Design and Construct vs Traditional Procurement

Introduction
This document discusses the range of considerations that will inform a decision to select a
design and construct form of procurement for construction projects.
The traditional procurement method (design, document, tender and construct) provides the
greatest level of lead agency design and quality control and for these and other reasons is
generally preferred for social infrastructure.
However, traditional procurement does not facilitate the fast tracking of projects and there is an
increasing incidence of lead agencies requesting that project delivery be fast tracked. One
approach to fast tracking is to adopt a design and construct procurement which allows early
involvement by the contractor and overlap of the completion of design with the commencement
of construction.
The design and construct contract form requires the contractor to be accountable for the
effective completion of the design and for completing construction to a fixed price and time.
This method facilitates an early construction start date but requires the transfer of the design
control to the contractor and severely constrains the lead agency and end user groups in regard
to variation to the scope of the works. Any change once the contract is entered into can come
at a high cost, putting the approved project budget at risk.
The Department of Planning, Transport and Infrastructure (DPTI) Building Management division
preferred contract conditions for this contract form are the AS 43001995 General conditions
of contract for design and construct.

Comparison of Traditional and Design and Construct Procurement

Methods
The options for procurement through a traditional or design and construct procurement method
are outlined in terms of the opportunities and risks associated with each method.

Traditional Contract
Opportunities
Cost The provision of detailed drawings,
specifications and quantities provides a
basis for obtaining competitive tenders
for the work and facilitates the
comparison of tenders.
Time As a result of sufficient time being
provided for the detailed design and
documentation, the risk associated with
the number of design changes required
during the works is relatively low.
Risks
The additional time required in
procuring the works may impact upon
the lead agency’s budget and
professional service contractor (PSC)
costs.
The contract provides for changes and
variations to the design and/or
specification by the lead agency/DPTI
during the works and the contract which
if uncontrolled can lead to cost
blowouts.
Is tendered when design is complete
leading to an extended program.
Due to the design and construction
phases of the project being ‘end-on-
end’, with no parallel working, the

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Updated in November 2013
Design and Construct vs Traditional Procurement
Opportunities
Scope/Quality The lead agency/DPTI retains control
over design and design services and
quality can be directly managed.
DPTI has the ability to assure project
quality through a system of audits for
both design and construction.
Communication Well understood procurement process
which facilitates effective
communication.
Design and Construct Contract
Opportunities
Cost Incentive for the contractor to utilise
expertise to minimise costs as it carries
the risk for any cost overrun.
Project cost is known and fixed at
acceptance of tender with less risk of
price rises during design development
stage.
Time There is potential for earlier start on site
and occupation of the facility.
Program including contractual
completion is fixed at acceptance of
tender.
Scope/Quality Design is reviewed and tested for
efficiencies by construction contractor.
Communication The management of communications
between the PSC group and the
construction contractor is transferred to
the contractor.
Risks
overall program is slower.
Does not take advantage of the benefits
of integration between the design and
construction processes.
As the contracting arrangements are
more complex (i.e. separate contracts
for lead PSC, cost manager and
building contractor), effective
management and communication is
more challenging.
Risks
Contractor assumes greater financial
risk so tender price could be higher.
Promotes cheapest capital cost options
which could have life cycle implications.
Professional Indemnity insurance by the
contractor can be a considerable cost to
the project.
Any change of contract scope provides
an opportunity for the contractor to
justify a significant change/extension to
the original fixed program especially if
the contract is well progressed.
The contractor has control over the
design process and is interested in low
cost which may result in design quality
being compromised unless the brief of
requirements is fully developed and
robust.
Variations must be limited unless
significant costs are to be incurred and
therefore design construct is often not
suitable for social infrastructure where
the brief of requirements is fluid/subject
to change.
Supervision of the works is by the
contractor with limited opportunity for
DPTI to review quality.
The lead agency/DPTI transfers control
of the design to the contractor and has
very limited capacity to intervene without
introducing a transfer of risk back to
Government.
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Design and Construct vs Traditional Procurement

Budget
Most budgets for construction projects are set on the basis of a traditional procurement
methodology. By selecting a design and construct procurement method there can be budget
risk introduced, depending on the amount of risk that is transferred to the contractor.
Complete risk transfer where the risks of industrial action, inclement weather, latent conditions,
design (no variations), time (no extension of time) and cost (including escalation) are
transferred can result in the contractor pricing these risks higher than allowances in the
traditionally based cost plan with the result that the approved project budget is exceeded.
As one of the purposes in selecting the design and construct procurement method is to provide
certainty to the State on the amount it will pay for the project as briefed, there should be very
careful consideration of proposals to take back risk in order to manage the project budget.

PSC and DPTI Costs

The traditional procurement method requires DPTI to engage a PSC team for full services to the
project with DPTI providing its standard risk management services.
The design and construct procurement method will generally require a modified service from the
PSC team to prepare the brief (Principal’s Project Requirements) and potentially a concept
design. The PSC team will either conclude its services at this point, or be novated to the
successful design and construct contractor, with the PSC price agreed in advance and included
in the tender documents. From that point on their services and costs will form part of the
construction contract with quality, time and cost aspects of the services managed by the
contractor.
In the design and construct procurement model there is a reduced role for DPTI with modified
project risk management, limited input into design review, reduced budget review (payments)
and generally no construction review, unless there is a ‘verifier’ role or a system of random
audits of construction progress and quality.
DPTI design resources may be utilised to develop the brief and undertake Concept services.
This approach avoids the need to compromise any future potential relationship between a PSC
engaged by DPTI for this purpose and the design and construct contractor.
The modified DPTI management system includes key activities such as:
 preparing contractual documents
 calling PSC and contractor tenders
 managing tender appraisal and tender recommendation
 executing PSC and design and construct contracts
 administering contracts as Superintendent’s Representative (note the Principal is the
Minister for Transport and Infrastructure and the Superintendent is the Director Project
Services, DPTI)
 certifying and making contract payments to contractors
 managing random on-site inspections
 managing dispute resolution, liquidations and bankruptcies.
Generally DPTI will manage that there is a prescribed role for PSCs novated to the design and
construct contractor which may include compliance statements that the works are in
accordance with the Principal’s Project Requirements including:
 statement of approval where materials or finishes are substituted for those in the
reference documents

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Design and Construct vs Traditional Procurement

 statement of outstanding items and defects at Practical Completion

 statement that all outstanding items are complete.

Summary
Prior to committing to a design and construct procurement method the following should be
acknowledged and discussed with the lead agency.
 It is essential that the project brief is thoroughly detailed prior to tender call so that design
and quality risks are minimised and there is limited scope for contractor claims.
 Under the traditional contract the project is fully documented and audited and provides a
rigorous design basis incorporating accepted standards. Under a design and construct
procurement method the State is relying on the quality of the Principal’s Project
Requirements document to fully articulate the performance requirements of the facility.
As this briefing document does not contain the detail included in full documentation, the
lead agency will need to acknowledge and accept the potential impact on the quality in
regard to performance, function, materials and life cycle costs.
 Any matter that will potentially delay a design and construct contractor will need final
resolution prior to committing to a design and construct procurement method.
 Selection of a contractor to undertake a design and construct contract requires a more
sophisticated and complex tendering process to manage that the successful contractor
has the design and management skills within its team to deliver a successful project. The
process may incorporate an element of design and may even warrant a design
competition with associated payment to the tenderers.
 The potential for increased delivery cost should be discussed and factored into the project
budget, ensuring that the planned risk transfer does not unduly affect overall project value
to the State.

Contact
For further information contact:

Brenton Nottage
Manager Building Contracts
Phone: 08 8343 2037
Email: brenton.nottage@sa.gov.au

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