Risk Allocation in P3s

The success or failure of many construction projects depends on accurate risk evaluation.  How well a party can evaluate, shift, or price risk can be a determining factor in the project’s overall success and the party’s financial well-being.  Under traditional project delivery methods, an owner provided the necessary site and design to the contractor for construction and took the keys upon project completion. Owners, both public and private, bore the risk of providing an accessible site, adequate design, necessary governmental approvals, and ultimate operation and maintenance.  In the past decade, many owners have sought to move away from this traditional risk allocation. The popularity of the design-build method is in part a result of owners seeking to shift the risk of project design. Other project delivery methods such as CM at Risk and Integrated Project Delivery also change traditional project delivery risk allocation. For contractors, one of the most challenging new developments is the increased use of Public-Private Partnerships, commonly referred to as P3s or PPP’s.  P3s have become a valuable tool for public owners to overcome the financing burdens for large education, transportation, or utility projects. By adding responsibility not only for design but also for financing and operation, P3s have significantly complicated project risk evaluation.    Read More ›

Play It Safe: Public Bidding Laws and P3s

Public-Private Partnerships (“P3”) are a popular project delivery method for many state and local agencies across the nation.  A key question that private parties interested in pursuing a P3 project should answer before diving in is whether the P3 procurement is subject to, and in compliance with, the public bidding laws.  Where a state’s statutes and regulations are not perfectly clear on whether public bidding laws apply, the question becomes whether the contract is a “public” or “private” contract.  As a matter of course, parties interested in participating in P3s should assume that the state’s competition requirements apply unless the state has enacted legislation expressly exempting a P3 project from such requirements.  In circumstances where agencies may be attempting to bypass competition requirements by utilizing a P3-type delivery method, courts have indicated their willingness to void contracts and possibly assess additional costs and damages. Read More ›

Understanding Unsolicited P3 Proposals

The popularity of public-private partnerships (P3s) as a procurement delivery method continues to increase as more and more states encourage the private sector to finance, deliver, or maintain facilities, infrastructure, or services for public use.  Many states allowing for the use of P3s are now also accepting unsolicited proposals for P3 projects.  Read More ›

Contractual Considerations for Melding BIM with Integrated Project Delivery

Building Information Modeling (“BIM”) is increasingly used within the construction industry by design professionals, contractors, construction managers, and owners.  BIM is particularly well suited to Integrated Project Delivery (“IPD”), a project delivery method where project participants strive to work collaboratively to realize mutually beneficial rewards.  To properly achieve the synergies from the BIM/IPD union, project participants need to carefully allocate risks and rewards and document their roles and responsibilities in connection with the project. This article provides an overview of BIM and IPD as well as some of the contractual considerations which project participants should keep in mind when documenting their deal. Read More ›

Erosion of the Spearin Doctrine of Implied Warranty in Alternative Project Delivery Methods

The United States Supreme Court ruled nearly a century ago that a contractor is not responsible for consequences of defects in the plans and specifications when that contractor is bound to build according to plans and specifications prepared by the owner. U.S. v. Spearin, 248 U.S. 132 (1918).  This principle is commonly known as the Spearin Doctrine.

When the Spearin Doctrine was formulated, construction projects were typically constructed through the traditional delivery method. Many construction projects are now being designed and constructed through alternative delivery methods such as construction management at-risk, multiple prime contracting, design-build, and integrated project delivery. These alternative delivery methods are designed to overcome some of the weaknesses and pitfalls that exist under the traditional delivery method.  Read More ›

Who Owes What to Whom? Liability and Alternative Project Delivery

Alternative project delivery methods, such as design-build, are increasingly prevalent in the modern construction industry.  Occasionally, the design-build team consists of a constructor that, pursuant to a prime contract with the project owner, is the “single point of responsibility” for both design and construction.  This design-builder engages design professionals such as the architect or engineer (A/E) as a subcontractor to meet the design and engineering requirements of the project. In this framework, the relative risks and obligations of the parties understandably shift from those of a traditional project. A party must identify these risks before signing onto a project in order to avoid costly lessons when it is too late to back out. Read More ›

Should You Agree to Provide Performance Guarantees and Warranties? It Depends On the Project Delivery Method.

When confronted by a project delivery method other than the traditional design-bid-build method, owners and contractors must be cognizant of exactly how that changes the project’s risk profile.  One obvious risk on every project is whether the project will satisfy the owner’s performance requirements. 

Depending on the type of project being constructed, different project delivery methods are better than others in terms of increasing the likelihood the project will function as designed and meet the owner’s and users’ needs.  Therefore, it is important that project participants understand how the project delivery method influences the likelihood that the project will perform as required.  This is especially true for contractors when their construction contract requires that the contractor guarantee or warrant the project’s performance. Read More ›

Non-Traditional Insurance Risks for Non-Traditional Project Delivery Methods

Non-traditional project delivery methods are being increasingly used in construction projects, and these delivery methods can bring non-traditional insurance risks. Non-traditional project delivery methods may require project participants, such as designers, contractors and owners, to hold additional types of insurance to guard against risks that their typical insurance does not cover.  Read More ›

Not Your Average Bond - Design Services in Alternative Project Delivery Methods

The rise in popularity of alternative project delivery methods that combine design services complicates the already opaque world of surety bonds. As a general matter, for any project type, a bond is a tripartite transaction in which the contractor pays a percent of the penal sum of the bond to the surety, who undertakes to pay the owner or upstream contractor if the contractor fails to perform its bonded obligation. When the dust settles, the contractor is ultimately on the hook for 100% of the risk that it will fail to perform its obligations. At the time of bonding, though, the contractor only pays a percentage of the bond’s penal sum to secure the surety’s guarantee of payment or performance to the owner or upstream contractor. In many cases, a bond is preferred by all parties as opposed to a letter of credit or other guarantee products. The contractor preserves cash flow, the owner prefers the surety’s financial stability and backing, and the surety makes money while keeping the risk on the contractor.  Read More ›

Collecting Judgments Across State Lines

In recent years, many in the construction industry have found themselves in the situation of having obtained a judgment against an owner, general contractor, or subcontractor in one state only to find out that the debtor has moved its operations or assets to another state to avoid its creditors.  While this is an unavoidable challenge when working in different states, there are four basic steps a business can take to help ensure that its foreign judgment can be collected across state lines.  Read More ›