It has been reported that the Sydney Football Stadium project is a debacle, with news that the NSW Government let the contract for construction of the new stadium before the design of it was even complete. It appears that Lendlease and the NSW Government have been unable to reach agreement on the cost of construction of the stadium and Lendlease have walked away from the development now that demolition of the former stadium is almost complete. We understand that the NSW Government is in negotiations with other builders to construct the new stadium within the budget allowed, but it is likely that this type of disruption to the project will result in increased costs and delays to completion of the project.
The key lesson to take away from this, for any sized project, is to ensure there are clear design specifications in place before proceeding to call for tenders on any construct only contract.
Project Delivery Methods: Construct only vs Design and Construct
Two common delivery methods for construction projects are known as ‘construct only’ contracts and ‘design and construct (D&C)’ contracts.
Construct only contracts are used when an owner or principle is carrying out the design work themselves by engaging relevant consultants directly, such as engineers, architects etc. The owner finalises the design with its design consultants and then issues the finalised design documents (plans and specifications) to a builder, or multiple builders, to price. Once the owner has received an acceptable price from a builder the owner then enters into a contract with that builder to build the project. It is easy to imagine the difficulties that would arise in a situation where a builder was trying to issue a price for a project that was not yet designed. The key advantage for an owner in this scenario is that they maintain total control over the design of the project and for a builder, they go into a project knowing exactly what the owner wants to achieve. A disadvantage of this type of delivery method is that it can be more time consuming (design must be finished before tender) and it can be difficult for changes to the project to occur once construction commences.
Construct only contracts can be difficult to utilise in situations where there are characteristics in the project or the site that make it difficult to design the entire project before any building work commences. Owners who don’t want as much input into the design phase may also prefer not to use a construct only contract. In these circumstances a D&C Contract may be the preferred option.
Under a D&C contract the same entity is responsible for commissioning the design of the project and carrying out the construction work based on a concept and any specifications required by the owner (such as function, performance, design life for example). A key advantage of a D&C delivery method is that the builder is able to fast track aspects of the project and make design changes as the project progresses which can assist in keeping costs down and responding to specific needs of the owner as they arise. The key disadvantage of a D&C Contract is that the owner loses some control over the final design and the contract price can be higher as a reflection of the increased risk and responsibility the builder is taking on.
This situation demonstrates the importance of choosing the right delivery method for your project from the outset. An owner needs to consider how much control they want to have over the design of their project, how quickly they want the project completed, the level of certainty they want around cost, how complex the project is and the level of experience of the contractors likely to be involved in the project. In this case it appears that the NSW Government wanted to retain control over the design of the project and would have been better served by completing that design before entering into a contract for construction of the project.
If you need help determining the best delivery method for your project contact our Construction Law Team for practical and commercial advice.