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BUILDER – DESIGNER MERGERS

Authored by Attorney George M. Nicholos, gnicholos@vanblacklaw.com; 757-446-8604

Co-Authored by Attorney Geoffrey G. Hemphill, ghemphill@vanblacklaw.com; 757-446-8528       

Changing demands in the construction industry requiring faster project completion cycles, increased demands for the use of BIM (Building Information Modeling), and an increased reliance on design/build project formats, have caused construction and design firms to contemplate merger. Such mergers, allow firms to integrate their services and capitalize their cooperative efforts to increase their competitive edge by providing owners a single entity for both services.

While builders and designers have common end goals on projects, they typically arrive at those goals from diametrically opposed perspectives and responsibilities. That opposition has implications for a successful merger of responsibilities and traditions. Some examples include:

  1. Appreciation of talents: Merging parties must understand their similarities, and differences; and appreciate talents necessary for good construction. Potential partners should reflect values that aspire to the same quality and core values of construction and design.
  2. Technology: The merger of designers and builders can optimize the utilization of BIM technology with a jointly developed model for design and construction. Joint preparation and development of a model has important implications, both positive and negative. Optimizing the use of technology can constitute a genuine competitive advantage; however, potential partners must agree regarding continued development.
  3. Compensation: Designers typically maintain by comparison smaller capital resources. In contrast, construction firms typically maintain larger capital resources to fulfill project bonding requirements. A key difference is that the capital resources that fund construction activities and support bonding requirements generally remain with the firm. Contrary to the risk held by designers, builders inherently have more risk because in the event things go wrong, builders typically have more assets that can be legally pursued. Under a merger, both parties will share the same risks.
  4. Liability: Designers generally, owe owners a duty to exercise skill and ability, judgment and taste, reasonably and without neglect. They are also impliedly and/or contractually obligated to possess the requisite competence, ability and technical skill to furnish plans and specifications, and exercise the care of those ordinarily skilled in the business. But the designer is generally not liable for faulty construction resulting from plan or design defects and is generally held to not have implied or guaranteed perfect plans or satisfactory results. In contrast, builders are generally responsible for means and methods, site, safety, materials, schedules, construction defects, and/or conformance with the design documents. Under a merger, both parties share this risk.
  5. Taxation: And of course, there is the subject of taxation, while beyond the scope of this article, there are potentially significant tax consequences depending on the structuring of the merger. Seeking tax advice is essential for planning the merger transaction and subsequent successful operation.

While mergers can yield positive industry benefits, the successful outcome of a merger depends upon careful consideration of these and other factors. Merger requires careful planning, and preparation. For more information, please contact the authors, or any other member of the Vandeventer Black Construction and Business Law Teams.

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