Construction Law: Untangling the risk/reward matrix of project delivery

Construction Law: Untangling the risk/reward matrix of project delivery

Design and construction play a vital role in the national economy, including the development of residential housing, office, commercial, and retail buildings, as well as industrial plants, and the replacement, maintenance, and restoration of the nation’s infrastructure and other public facilities. Modern demands of time and technology constantly compete with finances and tradition in determining the methods by which projects will be conceived, financed, designed, and constructed. These same competing factors likewise dictate the professional skills that will be brought to bear in the process.

As early as the late 1960s, participants in the design and construction professions began to recognize the limitations presented by the traditional design-bid-build method of project delivery. Commencing in the 1970s and continuing in earnest throughout the 1990s, efforts to devise alternative forms of project delivery advanced. The purpose of these efforts was to assist owners in achieving quality construction projects that met the proverbial goal of “on-time and in-budget.” This search for improved and superior methods of project delivery often appeared to stall as parties struggled with developing and evaluating delivery criteria other than or in addition to price.

As with virtually all business, the construction economy is driven by an effort to balance risk and reward. Thus, project delivery methods, whether the traditional design-bid-build or an alternative method, must inevitably address the appropriate allocation of the risks that are inherent in the design, construction, and ownership roles. In addition to the owner’s risk, which is often overlooked or under evaluated, the participants in the process typically include a design entity with responsibility for the design and a contractor who is responsible for placing the construction. There is no project delivery panacea available that for all projects can successfully balance the risks and rewards of the project participants. Instead, each project must be individually analyzed and the potential delivery options identified and selected based on the project’s unique needs and requirements.

The fundamental risk associated with design, construction, and ownership cannot be eliminated. It can, however, be managed, directed, and controlled. The nature and extent of the risk associated with the design and construction process is not substantially affected by the method of project delivery. However, the allocation of that risk may vary substantially. Each delivery option affords a differing allocation of risks.

In order to maximize the prospects for a successful project, the level and extent of risk assumed by the participants, including the owner, should be proportional to the ability of each party to control and manage that risk. The reward expected by each party, whether in the form of short-term compensation (in the case of the designers and constructors) or long-term return (in the case of the owners and investors) should be appropriate to the risk accepted. The goal of every method of project delivery is to achieve that elusive balance of time, quality, and budget that is the hallmark of every successful project. As the saying goes: “Good, fast, and cheap. Pick any two.”

The attorneys at O’Reilly Law Group have significant experience in evaluating methods of project delivery and developing contracts that appropriately allocate the unavoidable risk of design and construction. Contact us at O’Reilly Law Group in Las Vegas today at 702-382-2500. Visit www.oreillylawgroup.com for more information about our Las Vegas law firm.

2019-05-01T14:41:17+00:00