How Much Does a Design-Build Contract Cost?
Based on recent projects completed on ContractsCounsel, the average flat fee to draft a design-build contract is $560.00 [1] on a flat fee basis. Based on recent projects completed on ContractsCounsel, the average flat fee to review a design-build contractis $670.00 [2] on a flat fee basis. These cost points come from recent design-build contract projects on the ContractsCounsel platform and are averages from across all US states.
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Various Design-Build Contract Costs Breakdown
Design-build contracts have gained popularity in the construction industry due to their single agreement that combines design with construction stages, thereby reducing project delivery time and enhancing cooperation between design and construction teams. Nonetheless, like any other project in the construction industry, there are expenses related to the implementation of a design-build contract. Here are the different costs involved in executing a design-build contract.
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Pre-Design Costs:
Before actualizing the project in terms of design and construction stages, as noted in the introduction paragraph above, several initial costs must be factored in by project owners during the execution of a design-build agreement. These pre-design costs may include:
- Feasibility Study Costs: It is important to carry out feasibility studies to determine if a project is viable or not. Such studies assess site conditions, regulatory requirements, and possible obstacles. The cost of feasibility studies varies depending on complexity ranging between $5k – $20k.
- Site Assessment Expense: The purpose of this evaluation is to understand prevailing conditions at the construction site, which may range from $2k -10k depending on size and intricacy.
- Permitting And Regulatory Fees: Obtaining necessary permits as well as fulfilling legal requirements will have an impact on total expenditure. Permit fees for environmental assessments, among other regulatory charges, can widely range from $10k – 50k or more.
- Legal and Contract Payments: Hiring a solicitor who will prepare agreements for all concerned parties is crucial for ensuring the protection of statutory rights. Legal fees can be as low as 10k to over 50k, depending on the project’s complexity and process of negotiation.
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Design Phase Costs:
The Design phase of a DB project includes the production of project blueprints, specifications, and drawings. The following are typical costs associated with this phase:
- Architectural and Engineering Fees: The architectural and engineering fees make up a considerable part of the design phase budget. These architectural and engineering costs can be between 6% to 15% of total construction cost.
- Design Development Expenses: Apart from professional charges, there are costs related to creating the plan through software, technology, or materials. These expenses vary but usually constitute a small proportion of the overall design phase budget, around 1 to 2 %.
- Value Engineering Costs: This is a procedure that assesses design alternatives to define cost-effective options without compromising quality. It has been estimated that it may range from $10 – $50k or more.
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Construction Phase Expenditure:
Once this layout has been completed, the project moves into its most expensive component construction stage. Some of these include:
- Construction Costs: Construction expenditures include labor, building materials, equipment, and overheads. Furthermore, construction costs for any design-build contract can range from $200-500 per square foot, depending on such factors as the level of construction complexity, location, and type of building among others.
- Project Administration and Supervision Cost: It is usual for project supervision matters to be taken care of by a 3-5% fee of the construction cost. For example, in the case of a $10 million construction work, the administration’s fee would be $300,000-500,000.
- Contingency Budget: Contingency budgets are set aside for unexpected eventualities or variations during construction. Normally, these contingencies should not exceed 5-10% of the total cost of the construction.
- Testing and Quality Control: It is necessary to evaluate the quality of the building job if it is to be successful. Quality control expenses and testing outlays can fluctuate but generally range from 1-2% of the overall expenditure on construction.
- Site Safety Standards: Safety standards are crucial on any project site, and this may include signage, fencing, and hiring a safety officer costing anything from $3000 to $20,000.
- Insurance: The costs related to insurance will depend on the size and complexity of a given construction project. Thus, insurance premiums could consume 1%-3% of the total project cost.
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Post-construction Expenses:
Several expenses must be assessed after the completion of the construction phase before a project gets officially accomplished.
- Commissioning and Testing Cost: There is a need for commissioning so that all building elements and designs function as anticipated; these costs are generally between 1-2% of the total cost of construction.
- Documentation and Training Expenses: To ensure long-term sustainability through effective knowledge management, end-users must be trained while procedure manuals, including supervisory ones prepared. This can run anywhere from 1-2% of total construction cost.
- Warranty and Defects Liability: In most cases, builders will have guarantees on their work, while lessors should consider potential weaknesses within the design. These values range between 1%-2% relating to its actual price in building something new.
- Transition and Occupancy: Costs to full occupancy can include moving, signage, and utilities. These expenses can be highly variable but are usually about 1% of the total construction cost.
- Owner’s Reserve: A landlord should also establish a contingency fund for unanticipated costs that may occur in the course of the project. It is usually between 5-10% of the total project cost.
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Tips to Calculate Design-Build Contract Costs
Below are some important tips on how to calculate design-build contract costs:
- Calculating Profit and Overhead: To determine the contract price, the design-build organization must factor in its profit margin and overheads. Overhead includes other business operational costs like office space, utilities, salaries, and general administration charges.
- Subcontractor Bidding: For projects with subcontractors, requesting bids from them is important. In assessing these bids it is vital that price is not taken in isolation but also consider their suitability or otherwise for a task. Proper selection of subcontractors is a key element in controlling cost and achieving project success.
- Contingency Allocation: The contingency allocation should be done prudently; it should not be a “slush fund” but rather a cushion against unexpected eventualities or changes. Contingency size should be based on risk assessment as well as the complexity of the project.
- Final Negotiation: At this point, you will have presented your proposal; therefore, you need to be prepared for negotiations with your client. However, such variations must consider the financial viability of the venture. It is crucial that before proceeding, there is consensus on pricing within a project agreement.
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Key Terms for Design-Build Contract Cost
- Design-builder: A contractor or construction company responsible for both designing and constructing a project.
- Cost-plus-fee: A method of compensation whereby payment to the design-builder reflects actual costs incurred plus an agreed fee, which commonly applies to design-build contracts.
- Change Order : An agreement in writing between the owner and design-builder on changes to the contract because of adjustments in project scope or unforeseen conditions.
- Design-bid-build: The traditional project delivery method where design and construction are two separate phases as opposed to an integrated design-build approach.
- Performance Bond: A financial guarantee that assures the design-builder completes the project according to the terms of the contract.
- Quality Control: These are processes or systems that are put in place by a developer to ensure that a real estate project is built according to the right quality standards and specifications.
- Design Phase: This is the first part of a project where a developer comes up with detailed plans and specifications.
- Construction Phase: It is during this phase that actual construction begins based on approved designs
- Risk Management: Actions and tactics taken to identify, assess, and manage probable risks concerning a project.
- Project Closeout: This stage involves inspections, approvals, and handing over completed projects to owners.
Final Thoughts on Design-Build Contract Cost
In summary, successful Design-Build projects rely on careful cost control starting from pre-construction through post-construction. By doing this systematically, these stakeholders will increase their chances of completing projects successfully and fulfilling clients’ objectives within budget.
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