Commercially managing design risk: design consultant appointments

I have seen the good, the bad and the ugly when it comes to design consultant appointments. Sometimes they make no sense, and I am not actually sure what the contractor has bought. In other situations, they became too challenging and were left in the 'too-difficult box' and an agreement was not concluded. That’s because they often are not straightforward to compile.

I hold a view that improvements in the procurement and contracting of design services will improve the construction process, so here is some guidance that will help you.

The Basics

Whether we like it or not, making an agreement with a design consultant is more intricate than making an agreement with a subcontractor. For starters, you won’t have the same leverage because, often, the designer has already been selected. More than that, though, you are procuring something less tangible than physical work so describing the performance you require is not always straightforward.

The performance you require is, in effect, the deliverables you require from the designer. There may be other things, such as meeting attendance, inputting into something etc but the thing you really want are the design documents at the required quality standard, which allow you to continue the construction delivery process by procuring or building. It sounds simple but describing those documents and being clear about what they are is a good start.

You then need to say when you need those deliverables to be issued. I have seen some take a typical contractor approach to this by using their ‘super stretch’ programme as a basis for asking the designer to deliver even earlier! On paper, it looks ambitious and gives the right impression to your management, but it will fail, and that failure will cost you.

I would recommend working with the designer to agree realistic dates. If those are later than your programme, then face up to this early and look at ways to overcome the issue. This will de-risk your procurement and delivery programme, rather than hoping the time risk magically disappears; unfortunately, it won’t.

Stage 4 Design

The design deliverables are the hand-off point from design consultant to the specialist subcontractor or on-site engineering team to develop further, and this normally occurs at RIBA design stage 4 (‘technical design’ stage).

In my experience, I don’t recall seeing stage 4 design being delivered seamlessly in a linear process that runs like clockwork. It doesn’t work that way because the designer hasn’t delivered the information to the standard you thought they would, or the designer needs input from the specialist subcontractor who isn’t appointed, meaning unplanned design activity, or the team is trying to manage the technical design in a model that is visually effective at dealing with issues but not so easy to sequence and prioritise the resolution of issues.

Then problems start and everyone starts to blame each other for those problems. Time and cost impact occur, and the behaviour exacerbates it, and that sets the tone for the rest of the project.

The stage 4 design period is the most challenging period of the programme and is nearly always the root cause of disputes. In fact, I am struggling to think of many problem projects where this wasn’t the root cause, or at the very least a significant contributor.

There are things you can do to protect yourself: firstly, test the programme logic and ask yourself whether the perfect world scenario is deliverable or do you need risk allowances to deal with the inevitable issues; and, secondly, instead of trying to describe to the design consultant what you want in a contract, include drawings from previous schemes which act as a quality benchmark.

If you can navigate your project through stage 4 design with minimal time or cost impact, then you stand a very good chance of delivering a profitable project; it really is that important.

Incentivising Performance

On what basis should you pay for performance?

A simple question in theory but not so easy in practice because you need to balance the design consultants need for cash flow to cover its resource expenditure with the reality that progress is often worth much less to the contractor than having the design deliverables in hand.

The problems arise for a contractor when it has paid too much for progress and there is very little money left to deliver the final design documents to the required quality standard. You end up either struggling to get the quality you wanted or you make an agreement to pay the consultant more than you would like to get the outputs; that is the stark reality.

The basis on which payments are made needs careful thought because a solution too far in one side’s favour will have an impact on performance and the commercial arrangement has caused a risk to the programme.I would recommend taking a step back, thinking about what you want from the agreement, and negotiating a commercial arrangement that gets both sides what they want (which will involve compromise).

Importantly though, things will change so include a mechanism to adjust that arrangement as the project unfolds.

Final Reflections

I don’t think consultant appointments per se are an issue; however, it has been on my mind whether contractors have developed sophisticated approaches to making agreements with design consultants such that they de-risk project delivery and incentivise performance appropriately.

I then wonder whether, if our approaches developed, this would lead to project performance improvements because commercial arrangements matter. They matter because cash flow is the lifeblood of a construction project, and how that flows in exchange for performance is an often-understated performance influencer (top tip: if you ever find something doesn’t make logical sense to you, follow how the cash moves and, suddenly, it might make sense).

Next week, we will continue this theme with a focus on design coordination and integration.

Keep an eye out for that and, in the meantime, enjoy the rest of your week!

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