Certain design and construction projects may have two phases:
1) A Predesign/Construction Phase, Master Plan, or an Assessment and Feasibility Study, and then
2) An actual Design & Construction Administration Phase
The owner may desire to have their project for design and construction in two stages for a variety of reasons. The two-phase approach provides several key benefits:
• Risk Mitigation: It isolates technical and execution challenges. By completing the first phase, project teams can identify site conditions, zoning issues, or structural flaws before actual design or breaking ground, preventing costly mid-build redesigns.
• Accurate Budgeting: Splitting the project into two phases allows the project to be properly scoped. This results in more accurate funding for the project and reduces the likelihood of unpredictable cost overruns during the actual design and build phase.
• Budget Phasing & Financing: Owners can align their funding cycles. Phase one allows them to secure capital for design and construction, while phase two allows them to secure the larger construction loans once drawings and costs are finalized.
• Value Optimization: Bringing a builder in during a two-phase setup allows for peer reviews. Builders can offer real-world advice to architects and engineers to reduce costs and streamline the construction process.
• Operational Continuity: For renovations or expansions, phasing the project allows the existing business to remain open and generate revenue while segments of the building are worked on.
As a Caution to the Project Team Members
Terms and conditions for contracts for this two-phase approach should be treated as if it is for one phase, combing the preliminary and actual design/construction phase services. Any terms and conditions in the first phase can easily roll into a formal contract for the actual design and construction phase service. If an architect/engineering firm is engaged for the first phase and then the second phase services, it could be hard to
change certain terms and conditions that were agreed to because it was only for Predesign/Construction Phase, Master Plan, or Assessment and Feasibility Study.
The project owner could take the position that the architect/engineering firm agreed to the terms and conditions in the preliminary phase, so they should be able to agree to them in the formal contract for actual design and construction phase services.
In Conclusion - The Terms Should be Aligned Up Fairly in Both Phases
For example, such as:
1) The indemnification clause in the first phase should be fairly negotiated so that the second phase is consistent.
2) The first phase has no waiver of consequential damages clause because the parties to the contract thought it was only preliminary, but the architect/engineering firm insists that the waiver is needed for their risk management purposes in the second phase.
3) The first phase has no dispute resolution clause for mediation because the parties to the contract thought it was only preliminary, but the architect/engineering firm insists that the mediation is needed for their risk management purposes in the second phase.
4) The first phase has no limitation of liability (LOL) clause because the parties to the contract thought it was only preliminary, but the architect/engineering firm insists that the LOL clause is needed for their risk management purposes in the second phase.
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About the Author of this Risk Management Building Block Article
As a risk manager for the last 20 years for the design profession, Eric O. Pempus, FAIA, Esq., NCARB has experience in professional liability insurance and claims, architecture, engineering, land use, law, and a unique background in the construction industry. Prior to risk management, he has 25 years of experience in the practice of architecture/engineering, and as an adjunct professor teaching professional practice courses at the undergraduate and graduate levels for 37 years at Kent State University’s College of Architecture & Environmental Design.
As a Fellow of the American Institute of Architects and AIA National Ethics Council 2021 Chair, he has demonstrated his impact on architectural profession. He has presented numerous loss prevention and continuing educational programs to design professionals since 2000 on topics of ethics, contracts, and professional practice in various venues across the United States and
Canada. He is a former member and chair of his city’s Board of Zoning & Building Appeals for 24 years, and is a licensed architect, attorney, and property & casualty insurance professional.
His educational background includes a JD from Southwestern University School of Law, Los Angeles; Master of Science in Architecture from University of Cincinnati; and BA in psychology/architecture from Miami University, Oxford, Ohio.
The above comments are based upon DesignPro Insurance Group’s experience with Risk Management Loss Prevention activities and should not be construed to represent a determination of legal issues but are offered for general guidance with respect to your own risk management and loss prevention. The above comments do not replace your need for you to rely on your counsel for advice and a legal review, since every project and circumstance differs from every other set of facts.
Disclaimer: The viewpoints expressed in this article are those of the author(s) and are not necessarily approved by, reflective of or edited by other individuals, groups, or institutions and this article is an expression by the author to generate discussion and interest in this topic.