DBIA Design-Build Contracting Approaches Questions and Answers 2 — Questions and Answers
Question 1: In a design-build Guaranteed Maximum Price (GMP) contract, what typically happens when actual costs come in below the GMP?
- The owner retains all savings
- The savings are split between the owner and design-builder per contract terms (Correct answer)
- The design-builder keeps all savings as profit
- The savings are returned to the funding source
Correct answer: The savings are split between the owner and design-builder per contract terms
Most GMP contracts include a shared savings clause where cost underruns are split between the owner and design-builder according to pre-negotiated percentages, incentivizing cost efficiency.
The Guaranteed Maximum Price contract structure sets a ceiling on what the owner will pay, but also typically includes a shared savings provision. When the design-builder manages the project efficiently and actual costs fall below the GMP, the savings are divided between owner and design-builder at agreed-upon ratios (often 50/50 or 60/40). This mechanism encourages the design-builder to find cost-effective solutions throughout the project.
Question 2: Which contract type places the most financial risk on the design-builder?
- Cost-plus with a fee
- Time and materials
- Lump sum/fixed price (Correct answer)
- Unit price
Correct answer: Lump sum/fixed price
A lump sum or fixed-price contract requires the design-builder to complete the project for a set amount regardless of actual costs, placing maximum financial risk on the design-builder for cost overruns.
Under a lump sum or fixed-price contract, the design-builder agrees to deliver the complete project for a predetermined price. Any cost overruns due to design errors, unforeseen conditions, or estimation mistakes are absorbed entirely by the design-builder, making this the highest-risk contract type from their perspective.
Question 3: What is a key advantage of using a cost-plus contract with a Guaranteed Maximum Price in design-build?
- It eliminates all project risk for the owner
- It provides cost transparency while capping the owner's maximum financial exposure (Correct answer)
- It always results in the lowest project cost
- It removes the need for owner oversight during construction
Correct answer: It provides cost transparency while capping the owner's maximum financial exposure
A cost-plus with GMP contract gives the owner visibility into actual costs through open-book accounting while establishing a price ceiling, balancing transparency with financial protection.
The cost-plus with GMP contract structure combines open-book accounting (so the owner sees exactly where money is spent) with a price ceiling that protects the owner from unlimited cost exposure. This is especially useful on complex projects where scope may not be fully defined at contract execution.
Question 4: In design-build contracting, what does 'bridging' refer to?
- Connecting multiple construction phases together
- Owner-prepared design documents that define project requirements before selecting a design-builder (Correct answer)
- Transitioning from the design phase to the construction phase
- Linking the design-builder's insurance to the owner's policy
Correct answer: Owner-prepared design documents that define project requirements before selecting a design-builder
Bridging involves the owner hiring a separate architect or engineer to prepare preliminary design documents that define performance requirements and design intent, which then serve as the basis for the design-build RFP.
Bridging is a procurement approach where the owner engages a design professional to develop design criteria documents before soliciting design-build proposals. These documents typically include schematic designs, performance specifications, and material standards that communicate the owner's vision and requirements. The design-builder then completes the design based on these bridging documents.
Question 5: What is the primary distinction between a design-build contract with a stipulated sum and one with a GMP?
- Only GMP contracts require performance bonds
- In a stipulated sum the owner pays exactly that amount regardless of actual costs; in a GMP the owner pays actual costs up to the maximum (Correct answer)
- Stipulated sum contracts cannot include change orders
- GMP contracts do not require a defined scope of work
Correct answer: In a stipulated sum the owner pays exactly that amount regardless of actual costs; in a GMP the owner pays actual costs up to the maximum
A stipulated sum means the price is fixed and the design-builder absorbs any cost variations, while a GMP means the owner pays actual costs (with fee) up to the ceiling price, often with shared savings below the GMP.
Under a stipulated sum contract, the owner pays the agreed amount regardless of actual costs. Under a GMP contract, the owner pays documented actual costs plus a fee, but never more than the guaranteed maximum. GMP typically includes open-book accounting and shared savings provisions.
Question 6: When is a qualifications-based selection (QBS) most appropriate for design-build procurement?
- When the project has a tightly defined budget with no flexibility
- When the project is complex, the scope is not fully defined, and the owner values team expertise over initial price (Correct answer)
- When the owner wants to select the lowest bidder
- When the project involves only standard construction with no design component
Correct answer: When the project is complex, the scope is not fully defined, and the owner values team expertise over initial price
QBS is ideal for complex projects where scope definition is incomplete, as it allows selection based on team qualifications, experience, and approach rather than competing primarily on price.
Qualifications-based selection focuses on evaluating the design-build team's experience, technical capability, key personnel, and project approach rather than price competition. This method is most valuable when projects are complex or when scope cannot be fully defined at procurement time.
DBIA Design-Build Contracting Approaches Questions and Answers 2
In a design-build Guaranteed Maximum Price (GMP) contract, what typically happens when actual costs come in below the GMP?