AI Review for Master Design-Build Contracts

What is a Master Design-Build Contract?

A Master Design-Build Contract is a master contract between a landowner or developer and a Design-Builder for the provision of professional design and construction services in relation to a building project. The agreement defines the rights and obligations of both parties.

In the traditional method of building, called "Design-Bid-Build" (DBB), a landowner or developer contracts first with an architectural firm for designs and architectural plans, then solicits bids from contractors for construction of the project based on the designs and plans, and subsequently separately contracts with the bid-winning construction company. However, these days an owner/developer can contract with a single entity (a Design-Builder) who will handle both the professional design of the project and its construction, which is called "Design-Build" (DB). A Master Design-Build Contract is used for this more modern method of building, which offers multiple benefits.

For example, with DB, the design of the entire project need not be complete before construction can begin on the part of the design that is finished. Additionally, the owner will know who is responsible for problems with the project because, unlike in the DBB method, the architect and contractor can't blame each other for problems. As such, the DB method of building has become nearly as popular as the traditional DBB method and is arguably more efficient.

Key Considerations in Master Design-Build Contracts

According to the provided document, some of the key provisions typically found in a Master Design-Build Contract include:

1. Nature of Agreement: Like every form of master agreement, also called "umbrella" or "framework" agreements, the Master Design-Build Contract must include language explaining its nature and addressing how it interacts with Statements of Work that are issued and executed pursuant to the master agreement.
2. Obligations: The obligations of the parties are often addressed in multiple articles, one article outlining the obligations of each party and sometimes an article outlining those obligations that are shared by both parties.
3. Warranties: This article sets forth the warranties that the Design-Builder makes with respect to the Work. Specifically, it should be free from defects in materials, design, and workmanship. This article also explains the Owner's rights and remedies regarding non-conforming Work.
4. Timing of Performance: This article states that time is of the essence, sets forth important dates for performance (commencement, substantial completion, and final completion) and the rights of the Design-Builder where a delay is excusable.
5. Payment: In the construction industry, the process of applying for and obtaining payment is often much more complicated and substantial than in other industries. This article addresses that process in detail as well as how rejected applications and late payments are to be handled.
6. Change Orders: Change Orders are a mechanism heavily used in the construction industry by which the parties can make changes to SOWs in an Master Design-Build Contract, however the process around them can be quite complicated. This article should clearly explain the Change Order process and under what circumstances the parties can institute changes to the Work without a Change Order.
7. Disputes & Claims: This is perhaps one of the most fundamental portions of the Master Design-Build Contract because it is the Claims process by which the parties will address disputes related to the project, particularly regarding equitable adjustments to time or contract price that may not have been captured in a Change Order. Ensuring this process is well drafted will help the parties to avoid litigation.
8. Intellectual Property: Because the services will include design as opposed to just construction, it is vitally important for the parties to address which party will own the designs created pursuant to the contract and what rights of use (including distribution, copying, modification, etc.) the other party will have with respect to those designs and under what circumstances.

In addition to these key provisions, a comprehensive Master Design-Build Contract should also include:

9. Scope of Work: A clear definition of the services to be provided by the Design-Builder, including both design and construction responsibilities.
10. Insurance and Bonding: Requirements for the Design-Builder to maintain appropriate insurance coverage and provide any necessary performance and payment bonds.
11. Indemnification: Provisions allocating liability between the parties and requiring each party to defend and hold the other harmless from certain claims.
12. Termination: Conditions under which either party may terminate the agreement, and the consequences of termination, such as payment obligations and ownership of work product.‍
13. Governing Law and Dispute Resolution: Specification of the governing law for the agreement and the methods for resolving disputes, such as mediation or arbitration.

Checklist for a Good Master Design-Build Contract

To ensure that your Master Design-Build Contract is effective, comprehensive, and legally sound, use this checklist:

• Clearly explain the nature of the agreement and its interaction with Statements of Work
• Define the obligations of each party and any shared obligations
• Include warranties regarding the quality of the work and remedies for non-conforming work
• Specify key dates for performance and address excusable delays
• Detail the payment application process and handling of rejected applications and late payments
• Explain the Change Order process and circumstances allowing changes without a Change Order
• Establish a clear Claims process for addressing disputes
• Address ownership and usage rights for intellectual property created under the agreement
• Define the scope of work, including both design and construction responsibilities
• Specify insurance and bonding requirements
• Include indemnification provisions allocating liability between the parties
• Outline termination conditions and consequences
• Specify the governing law and dispute resolution methods
• Ensure the agreement complies with relevant laws and regulations
• Have the agreement reviewed by legal counsel and construction industry experts
• Ensure the agreement is signed by authorized representatives of both parties

AI Contract Review for Master Design-Build Contracts

To give you a sense for the benefits of leveraging legal contract review ai trained by lawyers, we’ve selected some sample language our software presents to customers during a review. Keep in mind that these are static in this overview, but dynamic in our software - meaning our AI identifies the key issues and proactively surfaces alerts based on importance level and position (company, 3rd party, or neutral) and provides suggested revisions that mimic the style of the contract and align with party names and defined terms.

These samples represent less than 5% of the pre-built, pre-trained Legal AI Contract Review solution for Master Design-Build Contracts. If you’d like to see more, we invite you to book a demo.

ADDITIONAL OBLIGATIONS OF DESIGN-BUILDER

For: Owner

Alert: May be missing a clause requiring design-builder to manage and ensure the safety of the site during the project.

Guidance: The main legal concept in the suggested scenario highlights the Design-Builder's obligation to exercise due care and maintain safety at the construction site throughout the project. This concept is vital as it helps protect various stakeholders by reducing the risk of accidents, injuries, or property damage, and ensuring compliance with safety regulations.

In practical terms, this provision serves to create a safer work environment, decrease potential liabilities, and foster a positive reputation for prioritizing safety in construction projects. For example, a Design-Builder constructing a large commercial building can prevent accidents and legal liabilities by ensuring the safety of the site, ultimately benefiting all parties involved.

It is crucial to consider relevant federal laws, such as the Occupational Safety and Health Act (OSHA), which establishes safety standards for construction sites. Additionally, state-specific safety regulations should be taken into account. Compliance with these laws and regulations not only benefits stakeholders by minimizing the risk of penalties and legal liabilities but also demonstrates a commitment to maintaining a safe work environment.

Sample Language:

ADDITIONAL OBLIGATIONS OF DESIGN-BUILDER

1. Compliance. DESIGN-BUILDER shall perform the Work in compliance with all applicable laws, rules, regulations, and lawful orders of public authorities (“Applicable Laws”). DESIGN-BUILDER shall obtain necessary permits, licenses, and inspections for the Work per Design-Build Documents requirements. If DESIGN-BUILDER performs Work knowing it violates Applicable Laws, then it accepts responsibility for the costs of correcting such Work. DESIGN-BUILDER shall notify OWNER if it becomes aware that any of OWNER’s instructions or the Design-Build Documents violate Applicable Laws, and the Parties shall execute an amendment or Change Order if and as necessary to conform the contract requirements to Applicable Laws. DESIGN-BUILDER, with the assistance of OWNER, shall prepare and file documents required to obtain necessary approvals of governmental authorities having jurisdiction over the Project.

2. Professional Services. DESIGN-BUILDER shall provide or procure all necessary design services for the Work through qualified licensed professionals, including preparation of Construction Documents such as drawings, specifications, and other submittals required to construct the Work per this Agreement. To the extent permitted by Applicable Laws, DESIGN-BUILDER may submit partial Construction Documents to permit phased construction. All documents shall be signed and sealed by an appropriate licensed design professional.

3. Diligence. DESIGN-BUILDER shall furnish diligent efforts, judgment and all labor, supervision, materials, equipment, permits, shop drawings, tests, inspections, field dimensions and other necessary services to properly perform the Work so that job progress, sequence and timing conform to the Design-Build Documents, including any Construction Schedule issued by DESIGN-BUILDER. If DESIGN-BUILDER falls materially behind the currently approved Construction Schedule, OWNER may require DESIGN-BUILDER to prepare and submit for approval, at no cost to OWNER, a plan for finishing the Work by the Substantial Completion Date. Failure to submit a plan meeting this requirement shall constitute grounds for termination of the Work Order under the terms of this Agreement.

4. Standard of Care. DESIGN-BUILDER and its personnel shall perform all services under the Design-Build Documents consistent with industry standards of care and skill in the state where the Project is located. This includes good practices, methods, and acts reasonably expected to accomplish the work per the Design-Build Documents at a reasonable cost, safety, and efficiency. Construction activities shall be performed competently to meet Design-Build Documents and legal requirements. DESIGN-BUILDER shall at all times maintain complete control over construction means, methods, sequences, and techniques.

5. Key Personnel, Contractors, and Suppliers. For performance of the Work, DESIGN-BUILDER shall not employ personnel or contract with suppliers or contractors reasonably and timely objected to by OWNER, nor shall DESIGN-BUILDER be required to contract with anyone about whom it has reasonably and timely objected. If DESIGN-BUILDER decides to change any personnel or required suppliers or contractors identified in a Work Order, it shall notify OWNER and provide the name and qualifications of the substitute personnel, supplier, or contractor within [●●] ([●●]) days of such decision. DESIGN-BUILDER shall furnish OWNER with a list of the names of persons and entities (including those fabricating special design materials or equipment) proposed for major portions of the Work that are not already identified in the Work Order within [●●] ([●●]) days of Work Order execution. OWNER may lodge a reasonable objection with DESIGN-BUILDER to any of the aforementioned personnel, suppliers, or contractors in writing within [●●] ([●●]) days of notice, and failure to do so constitutes no reasonable objection. If OWNER reasonably objects, DESIGN-BUILDER shall propose another non-objectionable person or entity. DESIGN-BUILDER shall be responsible to OWNER for acts and omissions of the DESIGN-BUILDER’s employees, consultants, contractors, and their agents and employees, and other persons or entities performing portions of the Work under contract with DESIGN-BUILDER.

6. Inconsistencies. Before performing Work, DESIGN-BUILDER shall visually inspect the site to become familiar with conditions and identify any document discrepancies, which will be promptly reported to OWNER. DESIGN-BUILDER shall compare Design-Build Documents and report any errors, inconsistencies or omissions to OWNER in writing within [●●] ([●●]) days. Similarly, If part of DESIGN-BUILDER’s Work depends upon construction or operations by the OWNER or a separate contractor, DESIGN-BUILDER shall, prior to proceeding with that portion of the Work, prepare a written report to OWNER, identifying apparent discrepancies or defects in the construction or operations that would render it unsuitable for proper execution of the DESIGN-BUILDER’s Work. DESIGN-BUILDER shall comply with OWNER’s instructions regarding such issues but remain responsible for its own errors and omissions. If clarifications require additional cost or time, DESIGN-BUILDER may submit a Claim in accordance with this Agreement. If DESIGN-BUILDER’s failure to report discrepancies causes OWNER liability, DESIGN-BUILDER shall pay the associated costs and damages to OWNER.

7. Communications. Unless the Design-Build Documents state otherwise or there is an emergency, DESIGN-BUILDER shall direct all Project communications to OWNER.

8. Submittals. DESIGN-BUILDER shall timely submit required shop drawings, product data, samples and similar submittals in the sequence needed to avoid Project delays. Submittals shall be in electronic form, if required. DESIGN-BUILDER represents it has reviewed and coordinated submittals with Design-Build Documents and Work requirements. OWNER may rely on the adequacy and accuracy of required certifications. Submittal approvals shall not authorize changes without a Change Order, except when express written OWNER approval is given and memorialized in a Change Order, specifying any necessary adjustments to price or time, within [●●] ([●●]) days following approval by the OWNER. DESIGN-BUILDER shall furnish progress reports as mutually agreed and evidence of payment for labor and materials when OWNER requests.

9. Safety. <mark>DESIGN-BUILDER recognizes the importance of performing the Work safely to prevent damage, injury or loss to people at the site, to the work itself, and to adjacent property. DESIGN-BUILDER assumes responsibility for implementing and monitoring all safety precautions and procedures related to the Work.</mark> Prior to construction, DESIGN-BUILDER shall designate a Safety Representative to supervise safety implementation and monitoring. This representative shall conduct routine inspections, hold weekly safety meetings, and ensure compliance with all legal and OWNER-specific safety requirements, including disease prevention, provided they do not violate Applicable Laws. DESIGN-BUILDER shall promptly report in writing any safety-related injury, loss, damage or accident to OWNER’s Representative and authorities as legally required. Prior to bringing hazardous materials on site, DESIGN-BUILDER shall notify OWNER in writing in time for other parties to comply with laws. If precautions cannot adequately prevent foreseeable injury or death from encountered hazards at the Project site, DESIGN-BUILDER shall immediately stop work, promptly notify OWNER in writing, and only resume work once the hazard is removed and OWNER agrees in writing. DESIGN-BUILDER shall be entitled to appropriate time and price adjustments for related demobilization and remobilization costs to the extent provided under the Design-Build Documents. DESIGN-BUILDER's responsibility for safety does not relieve its subcontractors of their own contractual and legal obligations related to complying with laws and regulations and implementing safety precautions and programs.

10. Site Conditions. DESIGN-BUILDER shall keep the Project site clean of its own waste and rubbish, but is not responsible for conditions caused by other parties. If DESIGN-BUILDER does not perform required clean-up, it shall reimburse OWNER its share of clean-up costs. DESIGN-BUILDER shall take necessary precautions to protect all on-site work from damage. DESIGN-BUILDER shall provide the OWNER and its separate contractors and consultants access to the Work in preparation and progress wherever located, but neither Party, nor its contractors or subcontractors, shall alter construction partially or fully completed by the other Party without prior written consent, which shall not be unreasonably delayed or withheld. 

11. Plans on Site. DESIGN-BUILDER will maintain at the Project site a copy of all relevant plans, addenda, Change Orders, supplemental drawings, written directives, approved submittals, inspection reports, and an updated Construction Schedule, which shall be available for review by authorized personnel at all reasonable times.

12. Tests and Inspections. Tests, inspections, and approvals of Work portions shall be made as required by the Design-Build Documents and Applicable Laws and without unreasonable delay. Unless otherwise provided, DESIGN-BUILDER shall arrange such procedures with an independent testing entity acceptable to OWNER and give OWNER timely notice of when and where testing or inspections will occur so OWNER may be present. Unless otherwise stated in the applicable Work Order, such testing and inspections shall be at OWNER’s expense, unless they reveal failure of the Work to comply with the requirements established by the Design-Build Documents, in which case such costs shall be paid by DESIGN-BUILDER. Required certificates shall be secured by DESIGN-BUILDER and delivered to OWNER unless otherwise specified.

ADDITIONAL OBLIGATIONS OF OWNER

For: Design-Builder

Alert: May be missing a clause regarding owner's inspection of the work to determine if it is substantially complete.

Guidance: In a Master Design-Build Contract, it is essential to incorporate a provision that permits the Owner to inspect the work to determine if it is substantially complete. This provision ensures that the Owner can confirm that the work meets the agreed-upon standards and requirements, safeguarding their interests and investment in the project.

This recommendation is particularly significant as it provides a transparent and legally enforceable mechanism for the Owner to ensure that the work is completed to their satisfaction. This minimizes the risk of disputes and potential legal issues stemming from disagreements over the quality or completeness of the work.

For example, the design-build contractor and the Owner may have different concepts of what is meant by ""substantially complete,"" unless it is defined in the agreement, as there are multiple common definitions of that term in the construction industry. Having the right to inspect the work and identify any areas that require further attention before considering the project substantially complete is thus an important safeguard from the perspective of the Owner.

Relevant statutes or laws to consider in this context may include state-specific construction laws and regulations, as well as any applicable building codes and industry standards that govern the design and construction of the project. These laws and regulations can help provide a framework for defining the inspection process.

It is also crucial to be aware of the ""doctrine of substantial performance,"" a common law concept that allows a contractor to be considered as having fulfilled their contractual obligations even if there are minor deviations or defects in the work, as long as the work is still functional and fit for its intended purpose. This doctrine may be applicable in situations where the Owner's inspection reveals minor defects or deviations from the contract specifications, but the project is still functional and fit for its intended purpose.

Sample Language:

ADDITIONAL OBLIGATIONS OF OWNER

1. Communications. OWNER shall promptly provide DESIGN-BUILDER all information impacting subcontract performance, including hazardous materials exposure on site, observed faults or defects in DESIGN-BUILDER's Work, the addition of separate contractors to the Project, and all claim information relating to DESIGN-BUILDER's Work, OWNER’s financial ability to pay for the Work, and information or services under OWNER’s control relevant to DESIGN-BUILDER’s performance, and shall transmit to the DESIGN-BUILDER, with reasonable promptness, all submittals, transmittals, and written approvals relative to the Work. OWNER shall not directly instruct DESIGN-BUILDER’s staff, sub-subcontractors, or suppliers without authorization from DESIGN-BUILDER. OWNER shall also provide any lien information requested by DESIGN-BUILDER within [●●] ([●●]) days. Except to the extent OWNER advises DESIGN-BUILDER to the contrary in writing, DESIGN-BUILDER shall be entitled to rely upon the accuracy and completeness of the foregoing information shared by OWNER. 

2. Legal Authorizations. OWNER shall promptly obtain easements, zoning variances, and legal authorizations or entitlements regarding site utilization where essential to the execution of the Project and shall cooperate with DESIGN-BUILDER in securing building and other permits, licenses and inspections.

3. OWNER-Provided Services. Unless the Design-Build Documents require DESIGN-BUILDER to provide them, OWNER shall, upon DESIGN-BUILDER's request, furnish geotechnical engineering or other consulting services to investigate subsurface, air and water conditions when reasonably necessary for DESIGN-BUILDER's design services. In such event, DESIGN-BUILDER shall specify the required services, which may include test borings, test pits, soil bearing value determinations, percolation tests, hazardous materials evaluations, ground corrosion and resistivity tests, and operations to anticipate subsoil conditions. The geotechnical engineers or consultants shall prepare and submit all appropriate reports and professional recommendations.

4. Use of DESIGN-BUILDER’s Equipment. OWNER and its agents, employees and suppliers shall use the DESIGN-BUILDER's equipment only with the DESIGN-BUILDER's express written permission and in accordance with any terms for such use. OWNER shall indemnify DESIGN-BUILDER as provided in this Agreement for any loss or damage arising from such use, except when caused by the negligence of DESIGN-BUILDER's employees operating the equipment. 

5. Inspection of Work. <mark>Promptly after DESIGN-BUILDER notifies OWNER the Work is substantially complete, and if OWNER knows of no impediment, the Work shall be inspected for compliance with the Design-Build Documents. If the Work does not qualify as substantially complete, OWNER shall provide a written list of incomplete or deficient items for DESIGN-BUILDER to address before requesting re-inspection. If the Work is found substantially complete, DESIGN-BUILDER shall prepare a Certificate of Substantial Completion for OWNER's signature establishing: the Substantial Completion Date; responsibility allocations for insurance, security, maintenance, utilities, and damage; and the time for DESIGN-BUILDER to complete accompanying Punch List items. Upon DESIGN-BUILDER's notice the Work is ready for final inspection and receipt of a final payment application, OWNER shall attend such inspection.</mark>

6. OWNER’s Separate Contractors. OWNER is responsible for all work performed at the Project site by separate contractors under OWNER’s control. OWNER shall contractually require its separate contractors to cooperate with, and coordinate their activities so as not to interfere with, DESIGN-BUILDER in order to enable DESIGN-BUILDER to timely complete the Work consistent with the Contract Documents.

7. Safety. OWNER shall require its tenants and separate contractors to comply with Applicable Laws and eliminate or abate hazards per DESIGN-BUILDER’s request. To the fullest extent permitted by law, OWNER shall indemnify DESIGN-BUILDER against claims and damages arising from hazards caused by OWNER’s tenants and separate contractors. OWNER shall be responsible for eliminating hazards created by its separate contractors or tenants. DESIGN-BUILDER shall receive appropriate time and price adjustments for related demobilization and remobilization costs as provided under the Design-Build Documents.

8. Security OWNER shall be responsible for Project site security (including fencing, alarm systems, security guarding services and the like) at all times during the term of the Work Order to prevent vandalism, theft and danger to the Project, the site, and personnel. OWNER shall coordinate and supervise ingress and egress from the site so as to minimize disruption to the Work.

DESIGN-BUILDER WARRANTY

For: Owner

Alert: May be missing an article regarding design-builder's warranty for work performed under the agreement.

Guidance: The legal concept in the given suggestion highlights the significance of the Design-Builder's obligation to report any errors, inconsistencies, or omissions related to the site to the Owner. This duty promotes transparency, accountability, and communication between the parties, which can help prevent disputes and ensure a smoother project execution.

In practice, this requirement reduces the risk of unforeseen issues arising during the project, which could lead to delays, cost overruns, or legal disputes. For example, if the Design-Builder discovers contaminated soil on the site, reporting this issue to the Owner allows for necessary remediation steps to be taken, ensuring the project proceeds safely and without complications.

Relevant statutes or laws to consider in this context include environmental regulations, building codes, and zoning ordinances. Compliance with these regulations can help protect the parties from potential legal liabilities.

Sample Language:

DESIGN-BUILDER WARRANTY

DESIGN-BUILDER warrants that Work performed under this Agreement shall conform to Design-Build Documents and be free of defects in material, or design furnished, or workmanship performed, except those inherent in the Work or expressly by the Design-Build Documents. DESIGN-BUILDER further warrants that any materials and equipment incorporated into the Work will be good quality and new, unless otherwise permitted. Work, materials, or equipment not conforming to these requirements may be considered defective. This warranty excludes issues caused by abuse, alterations by others, insufficient maintenance, operation, or normal wear and tear. If required, DESIGN-BUILDER shall provide evidence of materials and equipment quality. This warranty is in addition to, not in place of, other warranties or remedies. This warranty is made for the specific benefit of OWNER, and shall commence on the Substantial Completion Date. DESIGN-BUILDER shall deliver to OWNER all warranties provided by vendors and manufacturers of materials and equipment used to complete the Work, but shall have no obligation under warranties provided by others except to render any assistance that OWNER may require in enforcing the terms of those warranties.

Best Practices for Using Master Design-Build Contracts

To make the most of your Master Design-Build Contracts and ensure their effectiveness, follow these best practices:

1. Choose the Right Design-Builder: Conduct thorough due diligence when selecting a Design-Builder. Look for firms with a proven track record of successful Design-Build projects, strong financial stability, and the necessary expertise and resources to handle your project.
2. Clearly Define the Project Scope: Ensure that the scope of work in the agreement and associated Statements of Work is clearly defined and comprehensive. This should include detailed design and construction requirements, performance specifications, and any Owner-provided items or responsibilities.
3. Establish Regular Communication: Set up regular meetings and reporting requirements to keep all parties informed of project progress, issues, and changes. Clear and consistent communication is key to the success of any Design-Build project.
4. Use the Change Order Process: Don't hesitate to use the Change Order process when necessary to address changes in the project scope, schedule, or budget. Properly documented Change Orders can help avoid disputes and ensure that all parties are on the same page.
5. Monitor Progress and Quality: Regularly review the Design-Builder's work to ensure that it meets the quality standards and specifications set forth in the agreement. Address any deficiencies or non-conforming work promptly.
6. Keep Detailed Records: Maintain comprehensive project records, including contracts, Change Orders, payment applications, correspondence, and meeting minutes. These records can be invaluable in the event of a dispute or claim.
7. Address Issues Early: If problems or disputes arise, address them early and proactively. Utilize the Claims process outlined in the agreement and consider alternative dispute resolution methods, such as mediation, to resolve issues before they escalate.

Conclusion

Master Design-Build Contracts are essential for landowners and developers looking to streamline the building process by engaging a single entity to handle both the design and construction of a project. By clearly defining the roles, responsibilities, and obligations of both parties, Master Design-Build Contracts provide a framework for successful project execution and risk management.

To ensure the effectiveness of your Master Design-Build Contract, it's important to include comprehensive provisions addressing the nature of the agreement, party obligations, warranties, performance timelines, payment, Change Orders, disputes and claims, and intellectual property. The agreement should be tailored to your specific project requirements, reviewed by legal and industry experts, and actively managed throughout the project lifecycle.

By following best practices for selecting Design-Builders, defining project scope, communicating regularly, using Change Orders appropriately, monitoring progress and quality, keeping detailed records, and proactively addressing issues, you can maximize the benefits of the Design-Build approach and ensure the successful completion of your construction project.