Almost every article or discussion dealing with the legal aspects of integrated-project-delivery contracts raises the notion that IPD contracts have not been tested in court and that this untested status elevates the legal risk to the IPD participants. While it is true that, as of this date, there is little, if any, case authority dealing with the legal merits of IPD contracts, that does not tell the whole story.
The first challenge to this idea is determining whether IPD contracts really are new. Those of us who were around in the early 1980s will remember the “partnering” agreements that, along with other contract documents, were circulating and will recognize some of the “fluff” language inserted in IPD contracts in an obvious effort to engender a spirit of cooperation.
The language is really not all that new, but the same enforceability issues prevail. What is new about IPD contracts is that they have emerged with BIM technology. New technology, by itself, is not reason enough to avoid a project delivery method. New isn’t necessarily bad.
Contracts that are new and untested give most of the legal community a stomach ache because there are no legal authorities or precedents to provide assurances as to legal risk assessment. However, the lack of judicial precedent on a particular subject matter will give a skilled and savvy attorney a clear slate to educate the judicial community on what the language means or should mean.
Further, even though there may not be a long line of cases that lawyers can read to find the meaning of specific clauses in IPD contracts, we are dealing with contract law, and we have well over 100 years of well-defined rules of contract interpretation to guide us. While there may not be a lot of judicial history on IPD contracts, this may turn the unwary away but also may create opportunity for innovative thinkers. I do not believe the uncertainties are enough of a reason to avoid IPD contracts.
It is often said that the players in an IPD contract will be assuming risk they are not accustomed to undertaking. Yet any contractor or subcontractor who never has signed a design-build contract before does the same thing—and so does a designer who, generally, never has assumed any role in means and methods before.
Design and Financial Risk
The contractors in an IPD environment run the risk of assuming some design responsibility, and, at a very minimum, the contracts usually are set up to share financial risk of the project; this risk could include, to some extent, design deficiencies. In addition, contractors may, depending on the language of the contract, absorb liability for the design they contribute as well as the liability for the design contributions of their subcontractors.
While most commentators and proponents of IPD seem to think the problems associated with design will be discovered through the use of BIM, the sleeping dragon may very well be the overreliance on computer models and not enough human input.
Here are some of the most important risks.
Loss of the Spearin Doctrine
The Spearin Doctrine is a time-honored rule that came from the U.S. Supreme Court’s decision in U.S. vs. Spearin (1918), adopted in some form by most states, which stood for the proposition that a contractor under a traditional design-bid-build contract could assume that the plans and specifications provided by the owner’s design team were buildable. Thus, if the design documents were not buildable or if the design did not work or function the way the designers or owners intended, the contractor was exonerated from liability as long as the contractor built the project in accordance with those contract documents. This precedent has been adopted in some form by most states.
With the advent of design-build construction, this principle disappeared because contractors were providing the design services. With IPD, the lines between design and construction definitely are blurred.
The contracting community risks losing the Spearin Doctrine defense in an IPD setting depending upon how the IPD contract is drafted and what specific input or design liability the contractor has undertaken for itself or its subcontractors. This potential loss is mitigated somewhat by the fact that contractors already have been operating without Spearin Doctrine protection under design-build contracts.
Sharing in Means and Methods
In design-build construction, designers do not absorb means-and- methods responsibility because, in theory, design and construction are provided through a single contracting entity. That may change with IPD contracts. Designers likely will absorb some of the financial risks of mistakes...