Design-Build and P3s Contractual Risk Allocation Principles: New Terrain, Old Ground, or Both. Risk Management for Underground Construction

Transcription

1 Design-Build and P3s Contractual Risk Allocation Principles: New Terrain, Old Ground, or Both Risk Management for Underground Construction David J. Hatem, PC Donovan Hatem LLP Boston, MA November 15, 2016

2 Presentation Focus Risk Allocation Principles: Subsurface Projects Risk Allocation Principles: Project Delivery Methods Design-Bid-Build ( D-B-B ) Design-Build ( D-B ) Public-Private Partnerships ( P3s ) Path Forward: Developing Guidelines for Risk Allocation in D-B and P3 Subsurface Projects 2

3 Risk Allocation Principles: Subsurface Projects Specialized Focus Subsurface conditions Design adequacy Subsurface Risk Interrelationships and Interdependencies Scope of subsurface investigation Character of subsurface conditions Availability and reporting of subsurface data and interpretations Design of permanent project work Selection, design and implementation of construction means/methods and equipment Lessons Learned Improved Contracting Practices Adequate subsurface investigation Information disclosure Fair and appropriate risk sharing Geotechnical baseline reports 3

4 Risk Allocation Principles: Subsurface Projects Relationship between (a) (b) (c) (d) Permanent project design; Construction means and methods; Equipment selections; and Subsurface conditions reasonably expected and actually encountered 4

5 Risk Allocation Principles: Project Delivery Methods D-B-B: Typical Roles and Responsibilities Owner: Subsurface investigation and reporting Preparation and furnishing of permanent works design implied warranty obligation Risk sharing differing site condition provision Geotechnical baseline report preparation Contractor: Selection, design and implementation of construction means/methods, and equipment (unless prescribed or mandated by Owner) Construction based on Owner-furnished design Responsible for delegated (or performance-based) design or proposed/accepted design variations 5

6 Risk Allocation Principles: Project Delivery Methods D-B: Typical Roles and Responsibilities Owner: Subsurface investigation: To what degree? Provided in D-B RFP? Disclaimers/reliance rights? Geotechnical baseline report preparation? Design development: To what level? Prescriptive criteria or standards? Disclaimers/reliance rights Scope of review and authority regarding acceptance/rejection of Design-Builder s design submittals 6

7 Risk Allocation Principles: Project Delivery Methods Design-Builder: Subsurface investigation: To what degree? Complete or supplemental? Preparation of geotechnical reports Relationship/relevance to final design approach? Design development: Responsible for final design Alternative technical concepts Suitability/compatibility/constructability relative to anticipated subsurface conditions Negation of Owner-implied warranty obligation 7

8 Risk Allocation Principles: Project Delivery Methods P3s P3s = D-B ++ Relational risk allocation 8

9 Displacement of Typical Risk Allocation Principles in D-B and P3s Displacement of General Principle - The Owner may retain or assume design adequacy risk and responsibility in the following circumstances: Overly prescriptive design criteria or standards Relatively high degree of design development Imposed limitations on scope of subsurface investigation Mandated or directed characterization of subsurface conditions for design or construction purposes Broad scope of review/rejection over D-B Team s design submittals Unwarranted intrusion or interference with D-B Team s design discretion, judgment or prerogatives Mandated or prescriptive construction means/methods and equipment 9

10 Path Forward: Developing Guidelines for Risk Allocation in D-B and P3 Subsurface Projects D-B and P3s do not require total design and subsurface conditions risk transfer from Owner to Design-Builder Risks should be allocated to the party having: An ability to manage the risk A meaningful and realistic opportunity to exercise discretion and judgment in the subject areas relevant to the risk Appropriate project-specific risk sharing should be contractually-defined and stipulated Actual performance of parties should conform to contractual risk allocation terms and underlying principles Appropriate balancing of the interdependencies and interrelationship factors 10

11 Path Forward: Developing Guidelines for Risk Allocation in D-B and P3 Subsurface Projects Relationship between (a) (b) (c) (d) Permanent project design; Construction means and methods; Equipment selections; and Subsurface conditions reasonably expected and actually encountered 11

12 Path Forward: Developing Guidelines for Risk Allocation in D-B and P3 Subsurface Projects Risk for design and subsurface conditions on subsurface projects involves a significant degree of interrelationships and interdependencies among (a) the scope, extent, nature and quality of subsurface investigation relevant to the designated design approach; (b) the extent to which the Owner and/or the D-B team has responsibility to perform that investigation; (c) the extent to which the Owner has issued mandatory specifications, standards or criteria of a detailed and prescriptive character; (d) the extent to which the Owner disclaims the accuracy of any data or reports relating to subsurface investigation and/or denies the D-B team any right to rely upon any such Owner-furnished materials; (e) the extent to which the detailed design as developed by the D-B team impacts physical subsurface conditions, or the behavior thereof; (f) the degree to which the Owner has imposed its preferences and judgments on the D-B team during the design review process, especially if done in a manner that exceeds the Owner s contractual authority; and (g) whether the Contract Documents include a differing site conditions clause, or other mechanism for the sharing of subsurface conditions risk. 12

13 Path Forward: Developing Guidelines for Risk Allocation in D-B and P3 Subsurface Projects The point, of course is that it is virtually impossible to evaluate design and subsurface conditions risk in P3 and D-B projects absent a holistic consideration of all the preceding interrelated and interdependent factors. Due to the dual role of the Owner and D-B team, to potentially varying degrees, in the investigation of subsurface conditions and in the design development process and the foregoing interrelationship and interdependency considerations, allocation of risk for design and subsurface conditions in P3s and D-B is complex and variable. In this respect, the ultimate pragmatic and legal determination of risk allocation for defective design and subsurface conditions in P3 and D-B subsurface projects is far more complicated and unpredictable than on vertical P3 and D-B projects. D.J. Hatem, Public-Private Partnership and Design-Build Subsurface Projects: Who is Actually Responsible for Design and Subsurface Conditions Risk? A Call for Guidelines. Design and Construction Management Professional Reporter, Donovan Hatem LLP (Sept. 2014) 13

14 Path Forward: Developing Guidelines for Risk Allocation in D-B and P3 Subsurface Projects Balancing the risks in D-B and P3 subsurface projects is complex and requires conscientious and project-specific consideration A number of factors must be conscientiously understood and evaluated in assessing and determining risk and responsibility for design and subsurface conditions on D-B and P3 projects, such as: the interrelationships and interdependencies among anticipated subsurface conditions; the nature, extent and quality of subsurface investigation relevant to the designated design approach; the nature and extent of Owner-furnished design criteria and standards; and the nature and extent of the Owner s contractually-defined and actual conduct in the design review process. This is a complicated evaluative process and, in many instances, the ultimate determination of risk and responsibility may well depend upon, or be influenced by, factors and considerations beyond the literal and precise terms of the Contract Documents. Put another way, those determinations may not necessarily be predictable with any reasonable degree of certainty at the points of either tender or contract formation. The mere inclusion of a design subsurface conditions provision may not necessarily be determinative of these risk allocation and responsibilities issues. Exclusive reliance upon contract terms as the ultimate determinant of risk allocation may be misplaced or illusory. Id. 14

15 Path Forward: Developing Guidelines for Risk Allocation in D-B and P3 Subsurface Projects Improved contracting practices provide an excellent and solid foundation for development of risk allocation guidelines for D-B and P3 subsurface projects Same general principles apply, albeit in a modified manner in D-B and P3 subsurface projects Modifications derive primarily from the differing roles and responsibilities of project participants in D-B and P3s from roles and responsibilities in D-B-B The underground industry should collaboratively focus on developing, adapting and conscientiously applying risk allocation principles to D-B and P3 subsurface projects 15

16 Path Forward: Developing Guidelines for Risk Allocation in D-B and P3 Subsurface Projects Guidelines should be developed that account for the risk allocation considerations and provide guidance for project-specific application in D-B and P3 projects Guidelines: Not prescription or standards, and not a substitute for prudent and sensible risk allocation judgments and decisions on a project-specific basis Reference: Hatem, David J., PC. "Risk Allocation and Professional Liability Issues for Consulting Engineers on P3 and Design-Build Projects." Public-Private Partnerships and Design-Build: Opportunities and Risks for Consulting Engineers. Eds. David J. Hatem and Patricia Gary. 2nd ed. Washington: ACEC,

17 Path Forward: Developing Guidelines for Risk Allocation in D-B and P3 Subsurface Projects Industry Initiatives Improving risk allocation in alternative delivery methods (ADMs) Transportation Research Board, Guidelines for Managing Geotechnical Risks in Design-Build Projects, NCHRP (Dec. 1, 2017) 17

18 Subsurface Conditions Risk Allocation/Project-Specific Professional Liability Insurance: Correlation Subsurface Conditions Risk Allocation Project-Specific in Approach Various Options in P3s and D-B Project-Specific Professional Liability Insurance ( P-S PLI ) Project-Specific Underwriting Evaluation of Project Specific Subsurface Conditions Risk Allocation Approach Not Standardized Process or Product Prudent (Fair and Balanced) Risk Allocation Promotes Availability, Terms and Premium Cost for P-S PLI P-S PLI Not a Solution for Imprudent Risk Allocation 18

19 Questions? 19