Two Ward and Smith attorneys discussed essential design-build requirements in North Carolina, as well as some of the key advantages and disadvantages of this project delivery method.
The presentation featured insights from Alex Ferri, a litigation attorney who assists construction industry clients with general litigation matters throughout all phases of the process—from investigation and pleading to trial, settlement, and appeal. Ferri is a licensed North Carolina general contractor with years of experience in construction.
Jason Strickland, a construction attorney who represents contractors, subcontractors, owners, lenders, and design professionals, also offered guidance. His experience includes preparing and negotiating construction contracts, as well as helping clients implement best practices for managing construction projects.
Design-build requirements vary depending on the type of owner—whether a state or local government entity, a federal agency, or a private homeowner. Public owners typically decide on the delivery method at a preliminary project stage.
“With private projects, it is common to see a mismatch between what the parties want to do and what kind of delivery method they choose,” noted Strickland. “We recently had a situation where the client wanted design-bid-build contracts, but what they were really doing was construction manager at risk.”
In the traditional design-bid-build and construction manager at risk system, the designer is working for the owner. Issues with the design would therefore be the responsibility of the owner.
“The key thing distinguishing design build is that the designer is working for the general contractor, so risk associated with design are shifted to the contractor or the design-builder,” added Strickland.
The design-build delivery system can be beneficial for all parties involved. Owners typically prefer design-build because it places design responsibilities on the contractor. Contractors tend to prefer design-build because it reduces friction between them and the designer.
Public Project Requirements in Design-Build
The design-build delivery method for North Carolina state and local public projects is governed by North Carolina General Statute 143-128.1A. This statute requires any governmental entity using design-build to establish, in writing, the criteria for determining whether this method is appropriate.
The rules apply to all government entities working on behalf of the state of North Carolina, such as municipalities, departments, or commissions. “Local projects may have additional rules,” Ferri said, “so the takeaway is this sets a floor for public projects statewide.”
The written criteria for determining whether design-build is appropriate include:
- The extent to which the project requirements can be defined before the issuance of a Request for Qualifications from a design‑builder;
- Time constraints for project delivery;
- Ability to ensure that a quality project can be delivered;
- The capability of the governmental entity to manage the project, including the availability of staff or outside consultants with experience in design‑build;
- Good-faith effort to comply with applicable statutes and to work with small, properly licensed small or minority businesses; and
- Other criteria used by the governmental entity to compare design‑build to other delivery methods.
Understanding the Bidding Process in Design-Build
Once it has been determined that design-build is appropriate, the solicitation of bids starts with a public issuance of the Request for Qualifications. “The most important items to include are the project site, the project scope, and the anticipated budget,” Ferri commented.
The governmental owner will also outline a variety of additional factors that will be considered when comparing each bid, along with the weight that will be given to each factor. Examples could include the size of the business and whether it is minority owned.
An explanation of the project team is another requirement. “Once the bids are in, the owner ranks the top three most highly qualified bidders,” added Ferri. “If there are fewer than three responses, the owner has to make a new solicitation. If this doesn’t bring more bidders, the owner starts negotiating with the most highly ranked bidder.”
Evaluating the competency of a bidder involves assessing prior work, professional qualifications, and specialized experience. “Owners are encouraged to ask bidders about the concepts and approaches they will apply to the new project,” Ferri said, “but it’s important to know that the owner cannot solicit or consider work product or designs for the proposed project.”
Design-Build Methodology
The owner will choose a project team selection option for the design-builder to follow when selecting its team.
With the Master Builder option, the response to the Request for Qualifications would include:
- List of licensed contractors, subcontractors, and design professionals
- One or more unlicensed subcontractors at design-builder’s discretion
“Under the master builder method, there’s a lot more flexibility for the design builder to both self-perform and negotiate subcontracts,” Strickland explained.
The second option is similar to the Construction Manager at Risk method. If this option is chosen, the response to the Request for Qualifications would include:
- List of licensed contractors and design professionals
- Outline of strategy for open subcontractor selection
“In this scenario, the design builder is required to bid out after pre-qualification and can only self-perform work under very limited exceptions,” noted Strickland. Subcontracts are required to be included in the project in the same manner as general contracts under the hard-bid, design, bid, and build method, as outlined in Article 8, Chapter 143.
General contractors engaged in the design-build delivery method should make sure their preliminary design work does not run afoul of the architecture licensing laws. Notably, a general contractor may not use an in-house architect for the design portion unless the general contractor is also a licensed architect. A few alternatives that owners should potentially consider include contracting with a general contractor, who then contracts with an architect, or contracting with a firm that is a licensed general contractor as well as an architect.
Federal Design-Build Projects
“With federal projects, design build is not as comprehensively controlled as it is with projects in North Carolina,” commented Strickland. However, the requirements for determining if a two-phase selection process will be necessary are fairly complex. Generally, the owner/contractor officer must consider the following criteria:
- Whether three or more bids will be received
- If design work is necessary before an offeror can develop a cost proposal
- Whether creating the offer will require a substantial amount of expense
- Other criteria (a ‘catch-all’ category)
“The goal appears to be to restrict the use of design-build to situations where it is both appropriate and necessary,” Strickland explained.
The specific agency in charge of the project will develop a scope of work statement to include in the solicitation. This will define the project and provide specific requirements for the project, such as preliminary design, budget parameters, and schedule for delivery requirements.
The contracting officer will ask for proposals with background information on the offeror’s technical approach and qualifications. The offer should not include information on detailed design, cost, or price.
The agency then evaluates the offers, considering factors such as specialized experience, technical competence, capabilities, and past performance. The agency typically then selects the top five offers to move forward into phase two.
At this point, the top five offerors submit phase two competitive proposals that include technical information, design concepts, proposed solutions, and projections for cost and price. “Cost and price are where we veer away from how North Carolina functions,” noted Ferri.
The federal government has an endless array of agencies, and there are notable similarities to local governments in North Carolina, said Ferri: “The federal government makes the rules, but each agency may have a different interpretation of those rules. The takeaway is that the bidding process could vary from agency to agency.”
Private Design-Build Projects
In North Carolina, there is no statute for private projects that mandates the specific steps for design-build. The result is a more flexible process, where the owners, contractors, and subcontractors outline the terms and requirements in the contract.
“The intent is to remove some of the friction points that would otherwise impede the use of the design-build project delivery method,” added Strickland. “This does not eliminate licensing requirements. You still have to be properly licensed. One of the main ways people get into trouble is for doing construction without a license.”
Standard contract forms are often used, and the most common is from the Design-Build Institute of America (DBIA). “Because there’s not a statute controlling the process, these standard contract forms are very important,” commented Strickland.
DBIA forms contemplate the design work being performed and the bulk of the construction work that is being subcontracted. The forms can be adapted to the project, so it may be possible to see them on public projects.
The second most commonly used form is from the American Institute of Architects (AIA). As may be expected given the name, these forms favor contractors and especially designers; DBIA forms are more balanced.
“It is vital to negotiate a fair contract with specific provisions you understand, and to avoid something that requires you to assume more risk than necessary. We often see situations where the terms of the deal are basically done, and then the other party’s attorney changes a host of provisions to favor their client at the last minute. So, I would encourage you to carefully review everything and don’t just assume that the contract is only based on the terms you’ve discussed,” advised Strickland.
Questions About Design-Build Contracts and Compliance
An audience member wondered if it would be appropriate to respond to a federal owner with a Request for Qualification, including design and cost, if that owner had not specified that there should be two phases.
The best advice is to follow the rules of the statute. If the owner asks for a price, mention that pricing will not be provided until phase two and/or ask a clarifying question concerning whether the quote should be based on the unit price.
In regard to self-performing work under the master-builder method, it would be permissible to use unlicensed subcontractors. “If it’s work that requires a license, however, such as electrical work, you will still have to have a license,” concluded Strickland.
Two Ward and Smith attorneys discussed essential design-build requirements in North Carolina, as well as some of the key advantages and disadvantages of this project delivery method.
The presentation featured insights from Alex Ferri, a litigation attorney who assists construction industry clients with general litigation matters throughout all phases of the process—from investigation and pleading to trial, settlement, and appeal. Ferri is a licensed North Carolina general contractor with years of experience in construction.
Jason Strickland, a construction attorney who represents contractors, subcontractors, owners, lenders, and design professionals, also offered guidance. His experience includes preparing and negotiating construction contracts, as well as helping clients implement best practices for managing construction projects.
Design-build requirements vary depending on the type of owner—whether a state or local government entity, a federal agency, or a private homeowner. Public owners typically decide on the delivery method at a preliminary project stage.
“With private projects, it is common to see a mismatch between what the parties want to do and what kind of delivery method they choose,” noted Strickland. “We recently had a situation where the client wanted design-bid-build contracts, but what they were really doing was construction manager at risk.”
In the traditional design-bid-build and construction manager at risk system, the designer is working for the owner. Issues with the design would therefore be the responsibility of the owner.
“The key thing distinguishing design build is that the designer is working for the general contractor, so risk associated with design are shifted to the contractor or the design-builder,” added Strickland.
The design-build delivery system can be beneficial for all parties involved. Owners typically prefer design-build because it places design responsibilities on the contractor. Contractors tend to prefer design-build because it reduces friction between them and the designer.
Public Project Requirements in Design-Build
The design-build delivery method for North Carolina state and local public projects is governed by North Carolina General Statute 143-128.1A. This statute requires any governmental entity using design-build to establish, in writing, the criteria for determining whether this method is appropriate.
The rules apply to all government entities working on behalf of the state of North Carolina, such as municipalities, departments, or commissions. “Local projects may have additional rules,” Ferri said, “so the takeaway is this sets a floor for public projects statewide.”
The written criteria for determining whether design-build is appropriate include:
- The extent to which the project requirements can be defined before the issuance of a Request for Qualifications from a design‑builder;
- Time constraints for project delivery;
- Ability to ensure that a quality project can be delivered;
- The capability of the governmental entity to manage the project, including the availability of staff or outside consultants with experience in design‑build;
- Good-faith effort to comply with applicable statutes and to work with small, properly licensed small or minority businesses; and
- Other criteria used by the governmental entity to compare design‑build to other delivery methods.
Understanding the Bidding Process in Design-Build
Once it has been determined that design-build is appropriate, the solicitation of bids starts with a public issuance of the Request for Qualifications. “The most important items to include are the project site, the project scope, and the anticipated budget,” Ferri commented.
The governmental owner will also outline a variety of additional factors that will be considered when comparing each bid, along with the weight that will be given to each factor. Examples could include the size of the business and whether it is minority owned.
An explanation of the project team is another requirement. “Once the bids are in, the owner ranks the top three most highly qualified bidders,” added Ferri. “If there are fewer than three responses, the owner has to make a new solicitation. If this doesn’t bring more bidders, the owner starts negotiating with the most highly ranked bidder.”
Evaluating the competency of a bidder involves assessing prior work, professional qualifications, and specialized experience. “Owners are encouraged to ask bidders about the concepts and approaches they will apply to the new project,” Ferri said, “but it’s important to know that the owner cannot solicit or consider work product or designs for the proposed project.”
Design-Build Methodology
The owner will choose a project team selection option for the design-builder to follow when selecting its team.
With the Master Builder option, the response to the Request for Qualifications would include:
- List of licensed contractors, subcontractors, and design professionals
- One or more unlicensed subcontractors at design-builder’s discretion
“Under the master builder method, there’s a lot more flexibility for the design builder to both self-perform and negotiate subcontracts,” Strickland explained.
The second option is similar to the Construction Manager at Risk method. If this option is chosen, the response to the Request for Qualifications would include:
- List of licensed contractors and design professionals
- Outline of strategy for open subcontractor selection
“In this scenario, the design builder is required to bid out after pre-qualification and can only self-perform work under very limited exceptions,” noted Strickland. Subcontracts are required to be included in the project in the same manner as general contracts under the hard-bid, design, bid, and build method, as outlined in Article 8, Chapter 143.
General contractors engaged in the design-build delivery method should make sure their preliminary design work does not run afoul of the architecture licensing laws. Notably, a general contractor may not use an in-house architect for the design portion unless the general contractor is also a licensed architect. A few alternatives that owners should potentially consider include contracting with a general contractor, who then contracts with an architect, or contracting with a firm that is a licensed general contractor as well as an architect.
Federal Design-Build Projects
“With federal projects, design build is not as comprehensively controlled as it is with projects in North Carolina,” commented Strickland. However, the requirements for determining if a two-phase selection process will be necessary are fairly complex. Generally, the owner/contractor officer must consider the following criteria:
- Whether three or more bids will be received
- If design work is necessary before an offeror can develop a cost proposal
- Whether creating the offer will require a substantial amount of expense
- Other criteria (a ‘catch-all’ category)
“The goal appears to be to restrict the use of design-build to situations where it is both appropriate and necessary,” Strickland explained.
The specific agency in charge of the project will develop a scope of work statement to include in the solicitation. This will define the project and provide specific requirements for the project, such as preliminary design, budget parameters, and schedule for delivery requirements.
The contracting officer will ask for proposals with background information on the offeror’s technical approach and qualifications. The offer should not include information on detailed design, cost, or price.
The agency then evaluates the offers, considering factors such as specialized experience, technical competence, capabilities, and past performance. The agency typically then selects the top five offers to move forward into phase two.
At this point, the top five offerors submit phase two competitive proposals that include technical information, design concepts, proposed solutions, and projections for cost and price. “Cost and price are where we veer away from how North Carolina functions,” noted Ferri.
The federal government has an endless array of agencies, and there are notable similarities to local governments in North Carolina, said Ferri: “The federal government makes the rules, but each agency may have a different interpretation of those rules. The takeaway is that the bidding process could vary from agency to agency.”
Private Design-Build Projects
In North Carolina, there is no statute for private projects that mandates the specific steps for design-build. The result is a more flexible process, where the owners, contractors, and subcontractors outline the terms and requirements in the contract.
“The intent is to remove some of the friction points that would otherwise impede the use of the design-build project delivery method,” added Strickland. “This does not eliminate licensing requirements. You still have to be properly licensed. One of the main ways people get into trouble is for doing construction without a license.”
Standard contract forms are often used, and the most common is from the Design-Build Institute of America (DBIA). “Because there’s not a statute controlling the process, these standard contract forms are very important,” commented Strickland.
DBIA forms contemplate the design work being performed and the bulk of the construction work that is being subcontracted. The forms can be adapted to the project, so it may be possible to see them on public projects.
The second most commonly used form is from the American Institute of Architects (AIA). As may be expected given the name, these forms favor contractors and especially designers; DBIA forms are more balanced.
“It is vital to negotiate a fair contract with specific provisions you understand, and to avoid something that requires you to assume more risk than necessary. We often see situations where the terms of the deal are basically done, and then the other party’s attorney changes a host of provisions to favor their client at the last minute. So, I would encourage you to carefully review everything and don’t just assume that the contract is only based on the terms you’ve discussed,” advised Strickland.
Questions About Design-Build Contracts and Compliance
An audience member wondered if it would be appropriate to respond to a federal owner with a Request for Qualification, including design and cost, if that owner had not specified that there should be two phases.
The best advice is to follow the rules of the statute. If the owner asks for a price, mention that pricing will not be provided until phase two and/or ask a clarifying question concerning whether the quote should be based on the unit price.
In regard to self-performing work under the master-builder method, it would be permissible to use unlicensed subcontractors. “If it’s work that requires a license, however, such as electrical work, you will still have to have a license,” concluded Strickland.
