DBIA - Design-Build Institute of America Risk Management and Allocation Questions and Answers — Questions and Answers
Question 1: According to DBIA's principles of risk allocation, how should the risk of unforeseen subsurface conditions be handled when the owner possesses but does not disclose a preliminary geotechnical report?
- The risk is shared proportionally between the owner and the design-builder.
- The design-builder assumes the entire risk as part of the single-point responsibility.
- The owner retains the risk, as they are in the best position to manage it by providing known information. (Correct answer)
- The risk is transferred to the geotechnical engineer who created the report.
Correct answer: The owner retains the risk, as they are in the best position to manage it by providing known information.
The fundamental principle of risk allocation in design-build is that a risk should be assigned to the party best able to manage it. In this scenario, the owner possesses critical information about potential subsurface conditions. By withholding this information, the owner prevents the design-builder from appropriately assessing and pricing the risk. Therefore, the owner retains the risk associated with the undisclosed information because they were in the best position to manage that specific risk by sharing the report.
Question 2: In the design-build context, the legal precedent known as the Spearin Doctrine, which traditionally holds the owner liable for defective plans and specifications, is fundamentally altered. How does design-build reallocate this risk?
- The doctrine is voided, and any design liability is waived by all parties.
- The design-builder assumes the risk for the adequacy and accuracy of the design to meet the owner's performance requirements. (Correct answer)
- The owner retains full liability for the initial bridging documents, and the design-builder is liable for all subsequent design.
- The risk is transferred to a third-party insurance carrier, absolving both the owner and design-builder.
Correct answer: The design-builder assumes the risk for the adequacy and accuracy of the design to meet the owner's performance requirements.
The Spearin Doctrine establishes an owner's implied warranty that plans and specifications are accurate. In design-build, the design-builder is responsible for developing the design. This delivery method shifts the single-point responsibility for both design and construction to the design-builder, who then warrants to the owner that the design will be sufficient to meet the project's requirements. This transfer of design liability from the owner to the design-builder is a core advantage of the design-build model.
Question 3: An owner establishes a project budget that includes both the design-builder's contract price and a separate owner's contingency. According to DBIA best practices, what is the appropriate use for the owner's contingency?
- To cover cost overruns caused by the design-builder's inefficient management.
- To fund owner-directed scope changes or deal with risks explicitly retained by the owner. (Correct answer)
- To pay for design development costs incurred by the design-builder before contract execution.
- To be used as a bonus for the design-builder if the project is completed ahead of schedule.
Correct answer: To fund owner-directed scope changes or deal with risks explicitly retained by the owner.
The owner's contingency is a fund set aside to manage risks that the owner retains. These typically include things like owner-directed changes in scope (e.g., adding a new feature), unforeseen site conditions for which the owner has retained risk, or other defined events outside the design-builder's control. It is not intended to cover costs for which the design-builder is responsible, such as poor performance or design errors.
Question 4: During a design-build project, a nationwide shortage of a specified cost-effective material arises, threatening the schedule. Which of the following actions best demonstrates a proper collaborative approach to managing this risk?
- The owner directs the design-builder to absorb all costs associated with the delay and sourcing a more expensive alternative.
- The design-builder immediately substitutes a lower-quality material to stay on budget without consulting the owner.
- The design-builder stops all work and initiates a formal claim against the owner for unforeseen market conditions.
- The integrated project team (owner and design-builder) collaborates to evaluate alternative materials, weighing cost, schedule, and life-cycle impacts to find a mutually acceptable solution. (Correct answer)
Correct answer: The integrated project team (owner and design-builder) collaborates to evaluate alternative materials, weighing cost, schedule, and life-cycle impacts to find a mutually acceptable solution.
Design-Build Done Right® emphasizes collaboration to solve problems. A force majeure event like a material shortage is a project risk that is best managed jointly. The integrated team can work together to explore options, perform value engineering on alternatives, and make an informed decision that best serves the project's goals, rather than defaulting to a purely contractual or adversarial stance.
Question 5: Which of the following represents a significant misallocation of risk that contradicts the principles of 'Design-Build Done Right®'?
- The owner retaining the risk for hazardous material abatement if discovered on site.
- The design-builder accepting schedule risk associated with coordinating its design and construction activities.
- The contract requiring the design-builder to assume liability for all unforeseen site conditions without providing any preliminary site information. (Correct answer)
- The contract allocating the risk of obtaining standard building permits to the design-builder.
Correct answer: The contract requiring the design-builder to assume liability for all unforeseen site conditions without providing any preliminary site information.
Forcing a design-builder to accept a 100% 'blind' risk for something like unforeseen site conditions is a poor practice. DBIA principles state that risk should be allocated to the party best able to manage it. Without any information, the design-builder cannot reasonably assess or price this risk, forcing them to either carry an excessive contingency (raising the project cost) or potentially face a catastrophic loss. The owner is better positioned to manage this risk initially by providing all known information.
Question 6: A key risk management benefit of the single contract in design-build is the elimination of disputes between the designer and the contractor. How does this benefit the owner?
- It guarantees that the project will have no change orders.
- It allows the owner to dictate the means and methods of construction directly to subcontractors.
- It prevents the owner from being responsible for adjudicating conflicts over design errors or constructability issues. (Correct answer)
- It transfers all financial risks, including project funding and interest rate fluctuations, to the design-builder.
Correct answer: It prevents the owner from being responsible for adjudicating conflicts over design errors or constructability issues.
In the traditional Design-Bid-Build method, if a constructability issue arises, the contractor may blame the designer, and the designer may blame the contractor, leaving the owner caught in the middle to resolve the dispute and bear the cost and schedule impacts. In design-build, the design-builder is a single entity responsible for both design and construction, so these internal conflicts are resolved within the design-build team, shielding the owner from such disputes.
DBIA - Design-Build Institute of America Risk Management and Allocation Questions and Answers
According to DBIA's principles of risk allocation, how should the risk of unforeseen subsurface conditions be handled when the owner possesses but does not disclose a preliminary geotechnical report?