my clients to carefully consider whether single stage procurement is the best route for a D&B contract, the outcome is likely to be that either the tenderer wins with a chunky risk allowance and the client overpays, or conversely the tenderer under-prices and spends the next two years cutting corners. The employer is not the winner in either outcome.

Given recent global and national economic challenges caused by COVID-19, war in Ukraine and the turbulent political leadership changes and impact on the budget, is it any wonder that we see so many contractors who have ‘won’ single stage tenders in better times today struggling to digest the commercial realities of these contracts.

Two-Stage Tendering as a Solution

Adopting a two-stage process would shorten the gap between locking in the price and commencement of the works – reducing risk and risk-pricing. It should allow the contactor and its specialist subbies greater engagement to understand the site better as they resolve a price to complete the works and allow the contractor to decipher the employer’s requirements before launching into the project. In these circumstances, if managed correctly by the employer and its consultants this provides a better platform for true value for money to be the star of the show. Because of this, I have been encouraging my clients to pursue this process on projects which merit its inclusion, but this is certainly a culture change for the industry.

Exacerbated by a zombie-like preoccupation of inappropriately applying single-stage tenders, the industry has seen the D&B contracts used and abused as a Design while you Build solution. However, the introduction of Gateway 2 of the Building Safety Act for Higher Risk Buildings introduces the legal obligation to have reached design and procurement freeze in order to submit and have approval at Gateway 2, before commencing work on the site. This is the perfect opportunity for D&B contracts to be utilised in the way that they are intended to be – Design and then Build. Let me be as bold as to say that I cannot see much commercial justification to prefer a single-stage approach over a two-stage approach to tendering D&B contracts for Higher Risk Buildings.

The PCSA (second stage) period provides the perfect platform for the golden thread as the contractor adopts the employer’s requirements and design and develops its contractor’s proposal for Gateway 2 approval. Therefore, I believe a two-stage tendered D&B contract is entirely congruous with the intentions of the Building Safety Act.

• It provides a single point of responsibility for the design and the build (where, I am relieved to see, the industry is accepting that the Principal Contractor should also be the Principal Designer under CDM Regulations and the Building Safety Act).
• It provides a platform for the full development of the Gateway 2 process before the main building works and associated contractor’s site-costs (prelims) start running.
• Because of the above, it provides a golden thread with minimal opportunity for frayed edges.

I was discussing the potential additional cost to construction projects caused by Gateway 2 with the managing director of a tier 1 developer last month and, refreshingly, he stated that his organisation actually view it as an opportunity to reduce costs. For the reasons I have set out above, the disease of building while you design results in increased costs to the contractor due to prolongation of resourcing a design manager and design teams along with a team of commercial managers to re-procure all design changes throughout the project. This additional staff cost can cost millions of pounds on a project. There is further cost associated with the impact of change with the cost associated therewith increasing exponentially when the construction process is in full swing. The introduction of Gateway 2 forces the employer and the contractor to conclude design and most procurement within a controlled period of time before commencing construction activities, which means that the contractor’s staff costs are reduced significantly.

If I could offer any advice to clients to maximise the benefits that two-stage tendering would bring, it would be to; firstly, ensure that you have a suitably skilled and resourced quantity surveyor to implement a robust open book second-stage tendering protocol, review all trade packages and benchmark cost throughout the second stage. Also, consider whether the financial assessment criteria applied at first stage return should reward the tenderer which provides the lowest preliminaries, overheads, and profit. Not only is it true that the preliminaries, overheads and profit probably accounts for only circa 25% of the contract sum (the rest is procured at the second-stage) but there is a significant benefit in ensuring that the contractor – your delivery vehicle –  is adequately resourced to design, procure, and build the works in such a way that the value for money of the construction and management cost of the asset is optimised – so, how about considering a ‘race to the middle’ for these first stage costs?

We see similar benefits associated with early contractor engagement through joint ventures and partnership arrangements but returning to the focus of this article which relates to D&B contracting, it will be interesting to see how the 2024 suite of JCT documents deal with the Building Safety Act. One thing is certain in my mind – D&B is here to stay and should be viewed as a good contracting solution to deliver the intentions of the Building Safety Act, but only if it is procured in the correct way.