PART 6

PROJECT DELIVERY SYSTEMS:

GETTING THE PROJECT FROM THE GROUND UP

We all know the end goal of every construction project. We see it every day, each time
we drive on roads, park our cars and walk into buildings. It’s the completed project - one that is
designed as its owner envisioned and built as it was designed. But what is the process of getting
from the initial concept to the concrete end result? Is there more than one way to do it? Does it
matter if you are a public or private owner? Every player in the construction industry must
understand how construction projects are “delivered.” In other words, we must know the
methods by which projects are designed and constructed, and the roles and responsibilities of the
parties involved. This part of this paper discusses some of the most common construction
delivery methods and lists some of the benefits and risks of each.

Delivery Methods

Historically, the availability of alternate delivery methods has differed drastically

between public and private projects. In the private sector, with no constraints on how to build a
project (other than laws, codes, ordinances, etc.) anything was, and still is, fair game. Private
owners, strategically utilizing capitalism and free market society, use whatever system they feel
can best deliver the project based on the owner’s interests of time, budget, quality, or a
combination of all. Some private owners felt (and many still feel) comfortable with the
traditional competitive bidding method, because it gave them the luxury of a complete design
and the relative comfort of a solid, known price for construction. Other private owners used the
competitive bidding process to start the negotiation of the “real” price of the job. Some owners
used design-build and more recently Construction Manager at Risk to (possibly) get their
projects done more quickly and to increase their builder’s participation in the design phase.

Alternate delivery methods in the public sector in Texas have only recently become
available. For years, the only method allowed by law for procuring construction work on public
projects of any size was the use of competitive bidding, also known as the “design-bid-build”
method. The limitation on the use of other delivery methods was based on the use of public
monies. Tax dollars collected from the public have always been considered somewhat of a
sacred trust. Theoretically, governments who tax the public have some responsibility as to how
those monies are spent, and the process to be used in spending those monies. Competitive
bidding was relatively simple, and provided the ability to construct a project for the lowest price
with the least possibility for graft and corruption. Those arguments are still valid today and are
the reason this delivery method is still widely favored and used. Texas law required awarding
the construction project to the lowest responsive, responsible bidder.1 Thus, the lowest priced
bidder responsive to the bid request (i.e., no qualifications to the bid) who was responsible would
be awarded the job. The “responsible” requirement was solved by requiring all bidders on public
jobs greater than $25,000 to post a bid bond and performance and payment bonds from a

1
TEX. LOC. GOV'T CODE § 271.027

34
qualified surety.2 The contractor’s ability to bond was essentially a “guarantee” that it was
responsible.

However, a significant drawback of the competitive bidding system is precisely what

makes it attractive - the lack of subjectivity. While the low bidder may have the best price,
responsiveness, and responsibility, it might not be an entity the government wants to use based
on characteristics other than price, e.g., time of performance, safety, prior successful work with
this owner, claims history, experience with this particular type of construction, etc. Some
governmental entities, with the help, persuasion and lobbying of industry players, came to realize
that other delivery methods could make more sense and might provide the government the “best
value” in finished construction. The trend of “privatization” was beginning to take hold in all
aspects of government, and now it was entering the world of public contracting.

An additional and significant impetus for making the quantum leap into allowing
alternative delivery methods in public projects was the real world effect of competitive bidding.
At least in the larger metropolitan areas of the state, certain publicly bid jobs were attracting 20
to 25 bidders. The ultimate effect was that even though the low bidder was responsive and could
bond, it probably made a mistake in the bid and would now be required to construct the job at a
loss or forfeit the posted bid bond. The effect in many instances was that public projects became
battlefields for change orders and claims. Public owners spent significant time dealing with
requests for more money and ultimately litigation. There “had” to be a better way. Public
owners came to think (or were persuaded to think), that if they could only use the tools available
in the private sector, they would get the “best value” for their projects and would in all likelihood
remove much of the combative environment that is so destructive, time consuming and
expensive. Hence the expansion of public contracting delivery methods.

However, the use of these systems requires some subjectivity, as we will examine below.
Subjectivity, while allowing more of the owner’s interest to be met (speed, safety, etc.) also
allows for the steering of jobs to certain contractors; exactly the opposite effect and desire of the
competitive bidding system. Below is an examination of each delivery system.

A. Traditional Method (Design-Bid-Build)

Historically, the traditional method of construction, also known as competitive bidding,

has been most popular among all methods.3 The philosophy behind this delivery system was best
described by the Texas Supreme Court in Texas Highway Commission et al. v. Texas Association
of Steel Importers, Inc., et al.4 Therein, the Court stated:

Competitive bidding requires due advertisement, giving opportunity to bid, and

contemplates a bidding on the same undertaking upon each of the same material

2
TEX LOC. GOV’T CODE §§ 271.054 & 271.059

3
Thomas J. Kelleher, Jr., et al., Construction Disputes: Practice Guide with Forms §1.03 (2d ed. 1992).

4
372 S.W.2d 525 (Tex. 1963)

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 items covered by the contract; upon the same thing. It requires that all bidders be
placed upon the same plane of equality and that they each bid upon the same
terms and conditions involved in all the items and parts of the contract, and that
the proposal specify as to all bids the same, or substantially similar specifications.
Its purpose is to stimulate competition, prevent favoritism and secure the best
work and materials at the lowest practicable price, for the best interests and
benefit of the taxpayers and property owners.5

This method, like most, begins with an Owner interested in building a project. Typically,
the Owner will obtain a civil survey and geotechnical report for the land upon which he plans to
build. Once the Owner receives this information, he then hires an Architect (for an architectural
job) or an Engineer (for a civil-type job) for assistance with programmatic goals and schematic
design. The Owner and designer work together to further develop the design, and upon the
Owner’s approval, the designer produces a set of construction drawings which will be used for
pricing and permitting, and ultimately constructing the project. Additionally, the Architect will
hire subconsultants, including Structural, Civil, and Mechanical, Electrical & Plumbing (“MEP”)
Engineers, on an architectural type project (e.g., schools, office buildings, hospitals, etc). The
designer then assists the Owner with soliciting bids under a prescribed process, known to all. All
participating bidders bid on the same criteria. Under this method, the Owner selects a Contractor
based on price. The lowest responsible, responsive bidder wins the award of contract.

Once the project has been awarded to a Contractor, a lump sum, fixed-price contract is
executed or negotiated. It is also possible that a cost-of-the-work, up to a guaranteed maximum
price contractual arrangement can be used in the competitive bidding scenario. Typically,
however, lump sum contracts are the norm in the competitive bidding method. The use of
“standard” contract forms sponsored by various trade groups such as the American Institute of
Architects and Associated General Contractors, etc., with or without modifications, are
common.6 The Contractor will then hire various subcontractors to perform the vast majority, if
not all, of the actual work. Subcontractors sometimes hire specialty sub-subcontractors to
perform certain components of their scope of work. Subcontractors also contract with vendors
and suppliers. During the course of the work, the architect or engineer, as the case may be, may
provide construction contract administration services, if that is a requirement of the contract with
the Owner. The purpose is to ensure the project is built in accordance with the design intent.

Most importantly, no contractual privity exists between the Designer and the Contractor.
Other than contractual responsibilities spelled out in the various signed contract documents,
(Owner-Designer agreement, and Owner-Contractor agreement), there are no contractual
obligations between the Designer of the project and the constructor, all such obligations flowing
through the Owner. In many instances, the Architect or Engineer administers the construction
contract through the Owner, with whom he directly contracts.

5
Id. at 527

6
http://www.aia.org; http://www.consensusdocs.org

36
 This method allows the Owner to shift most of the risk to the Designer and the
Contractor. The Designer is responsible for proper design of the project and the Contractor is
responsible for constructing the project according to the plans and specifications provided by the
Designer. Generally, these are separate duties for which the Designer and Contractor are liable
to the Owner. Thus, upon discovery of any defects, the Owner will look to the Designer and/or
the Contractor for remedies and possibly damages. Although the Contractor will normally assert
the defect is design-related, and the designer will contend the defect resulted from poor
workmanship, the Owner should not bear any liability, at least in theory. The system is designed
to allow (and most contracts require) the Designer to monitor the Contractor’s work to verify it is
in accordance with the design and that it is acceptable work. Conversely, most contracts also
require the Contractor to review the design documents and to bring to the Owner and Designer’s
attention any discovered error or omission in the design. Although theoretically sound, in
practice this system is a recipe for finger-pointing, escalating tension, claims and battle
throughout the project, and often times thereafter.

Relative to time, the design-bid-build delivery system is not the most efficient, in
comparison to the others available. The primary reason is that the design (e.g., construction
drawings) must be fully complete before the project can be put out for bid, much less
constructed. It can be argued, however, that giving a designer a full opportunity and enough
time to prepare the entire set of drawings reduces errors in the design and specifications, thereby
reducing construction issues as the project is built. Regardless of whether that theory holds
water in practical terms, the competitive bidding method requires a significant period of time
from the start of design to the end of construction.

In addition to any number of proprietary contract forms in use for the design-bid-build
method, typically used forms are promulgated by the American Institute of Architects (“AIA”)
and the Associated General Contractors (“AGC”). Contract forms include the AIA-B101, for
Owner-Architect agreements, and AIA-A101 and A201 for Owner-Contractor agreements.7 The
new “ConsensusDocs,” forms promulgated by the AGC and endorsed by several contractor
organizations, use the “200 Series” forms.8

B. Competitive Sealed Proposal

Competitive Sealed Proposal is a delivery method similar to the traditional method in that
the Owner selects an Architect/Engineer to design the project. Once construction documents are
fully completed, the Owner solicits proposals from Contractors to perform the work. Unlike the
strict design-bid-build method, however, selection of the Contractor is typically based on a
combination of price and other factors that the Owner deems in its best interest, such as project
team personnel, scheduling, the Contractor’s experience, safety record, history with this owner,
etc. The main difference between the traditional method and competitive sealed proposal is the
latter allows the Owner flexibility to select a Contractor on criteria other than price. As a result,
the selection does not always result in the lowest price. This method also has the ingredients to
7
http://www.aia.org

8
http://www.consensusdocs.org

37
result in an adversarial relationship between the parties. In addition to the selection flexibility, it
carries the same benefits and risks as the traditional method. There are no intrinsic efficiencies of
time with this delivery system. The method and form of contracts is the same - either stipulated
sum or cost-of-the-work up to a guaranteed maximum price.

In both this method and the following, Construction Manager at Risk, Owners in the
private sector have for years considered (or at least had the option to consider) many different
and varied interests in choosing a Contractor. Price will always be important, but other factors
could also be considered as has been mentioned before (e.g., speed, quality of construction,
reputation, history with this owner, safety, experience with this particular type of construction,
etc.).

With the advent of new delivery systems available in the realm of public contracting,
public owners now have the ability, with some restrictions as discussed below, to consider
factors other than price alone. Public owners can now fashion a selection criteria that allows a
much greater chance for the owner to essentially “pre-select” a desired contractor. Examples of
selection criteria are attached as appendix “A” hereto. Notice the varied categories and
percentages used by different owners in their selection criteria.

Is it possible for a governmental entity to create criteria that is favorable to a desired

contractor? If so, recognize how far removed procurement has moved away from merely
accepting the low bid.

Since the actual contracting scheme is no different in this system than in competitive
bidding, the contract forms are virtually similar.

C. Construction Manager at Risk

Construction Manager at Risk is a delivery method wherein the Construction Manager at

Risk (“CMAR”) ultimately serves as the General Contractor assuming the risk for the price, and
provides design phase consultation in evaluating costs, schedule, implications of alternative
designs during and after the design phase. Selection of the CMAR is based on criteria including
qualifications and experience, and may involve a fee and general conditions.9

The CMAR ultimately contracts directly with Subcontractors and has a single point of
responsibility to the Owner for the delivery of the project. The CMAR is normally selected at the
same point in time as the Architect/Engineer, and provides assistance in evaluating costs,
scheduling and constructability. The distinguishing characteristic of this delivery system is that
unlike design-bid-build, where the design is performed without the benefit of input from the
constructor, the CMAR is hired early in the process, usually at or about the same time as the
project designer, with the express intent of providing cost and constructability input while the
design is ongoing.

9
A more detailed discussion of this topic can be found at: Flake, Richard P. and Olliff, Donovan. P., Construction Manager at Risk -
What’s in a Name?, 14th Annual Construction Law Conference, 2001; available at http://www.cbylaw.com/publications.

38
 The name is confusing and requires explanation. In the typical scenario, the CMAR is
hired to give pre-construction input and to help through the design phase. Job pricing has not
been done at this point, since the design is not complete enough to allow pricing to take place.
At this junction, the CMAR is not “at risk”, e.g., he has no responsibility and is under no
contractual requirement to construct the project for a stated cost. At some point as the design
begins to mature, usually at the discretion of the CMAR, the CMAR offers to construct the
project either for a lump sum or, more frequently, under a cost-of-the-work up to a guaranteed
maximum price scenario. If the Owner agrees to the price and time suggested by the CMAR, a
change order-type document is executed, requiring the CMAR to build the project for this price
and time. It is at this point that the CMAR becomes “at risk” for completing the job for the
agreed-upon price, hence the name “Construction Manager at Risk.”

In the typical scenario, the CMAR provides a Guaranteed Maximum Price (“GMP”) to
fix the cost of the project. The CMAR competitively bids with subcontractors to perform the
work. Under this method, the Owner may elect to expedite the process by authorizing certain
elements of construction to begin prior to completion of the design phase. As an example, once
the structural drawings have been completed, structural steel may be ordered, even though the
remainder of the design is not yet complete. In this regard, CMAR takes on some of the time
benefits of the design/build system, allowing for work to take place before the entirety of the
design is complete.

The CMAR method also allows flexibility with builder selection, offers design phase
assistance to the Owner, provides a single point of responsibility for construction and in some
cases design, creates a team concept, and offers a potentially faster delivery schedule.
Theoretically, there is a reduced adversarial relationship, as the designer and constructor are
supposed to work in a “loose” collaboration during the design phase. Although this system can
work as intended, there is a potential for adversity between the constructor and designer if proper
attitudes are not employed. The CMAR may inadvertently assume design risks related to
decisions for which it gave input. At a minimum the CMAR can be questioned about alleged
design errors because the CMAR is supposed to review the design during its inception.
Moreover, the CMAR may assume liability for construction defects or delay issues although it is
not performing the work. This method is best suited for large projects with scopes that are
difficult to define or subject to change.

Typical contract forms used are AIA-A121 and the “500 Series” Consensus Docs.10

D. Construction Management Agency

Construction Management Agency is a delivery method wherein the Construction

Manager serves as the Agent for the Owner. The Construction Management Agent (“CMA”)
provides administration and management services instead of a General Contractor. The CMA
provides design phase assistance, but does not hold any subcontract, nor does it provide bonds
for the project. Selection of the CMA is based on qualifications and experience. The
10
http://www.aia.org; http://www.consensusdocs.org

39
distinguishing characteristic is that the CMA is not responsible for constructing the project. It
does not hold any subcontracts with any of the trades.

Construction Management Agency is characterized by the work divided into multiple

packages and bid directly to the trades. The Owner holds all trade contracts directly, usually with
multiple Prime Contractors, and the CMA acts as the Owner’s agent in the management and
direction of the work. The CMA is normally selected at the same time as the Architect/Engineer
or shortly thereafter, and provides assistance in the design phase for costs, schedule, and
constructability. The Owner can speed construction by awarding contracts for certain elements of
the work prior to completion of the design phase.

Under this method the Owner is given great flexibility with the selection of trades, design
phase assistance, a faster schedule, and a non-adversarial relationship with the CMA. However,
there is no single point of responsibility, no guaranteed price, the Owner must manage multiple
contracts albeit with the help of the CMA), and there are potential price increases due to design
changes. Like the CMAR, the CMA may inadvertently assume design risks related to decisions
for which it gave input. The CMA may also assume liability for construction defects or delay
issues although it is not performing the work. This method generally lends itself to owners with
sophisticated in-house construction capability, and relatively simple, straightforward projects,
regardless of size.

Typical contract forms used are AIA-121 CMC and the “800 Series” Consensus Docs.11

E. Design-Build

Under the Design-Build method, one party assumes responsibility for both design and
construction of the project. It can promote an interdisciplinary team approach for the duration of
the project. Here, the Owner hires a Design-Build firm to design and build the project. In some
cases, the Owner hires a Contractor who will then hire an Architect/Engineer to design the
project. In other cases, the Owner will hire the Architect/Engineer who will then contract with a
Contractor to build the project. In both cases, the Owner looks solely to the Design-Build firm
for any liabilities regarding the design and construction of the project. Because the Owner does
contract directly with the Design Build firm, this method imposes greater responsibilities on the
Owner. Without an Architect/Engineer looking out for the Owner’s best interests (in this case,
the Architect/Engineer looks out for the Contractor’s best interests) the Owner must stay
involved to “bridge” the designer’s traditional role of construction watchdog. Additionally, there
are times when the design and construction move so rapidly that the design does not have time to
“mature.” Sometimes, design errors are not caught in time, causing costly fixes for the Design-
Build team. Again, safeguards are put in place in public contracting requiring an “overseeing”
designer, to fulfill a watchdog function.

Under this method, the risks are clearly defined, and it is decidedly in the owner’s favor.
The Design-Build firm assumes all risk associated with design defects, construction defects, and
scheduling/delay issues. Regardless of whether the contractor, architect/engineer, or a
11
http://www.aia.org; http://www.consensusdocs.org

40
subcontractor is responsible for the delay/defect, the owner’s single point of remedy is the
Design-Build firm (assuming, of course, the owner met all of his contractual responsibilities,
selection, design decisions, etc.). This method tends to minimize adversarial relationships
because the architect/engineer and contractor are on the “same side.” A great virtue of this
system is speed. Complex projects sometimes are problematic using this system. It is also
helpful to have a decisive owner to make decisions in a short period of time.

Typical forms used are AIA A141 and the “400 Series” Consensus Docs.

F. Bridging

Bridging is another form of Design-Build wherein the owner hires an architect/engineer

to prepare its “design criteria” package, which enables the owner to then receive competitive
sealed proposals from Design-Build teams. The Design-Build firm is selected on either a
competitive bid process or on a combination of qualifications, experience and price. The Design-
Build firm then completes the construction documents and performs the work.

This involves two architect/engineer teams. One A/E team is hired by the owner to
prepare the initial design criteria package and the other A/E team is hired by the Design-Build
firm to complete the construction documents. It offers the owner a single point of responsibility
for design and construction, faster delivery, an enhanced definition of scope of work, and
stronger relationships between the architect/engineer and contractor. This method may diminish
checks and balances, can be difficult to manage, and creates an adversarial relationship between
the owner’s A/E and the contractor’s A/E. It is best suited for large projects that are sensitive to
scheduling and difficult to define. This system has not gained extremely wide use as of this
point in time.

Contract forms are proprietary. Standard forms have yet to be devised.

G. Job Order Contracting

As normally defined in the construction industry, Job Order Contracting is a process for
contracting the minor construction, repair, rehabilitation, or alteration of facilities when the work
is of a recurring nature, but the delivery times, type and quantities of work required are
indefinite. Orders are priced substantially upon pre-described and pre-priced tasks contained in
an Owner specified Unit Price Book (“Means” is a typical source used). The Prime Contractor
bids a “coefficient” or multiplier, which is applied to these unit prices to determine the
contractual rates. Selection is based upon the combination of experience, qualifications, past
performance, technical ability, financial stability, reputation and price, which provides the
overall best value.

This method provides a “win-win” partnering relationship between the Owner and the
Job Order Contracting Contractor. The contract has a low guaranteed minimum volume of work
and a high, but realistic, maximum. The contract normally has a base term of not less than six
months, nor more than two years, with the Owner having the option to renew it for one to four
additional terms. The low guarantee, combined with the potential substantial volume and

41
optional renewals, provides a strong incentive for the Contractor to deliver a high-quality
responsive service. Unit prices are fixed for the base term and adjusted, if options are exercised,
by using a construction cost index, or, if a commercial Unit Price Book is specified, using the
latest edition. The prime contractor generally uses local small businesses as subcontractors, with
limited self-performance. Projects are accomplished by the issuance of individual delivery orders
given by the Owner. Fast response is possible because of the reduced up-front administrative and
design requirements. Job Order Contracting requires teamwork and trained knowledgeable
personnel on the Owner’s staff to best administer the contract. Contractors must have superior
organizational and management skills and have a qualified source of competent and reliable
trade subcontractors to make this system cost effective.

Cities, counties, universities and school districts use this method for smaller rehabilitation
and “spruce-up” projects. Again, no standard forms have been created for this delivery method.

PART 7

RESIDENTIAL CONSTRUCTION DISPUTES: RCLA & TRCC

Given the current environment, with home sales down and home foreclosures up,
disputes between builders and homeowners are inevitably on the rise. Home ownership, now
more than ever, is both highly coveted and highly valued. For most consumers, a home is a
large, highly emotional purchase–what many consider to be an “investment in their future.” So,
one can only imagine how heated a dispute can be when something goes wrong. This part of the
paper will give a brief overview of the two statutory schemes in Texas dealing solely with
residential construction: The Residential Construction Liability Act (“RCLA”) and The Texas
Residential Construction Commission Act (“TRCCA”).

The Residential Construction Liability Act (“RCLA”)

The RCLA is one of the most important statutes in Texas for homeowners, homebuilders
and their lawyers to consider. Codified in Chapter 27 of the Texas Property Code, the RCLA
was enacted by the Texas Legislature in 1989 with the stated purpose of restoring “a fair and
appropriate balance with respect to the resolution of construction disputes between a residential
contractor and an owner.” Since its enactment, the RCLA has been amended seven times, most
recently in 2007.

Although the RCLA has been around for almost 20 years, there is little case law
interpreting the Act, and the few cases discussing the RCLA have unfortunately only created
more uncertainty and debate. Essentially, the RCLA is a statutory scheme that specifically states
the types of damages for which a homeowner may seek compensation, and the defenses available
to the contractors when a lawsuit is brought to recover for alleged construction defects.
However, it is important to note that the RCLA is not in and of itself an independent cause of
action. Rather, it merely provides a system for dispute resolution that must be used by the
parties.

42