DBIA Risk Management and Allocation 3 — Questions and Answers
Question 1: A design-build team discovers previously unknown underground utilities during excavation. Under a well-drafted contract, this risk is most likely classified as:
- A design-builder assumed risk requiring no adjustment
- An owner-retained subsurface risk eligible for a contract adjustment (Correct answer)
- A force majeure event excusing all parties
- A Type II differing site condition automatically covered by insurance
Correct answer: An owner-retained subsurface risk eligible for a contract adjustment
Unknown subsurface utilities are typically owner-retained risks in well-drafted design-build contracts, entitling the design-builder to a contract adjustment.
Question 2: Which DBIA risk allocation strategy specifically addresses situations where neither party can control a risk, such as extreme weather?
- Risk mitigation
- Risk pooling
- Shared risk or force majeure provisions (Correct answer)
- Risk elimination
Correct answer: Shared risk or force majeure provisions
Force majeure provisions address uncontrollable events like extreme weather by providing relief to the affected party without fault allocation.
Question 3: When evaluating a design-build proposal, the owner's risk assessment should consider which financial metric to gauge the design-builder's ability to absorb project risks?
- The design fee percentage
- Bonding capacity and financial strength (Correct answer)
- The number of subcontractors proposed
- The designer's years of experience
Correct answer: Bonding capacity and financial strength
Bonding capacity and financial strength indicate whether the design-builder can absorb and recover from risk events without defaulting.
Question 4: In a design-build project using a Guaranteed Maximum Price (GMP), what happens to cost savings if the project comes in under the GMP?
- Savings always revert entirely to the owner
- Savings are shared according to the contract's shared savings provision (Correct answer)
- The design-builder retains all savings as profit
- Savings are automatically added to contingency reserves
Correct answer: Savings are shared according to the contract's shared savings provision
Under a GMP with a shared savings provision, cost savings below the guaranteed maximum are split between the owner and design-builder per the contract terms.
Question 5: Which type of project delivery risk is MOST effectively mitigated by early and frequent owner-design-builder communication during design development?
- Permitting delays from regulatory agencies
- Scope creep and design evolution risk (Correct answer)
- Material price escalation risk
- Labor shortage risk
Correct answer: Scope creep and design evolution risk
Early and frequent communication between the owner and design-builder is the most effective mitigation for scope creep and design evolution risk.
Question 6: In design-build contracting, a 'risk-adjusted contingency' differs from a standard contingency in that it:
- Covers only owner-directed changes
- Is calculated based on probability and impact analysis of specific identified risks (Correct answer)
- Applies only to the construction phase
- Is held by the surety rather than the owner
Correct answer: Is calculated based on probability and impact analysis of specific identified risks
A risk-adjusted contingency is quantitatively derived from probability and impact analysis of identified risks, rather than a simple percentage estimate.
Question 7: An owner transfers the risk of permit delays to the design-builder in a bridging design-build contract. What practical step should the design-builder take during proposal development?
- Exclude permitting costs from the proposal entirely
- Price a contingency for permit delay duration into the schedule and fee (Correct answer)
- Demand the owner indemnify for all permit rejections
- Require a fixed permit timeline guarantee from the owner
Correct answer: Price a contingency for permit delay duration into the schedule and fee
The design-builder should price a contingency for potential permit delays into the schedule and fee when accepting this transferred risk.
DBIA Risk Management and Allocation 3
A design-build team discovers previously unknown underground utilities during excavation.
Under a well-drafted contract, this risk is most likely classified as: