Market Watch - Design and build

Design and build has been something of a controversial issue in the building services sector. For many consulting engineers, it can imply lower standards of design work and some view it as a threat to their business. But some clients view design and build as a method of one-stop-shopping for their building. As ever, there are arguments each way.

However, there is strong evidence that design and build is here to stay, with the d&b market growing in 2000 to a value of £12 424 million. There are a number of definitions of design and build, as well as a several varieties. For clarity, MBD's report says design and build in its purest form means that the contractor is involved in the design at the early stages of a project.

Other terms which may be applied are develop and construct where the contractor completes the basic designs which have been drawn up by the clients' consultants. And with design and manage projects, the contractor takes responsibility for the project in much the same way as design and build, but subcontracts much of the construction work.

Indeed, in spite of early concerns with its quality, design and build has been bucking the trend of the rest of construction with continuing growth, even throughout the 90s. For example, in 1996, sales in the d&b sector grew 26%, compared with the overall construction market growth of 5%.

The market penetration of design and build is not universal, but is particularly important in the utilities, public non-residential projects, private industrial and commercial construction, and private housing projects. The introduction of PFI will doubtless change this breakdown over the next few years.

One of the more recently developed types of d&b is novated design and build. This refers to the practice where the architect or consultant takes the project through the planning stages, then the client nominates a design and build company at a later stage, and the architect/consultant is novated to the contractor. (See 'Changing contracts, shifting liability', Building Services Journal, July 2000 for details on novation).

In many ways, novation is a next step in the lifecycle of design and build, with many regarding it as a method which can overcome the problems experienced with pure d&b. Doug Oughton, director of Oscar Faber, comments: "There have been concerns about quality with design and build, but it depends on the type of project and the teams that are involved in the process. I think d&b has matured."

Terry Wyatt, partner at Hoare Lea says: "We have done a lot of design and build, and it has changed dramatically from its original form. In the early days, clients went to a contractor and said 'I want this building'. They usually only gave a rudimentary brief. The contractor would give a price, then employ a team to design it and a team to construct the building."

Wyatt points out that many problems arose from the lack of clear brief, with clients left with buildings which did not meet their needs. "Today, the client will tend to pick out a design team which will find out what the client requires. Once the brief is there, a contractor is appointed and the whole team begins the procurement process, as recommended by the Latham report."

After this, the design team contract is novated to the contractor. Wyatt says that this method is far less adversarial than the other form of d&b. It also means that engineers are involved from the start of the process, right to delivery of the building and beyond in order to deal with any problems which might arise.

Novated design and build is looking particularly healthy. MBD estimate overall growth of this type of d&b is around 6% between 2001 and 2005. But the construction industry never stands still for long, with PFI set to have a big impact on the sector.

The MBD report shows that PFI contracts have failed to provide buoyancy in the shares of building contractors. However, contractors have had problems selling the idea of PFI projects to investors due to the poor reputation it has gained for not delivering on time. Contractors are also put off by the high costs of bidding as the earnings through PFI projects haven't yet been seen. But many believe that PFI will mature in the same way as d&b, with problems encountered on early projects being ironed out as those involved become more experienced at dealing with the particular challenges of PFI projects.

Oughton says: "We have done a reasonable amount of work in this way, including some major PFIs, and by and large they have been successful and we've enjoyed the experience. I think the PFI process is still maturing. If the jobs are set up properly, it can be beneficial to the end product."

Despite the delays in many projects under PFI, the growth of the design and build market in 1996 was very strong, at about 26%, and it was unrealistic to expect the market to continue to develop so rapidly. Data for 1998 indicates that growth has slowed to 8%, indicating a level of maturity in the market. The new period of market consolidation is partly explained by the overall development of the construction sector, that has prolonged its cyclical development in recent years. It is also partly a factor of the product mix of design and build with some of the sectors where the procurement method is strongest, declining.

Within the market, the different types of design and build are expected to perform in very different ways. MBD believes there will be some major changes in the comparative position of the derivatives over the next five years, not least the growth of design, build, finance and operate which will establish itself as a leading part of the sector. One of the other major trends MBD sees is a renewed trust and enthusiasm for design and build as a result of the publicity and attention facing the PFI.