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Public-Private Partnerships: Conflicting Interests between Design-Builder and Designer

Authored by attorney Michael L. Sterling

Federal, state, and local governments are turning to the private sector to meet construction and infrastructure demands. Currently, one of the most widely used options is the Public-Private Partnership (“PPP”). On the design side, a PPP project will involve at least three parties - the Concessionaire, Design-Builder and Designer (although the same entity my play multiple roles). This article focuses on issues that may arise between the Design-Builder and the Designer on PPP projects.

Conflicting Interests Surface Shortly After Parties Execute Contracts
In a typical sequence of contract execution between these parties, the first document is a Letter of Intent (“LOI”), Memorandum of Understanding (“MOU”) or Teaming Agreement (“TA”) for pre-proposal work executed between the Concessionaire and the Design-Builder. This first document usually outlines the scope of work, compensation, confidentiality and exclusivity provisions. Next, the Design-Builder and Designer execute a similar agreement for pre-proposal work and preliminary design necessary to estimate the project.

Once the Concessionaire is awarded the project, the Designer begins the preliminary design, the Design-Builder begins estimating costs, and the Concessionaire obtains financing commitments. At this point, conflicting interests begin to surface. The Design-Builder wants to pin down the Designer on a fixed design cost so that it can prepare an accurate estimate. However, the Design-Builder will usually need to negotiate the subcontract with the Designer before the Design-Build contract is final. Similarly, the Concessionaire wants to arrive at a fixed price for the Design-Build contract so that the Concessionaire will know the design and construction costs before it negotiates an agreement with the Owner.

Specific Issues that May Arise between Design-Builder and Designer:

PPP projects require clients to make important decisions based on incomplete information. Attorneys advising clients with respect to design contracts on PPP projects will have to carefully consider the different risks associated with such projects, and the need to carefully review complex flow down provisions often originating from incomplete project financing and other agreements.

These articles are meant to bring awareness to these topics and are not intended to be used as legal advice.


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