How Much Risk Should an Owner Transfer to a DB Firm on Their Project? 

One of the benefits of collaborative project delivery is that it allows owners to transfer risks to the design-builder that they would normally have to retain in a standard design-bid-build project delivery framework; however, owners should resist the temptation to divest themselves of all project risk and transfer everything to the design-builder.

Rather, owners should carefully weigh the cost/benefit of risk transference and develop a project risk allocation strategy.

It is an industry truism that a given risk should be retained by the party in the best position to manage, price or insure that risk. If an owner transfers risks to the design-builder that the design-builder is not equipped to mitigate through management, pricing or insurance, it can lead to unintended consequences:

  • The owner might receive fewer bids if the risk profile and allocation is deemed unattractive by the marketplace.
  • The owner might receive inflated bids as DB teams build in extra contingency to try and account for added risk.
  • Project performance might suffer if the design-builder owns risks that it is not in a position to manage.

On the other hand, a proactive and balanced approach to risk will usually result in a competitive bidding environment and serve the owner well during project execution.

Resources for Owners

Owners don’t have to go it alone when it comes to developing a risk allocation strategy. Available resources include:

  • Owner’s advisor. An owner can choose to hire a firm to provide technical and advisory services during procurement, contracting, and management of a project. An owner’s advisor that is experienced with design-build can help guide an owner in developing a risk allocation strategy by conducting a project risk assessment early in the procurement process.
  • WDBC Handbook. The WDBC’s Water and Wastewater Design-Build Handbook has a chapter titled “Risk Management and Contracts (5th edition update).” This chapter contains a wide range of risk-related information including the principles of risk allocation, key contractual considerations, and details of typical risk allocations for different types of collaborative delivery.
  • Industry feedback. Issuing a draft contract to the marketplace before the procurement commences or to all interested teams during the procurement can provide valuable feedback and help optimize risk allocation.
Topics: AECOM, Design-Build, Risk Allocation.

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