How AI for Contracts Can Support Construction Project Delivery Methods
Written in collaboration with Jeff Sample, ConTech Podcast Host, Speaker, and Growth Consultant
Document Crunch exists because drafting, negotiating, and complying with construction contracts varies widely depending on the construction project. The variability is due to the type, scope, and location of the project, but it’s also due to the project delivery method chosen for the project. Project delivery methods have evolved and merged over the years, and even the most experienced builders may try a new project delivery method that they’re not experts in yet.
From the Master Builder archetype to Collaborative Project Delivery methods, how projects are delivered requires contracts to keep up, and AI may be the only way to keep pace into the future.
We talked with Jeff Sample, an AEC growth consultant, podcaster, and speaker, to understand how project delivery methods have changed over the centuries and what that means for construction contracts today. “Thankfully, AI is finally allowing us to use the depths of the contract as a foundation throughout delivery, instead of just using the contract as a stick at the end of the project. All of these project delivery methods can have better outcomes with visibility, trust, and confidence in the contract,” Sample began.
Let’s look at the development of project delivery methods and the contracts that execute them:
Master Builder
As early as the 1600s, historical documents described a Master Builder who served as a General Contractor but also trained at length on design, architecture, and trades so they could hire and manage subcontractors directly. Supported by the owner or financier of the project, Master Builders held all the authority and all the accountability from drafting the blueprints to cutting ribbons.
“While this structure sped up decision making, it limited projects to the expertise of the Master Builder,” Sample noted. This project delivery method would ultimately become extinct for that reason.
Design Bid Build (DBB)
The project delivery method of design-bid-build emerged in the 18th and 19th centuries as the architecture specialty took root. Design-bid-build allowed architects and engineers to focus on design, general contractors to focus on bidding and managing the project, and subcontractors to focus on building according to their specialties. This process aligned with emerging capitalistic ideals of focusing on the service that was most profitable for your business. This project delivery method also aligned with growing regulations and licensing requirements by company type and location. It became difficult for one Master Builder type to meet all government requirements for building and became easier to rely on a group of uniquely licensed companies to complete the job in aggregate. “While this method allowed companies to focus on what they were great at, it siloed design and execution to the point where change orders became the first step to pre-construction,” Sample says.
“While this method allowed companies to focus on what they were great at, it siloed design and execution to the point where change orders became the first step to pre-construction,” Sample says.
GCs bid on projects knowing specs and plans weren’t perfect, expecting to submit change orders immediately upon winning the project. This left Owners frustrated about their budget and subjected the project plans to ongoing changes that often muddled the original intent of the project. This also left subcontractors frustrated but silent, especially when demand was slow and they needed the project to pay the bills.
For this project delivery method, the Owner contracts with the architect and GC separately, then the GC contracts individually with all trade contractors. Keeping terms consistent across disparate contracts proved difficult.
Design-Build
One solution to the DBB challenges was the design-build project delivery method. This combined Owners, Architects, and GCs into one entity that designed and scoped the project, then selected subcontractors who could execute it. While this sometimes left out valuable trade contractor input, it aligned design and pre-construction more closely than before. Nearly half of all projects are expected be delivered by Design-Build methods by 2026 according to DBIA.
For these projects, the Owner, architect and GC are under one contract. If a design problem comes up, they solve it as a team. The GC still contracts separately with each trade contractor, however. This reduces some accountability and transparency issues in the Owner, Architect, GC dynamic by streamlining contract terms between the three in one place.
A downside for Owners in this delivery method is that they are relying on the expertise of GCs to set budget and pricing. If that expertise is not as good as they believed, the Owner either has to provide more money to get the job done or involve legal teams to terminate the contract. To offer another alternative, the Progressive Design Build project delivery method was introduced. This is very similar to DB or CMGC (see below), but the contract involves two phases. First, design and pre-construction. Second, final design and construction services. With this project delivery method, the Owner can engage a GC for both phases, but has the option to switch GCs after phase one if they’re not meeting expectations. This incentivizes GCs to involve trades early to get to a trusted, executable design, and ensures the GC is retained to complete phase two. This method also gives the GC an out if they decide they don’t want to complete phase two.
The downside to this type of contract method is that it requires a high degree of collaboration and shared decision-making that many Owners and teams are not prepared to meet. There is also still a disconnect between the project team and the trade contractors delivering the work which can lead to constructability issues.
Construction Manager at Risk (CMAR) or Construction Manager/General Contractor (CMGC)
Similarly to Design-Build, the CMAR project delivery method ensures a GC or Construction Manager is involved early in the design process, but in CMAR they are a separate entity selected per project. After helping scope the project, the Construction Manager agrees to a Guaranteed Maximum Price (GMP) that the project will not go over. The “at Risk” means that the CM is liable for any work that goes over that GMP (outside of unforeseen overages allowed for in the contract).
“The biggest risk with this delivery method is that the subcontractor is left out of this Guaranteed Maximum Price (GMP) determination and often required to make decisions that uphold the maximum even though they didn’t help set it,” Sample explained.
“The biggest risk with this delivery method is that the subcontractor is left out of this GMP determination and often required to make decisions that uphold the maximum even though they didn’t help set it,” Sample explained. This can cause understandable frustration and limit the subcontractors ability to deliver efficient work through fabrication and other means. The “at Risk” clause also incentivizes the Construction Manager to cut corners in the event of an issue so they don’t have to carry all the downside.
“You could say, as an industry, that we added this contract type because we didn’t have any trust. We added a third party who contracts with the Owner and with the GC to add more accountability, but it also added more complication during execution,” Sample explained.
Integrated Project Delivery (IPD)
“The most recent and arguably the most effective project delivery method is integrated project delivery. Unfortunately, it’s also the hardest to employ,” Sample told us. “Statistics say that the fastest growing delivery method for construction projects is IPD, but this number is skewed by the values of large, repeat healthcare projects that have perfected IPD. Unfortunately, not many other projects or industries are there yet.”
“The most recent and arguably the most effective project delivery method is integrated project delivery. Unfortunately, it’s also the hardest to employ,” Sample says.
With IPD, key parties are involved early or even before the project is designed. A shared contract between all parties allows everyone to share accountability, risk, and profit.
“If you have to spend extra money, everyone’s cut of the contingency money is impacted,” Sample explained. Shared risk, shared reward. As you can imagine, this type of contract and delivery involves a lot of compromise, communication, and predictability, which is also why it’s the hardest method to execute despite being the gold standard.
“In order to share one master contract, all parties have to open their books; this requires a large degree of trust and transparency. But the result is that everyone is incentivized, everyone comes in on time and on budget because you’re contractually obligated to work together and solve problems together. When you put a problem in front of everybody, and say ‘How do we fix it?’ you get to an answer much quicker,” Sample has witnessed.
“… When you put a problem in front of everybody, and say ‘How do we fix it?’ you get to an answer much quicker,” Sample has witnessed.
How can contract AI support the best project delivery methods?
“You can move confidently into new contract types and new delivery methods that you’re not as familiar with via a solution like Document Crunch,” Jeff observed. You can streamline language, terms, and negotiations across any number of contracts with AI technology that helps you search, improve, and analyze contract language in seconds. You can help project teams get up to speed on new delivery methods quickly by making sure they don’t fear the contracts associated with them.
“You can move confidently into new contract types and new delivery methods that you’re not as familiar with via a solution like Document Crunch,” Jeff observed.
“‘Contract carrot’ has never been used before, we’ve always used ‘contract stick’,” Sample joked. “Operationalizing the contract through a solution like Document Crunch, instead of just signing and filing until it’s a problem, gives companies much more flexibility and savvy in selecting project delivery methods.”
If they don’t fear the contracts associated with that delivery method, they are much more likely to pick the best method for their project, rather than picking the best method for their risk tolerance.
“Imagine when we can even compare delivery method to profit! We can only do that with solidly negotiated and executed contracts, and without AI technology, it’s hard to achieve those. We don’t all have to do IPD to do projects better,” Sample concluded.