Design-Build in Focus, Part I of IV: Contract Structures

The answer is nuanced and manifests differently depending on Owner directives and priorities as well as the firm’s breadth of capabilities and experience. In this installment, we’ll examine the specific devices, from implied-warranty law to phased pricing to factory acceptance testing, that give traditional, progressive, and turnkey design-build their distinct character.

Who Warrants the Design?

Prior to design-build delivery, design-bid-build ran on a well-worn default. The Owner hired an architect, who produced complete plans and specifications, and handed that finished design package to a contractor to build. Under United States v. Spearin, a 1918 U.S. Supreme Court decision, the Owner is deemed to impliedly warrant that those plans and specifications are adequate. What does this mean? It means if the contractor follows the Owner-provided plans and specifications faithfully and something fails as a result, the cost typically lands on the Owner, not the builder.

Design-build shifts the default by changing who authors the design. When an Owner issues performance-based criteria (DBIA calls this the Owner’s Project Criteria) rather than prescriptive drawings, and the design-builder develops its own design to satisfy these criteria, the implied warranty largely transfers with the design development.

This shift pinpoints the risk mitigation that many Owners find most appealing about design-build delivery. It has propelled design-build’s adoption around the globe, but the change in responsibility is neither automatic nor total. Owners who supply detailed criteria documents or retain control over specific design elements, such as specifying equipment make and model, can still carry a partial implied warranty for those pieces even on a design-build project.

To account for this, contract forms across DBIA, ConsensusDocs, and AIA define the Basis of Design Documents: the specific criteria, proposals, and design submissions the parties agree the design-builder is deemed to have authored. Leave that list vague, and the risk allocation an Owner thought it had purchased may not survive a dispute.

Traditional Design-Build: Pricing Locked to a Defined Program

In its most direct form, design-build asks competing teams to respond to a request built around the Owner’s Project Criteria, then evaluates technical approach and price together in one best-value decision. DBIA’s lump-sum agreement (Document 525) and AIA’s traditional A141 form each anchor the Basis of Design to the winning proposal, plus any deviations each side will commit to writing. In this model, price and scope are effectively locked at award.

Even here, “traditional” understates the nuance of the arrangement. AIA’s A141 still splits compensation into two buckets: work performed before the contract sum is fixed; and everything after a formal Design-Build Amendment sets that sum. This essentially creates a smaller, faster version of the staging that progressive design-build uses more deliberately.

Traditional design-build asks a lot of the Owner’s Project Criteria. Defined tightly, competing proposals are genuinely comparable and the fixed price holds. Defined loosely, that same “fixed” price becomes an invitation for change orders once the design-builder discovers everything the criteria didn’t specify.

Progressive Design-Build: A Toolkit for Pricing What Isn’t Yet Designed

Progressive design-build postpones price certainty, using specific devices rather than a vague promise of collaboration. Common devices include the following:

Two-phase structure—Selection is based on qualifications. Phase I develops the design jointly, typically paid on a “not-to-exceed” basis rather than a fixed fee, so the Owner isn’t funding open-ended pre-construction hours.

GMP tied to a design milestone—Once the Basis of Design documents reach an agreed completion level—often at or after 60 percent construction documents—the design-builder submits a Guaranteed Max Price (GMP) built against those documents. Setting one earlier only relocates potential disputes to later in the project.

Incremental GMPs by package—Owners and design-builders can execute a GMP for an early package such as site work, foundations, and steel, while later packages are still in design. This agility within early scopes is the real mechanism behind design-build’s fast-track reputation.

A clear off-ramp—If the parties can’t agree to a GMP at the defined milestone, either side can typically exit for convenience. Off-ramps are rarely exercised because replacing a design-builder mid-project has its own hard and soft costs, but the mere existence of the provision and the security it provides can still shape negotiations.

Two contingency pools—Most agreements split a Design-Builder’s Contingency, for the contractor’s exclusive use, from an Owner’s Contingency released at the Owner’s discretion. This separation gives open-book cost reporting meaning.

Reliance provisions—Intended to facilitate speed and establish Ownership, these spell out which Owner-furnished data the design-builder may rely on without independent verification. The benefit is that progress comes with less burden than a fully verified data set involves, with clear Ownership if the information proves to be flawed.

Together, these devices explain why progressive design-build suits projects with uncertainties common to industrial sites, such as subsurface conditions, permitting processes, and long-lead procurement timelines. Collectively, they price a moving target without making the Owner pay for that uncertainty twice over.

Turnkey Structures: Stacking Contracts, Not Replacing Them

“Turnkey” in industrial construction is less of a true contract structure than it is a teaming strategy. It doesn’t involve a standard form the way DBIA 530 or AIA A141 do, but nests several distinct contract types under one commercial relationship so an Owner deals with a single counterparty, even though multiple legal instruments do the work underneath. Depending on the design-builder’s capabilities, these can involve some or all of the following:

Real estate

Design-build firms with a development arm are rare but can offer convenient arrangements for land acquisition, use, and financing. When the design-builder delivers a facility on a build-to-suit or ground-lease basis, rent can be calculated as a return on the full project cost, land plus hard and soft costs, with a “work letter” agreement that spells out which improvements the developer covers versus what the occupant fits out itself. This lets an Owner occupy a purpose-built facility without carrying land and construction financing on its own balance sheet—an advantageous arrangement for executing large capex projects.

Equipment fabrication

Whether equipment fabrication is executed on a contract manufacturing basis or fully custom design-build, it often includes factory acceptance testing—functional testing at the fabricator’s facility before shipment—plus a single performance warranty covering the assembled system’s output, rather than a warranty on each individual component. A defined “battery limit” marks where the equipment supplier’s responsibility ends and the installation contractor’s begins.

Automation & process integration

Rather than a standalone contract an Owner manages separately, system integration and automation may be nested inside the design-build agreement or an amendment to it, verified through the same commissioning process that validates the rest of the facility.

“Choosing a single design-build partner who offers many distinct capabilities allows the Owner to focus on what they know best and what provides the highest ROI: serving their customers,” says Scott Parker, Chief Financial Officer, Gray.

Matching the Device to the Risk

The value of each structure isn’t absolute. Situational factors and Owner mandates drive these decisions—risk toleration, price and schedule certainty, site conditions, equipment specifications, and more. A well-defined program with limited technical uncertainty complements traditional design-build’s early price lock. Uncertain subsurface, permitting, or procurement conditions favor progressive design-build’s staged pricing devices. Where success depends more on the facility’s equipment and process systems than the facility itself, turnkey structures maintain one-point accountability with a single partner. Gray works across each of these forms rather than defaulting to one; Jim Gray’s standing as a founding father of DBIA reflects a firm that has helped shape these instruments as much as it has used them.

How Contract Devices Show Up on Gray Projects

None of this is abstract in Gray’s own work. When a leading solar manufacturer needed initial production capacity online fast, Gray’s team used overlapping, package-based design and procurement—the same phased-pricing logic behind progressive design-build’s fast-track advantage—to deliver the facility in 9 months. Similarly, Gray delivered the fastest-built plant in Michelin’s history—a nearly 800,000 s.f. tire manufacturing facility—in just 16 months. On Clemens Food Group’s Michigan expansion, Gray managed more than $80 million in process and packaging equipment procurement while keeping its own project team deliberately lean, a cost-control mechanism that worked inside an open-book, cost-plus arrangement. And through the company’s equipment fabrication arm, Gray offers customers functional testing and proven performance at the factory before shipment and with far less risk.

Coming Up in Part II

Contract structure is where a design-build project’s risk allocation takes shape, long before the first dirt is turned over on site, but it’s only the beginning. In Part II of Design-Build in Focus, we’ll move from the contract to integrated project execution and how the plan outlined in a contract comes to life on the jobsite.