By: Richard T. Ward III Published: February 2015

Are Design-Build Contracts Legal in New York?

When it comes to construction project delivery systems, for everyone involved, efficiency is king. Increased efficiency in the contracting, design and construction phases of a project means tremendous added value. Of course, the overall quality of the project design, in terms of functionality, safety, and durability, is also important. The latter concern has been translated into legislation requiring that construction design services only be provided by licensed design professionals and enforcing legal penalties against those entities that provide or aid in provision of unlicensed design services. See, N.Y. Educ. Law § 7200 et. seq. and § 6512-6516. This legislation, while promoting important public policies, can be a hurdle to the overall efficiency of project delivery by forcing owners to retain separate entities and enter separate contracts for the design and construction aspects of their projects.

One type of project delivery system, known as Design-Build, attempts to avoid this hurdle by providing, in a single contract between the contractor and the project owner, that the contractor will use an independent licensed design professional to perform all design work on the project; there is no separate contract by the owner for the design.  Design-Build contracts offer owners efficient full-package project delivery in a single contract while also fostering coordination of work by increasing the contractor’s familiarity with the project design. Design-Build contracts have been utilized in both public and private construction and are noted for a handful of benefits including schedule acceleration, lowered costs, superior risk allocation and encouragement of investment in New York infrastructure.

The current authorization for the use of Design-Build in private construction is attributed to the 1988 New York Court of Appeal’s decision in Charlebois v. J.M. Weller Associates, Inc.1 where the Court of Appeals determined that a contract which provided that the general contractor would subcontract design work to a licensed professional engineer was not in violation of the Education Law or its underlying policies. As for public construction, the use of Design-Build contracts is generally seen as a violation of the Education Law in the absence of legislation to the contrary. For instance, New York State Assembly Bill S50002-2011 explicitly allowed a few state agencies to use a Design-Build project delivery system for contracts costing $1.2 million or more for three years after passage of the bill.2

Interestingly, at the same time that Bill S50002-2011 authorized Design-Build contracts, it also seemingly condemned their use on other public and private construction projects. The bill included a paragraph stating that under existing law, pre-bill, public entities were not authorized to use a Design-Build delivery system. This poses a problem because the Education Law governs both public and private construction, without distinction, and thus its application to public construction could translate to private construction.

So where does that leave the status of Design-Build in New York? In the public realm, contracts that were entered into pursuant to the Bill S50002-2011 Design-Build authorization are unaffected. However, the limited authorization provided by the bill expired at the end of 2014 and due to discord in the state senate over labor-related portions of the bill, the anticipated extension of the Design-Build authorization never occurred. Thus, use of Design-Build is currently unauthorized on public contracts entered into in 2015 or later and will remain so until passage of new Design-Build legislation. The failure of the state legislature to extend the authorization of Design-Build contracts potentially prevents New York agencies, and therefore taxpayers, from reaping prospective savings exemplified by the estimated $1.5 Billion saved through the use of Design-Build on the new Tappan-Zee Bridge Project alone, not to mention a handful of other transportation related projects.3

As far as private construction goes, the use of Design-Build appears to be in less jeopardy. New York case law since Charlebois has upheld the notion that a design-build project delivery method does not violate the provisions of the education law licensing protections or the public policies that stand behind said protections. Until a New York State court decides otherwise, Design-Build appears to rest on stable ground for private construction in New York.

Conclusion:    With the status of Design-Build in jeopardy, project owners, general contractors, and design professionals are faced with a perilous catch-22. One the one hand, the prospect of utilizing a design-build project delivery system seems optimal in terms of saving money and harmonizing work. On the other, all three parties risk financial and possibly criminal consequences for engaging in a seemingly benign, if not beneficial, process. Parties who plan to use a Design-Build project delivery method should consult with their construction attorney to ensure that the contract language provides for an authorized use of the design-build method and also to ensure that that language is being complied with at every step of construction.

 

1Charlebois v. J.M. Weller Associates, Inc., 72 N.Y.2d 587, 531 N.E.2d 1288 (1988)

2See, http://open.nysenate.gov/legislation/bill/S50002-2011

3http://www.cityandstateny.com/2/83/infrastructure/dot-commissioner-%E2%80%9Cdisgrace%E2%80%9D-if-state-design-build-law-lapses.html#.VK1ycSvF-4I

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