DBIA Risk Management and Allocation 5 — Questions and Answers
Question 1: A design-build team is pricing a project with significant geotechnical uncertainty. Which contract type best allows the owner to share geotechnical risk with the design-builder while maintaining cost control?
- Fixed lump sum with full risk transfer to design-builder
- Cost-plus with a guaranteed maximum price and owner-retained geotechnical risk (Correct answer)
- Unit price contract for all work
- Pure cost-plus with no ceiling
Correct answer: Cost-plus with a guaranteed maximum price and owner-retained geotechnical risk
A cost-plus with GMP allows the owner to retain geotechnical risk through cost reimbursement while capping total exposure with the guaranteed maximum price.
Question 2: During design-build procurement, an owner provides an inadequate geotechnical report to proposers. DBIA best practices recommend the owner should:
- Allow proposers to conduct their own independent site investigations at their own cost
- Provide adequate geotechnical baseline data and retain the associated subsurface risk (Correct answer)
- Transfer all subsurface risk to proposers through a broad disclaimer clause
- Require proposers to price a blanket 20% contingency for unknown conditions
Correct answer: Provide adequate geotechnical baseline data and retain the associated subsurface risk
DBIA recommends owners provide adequate geotechnical baseline data and retain associated subsurface risk since they control the site and information.
Question 3: Which method of quantitative risk analysis statistically models the range of possible project outcomes by running thousands of scenarios with variable inputs?
- SWOT analysis
- Monte Carlo simulation (Correct answer)
- Delphi method
- Decision tree analysis
Correct answer: Monte Carlo simulation
Monte Carlo simulation runs thousands of iterations with variable inputs to generate a probability distribution of possible project cost and schedule outcomes.
Question 4: An owner's attorney inserts a clause making the design-builder liable for consequential damages including lost profits and business interruption. DBIA recommends:
- Accepting the clause as standard industry practice
- Negotiating a mutual waiver of consequential damages (Correct answer)
- Requiring the owner to carry consequential damages insurance instead
- Capping consequential damages at 10% of the contract value
Correct answer: Negotiating a mutual waiver of consequential damages
DBIA recommends a mutual waiver of consequential damages to protect both parties from potentially unlimited liability for indirect losses.
Question 5: What is the primary purpose of a 'Geotechnical Baseline Report' (GBR) in a design-build project?
- To transfer all geotechnical risk to the owner regardless of actual conditions
- To establish a contractual baseline for subsurface conditions that defines risk allocation (Correct answer)
- To replace the need for geotechnical investigation during construction
- To serve as the owner's warranty of subsurface conditions
Correct answer: To establish a contractual baseline for subsurface conditions that defines risk allocation
A GBR establishes contractual baseline subsurface conditions, clarifying which conditions the design-builder has priced and which are owner-retained risks.
Question 6: In design-build risk management, 'risk burndown' refers to:
- The process of eliminating all project risks before construction begins
- Tracking how risk exposure decreases as design progresses and uncertainties are resolved (Correct answer)
- A penalty applied when the design-builder fails to meet risk milestones
- The transfer of risks from the design-builder to subcontractors over time
Correct answer: Tracking how risk exposure decreases as design progresses and uncertainties are resolved
Risk burndown tracks how total project risk exposure decreases over time as design decisions are made, approvals received, and construction uncertainties are resolved.
Question 7: Which design-build contract provision best protects the design-builder from being responsible for design deficiencies contained in the owner's reference documents or bridging documents?
- A broad indemnification clause in favor of the design-builder
- An express carve-out disclaiming responsibility for owner-provided design information (Correct answer)
- A force majeure clause covering design errors
- A liquidated damages cap limiting design liability
Correct answer: An express carve-out disclaiming responsibility for owner-provided design information
An express carve-out in the contract disclaiming design-builder responsibility for errors in owner-provided bridging or reference documents protects against inherited design deficiencies.
DBIA Risk Management and Allocation 5
A design-build team is pricing a project with significant geotechnical uncertainty.
Which contract type best allows the owner to share geotechnical risk with the design-builder while maintaining cost control?