D&C Contracts: The Cost of Unclear Risk
Design and Construct (D&C) contracts are the go-to delivery method in commercial construction for good reason: they offer fast-tracked delivery and single-point accountability. Standard forms like the AS4902 head contract are heavily utilised across the industry. However, when these overarching obligations flow down to subcontractors through standard subcontract agreements, hidden traps around risk allocation frequently emerge.
I saw this play out firsthand during the delivery of a cold storage warehouse complex. It was a fast-tracked D&C project requiring aggressive value-engineering to keep things viable. Ultimately, we doubled the project margin through smart changes to the retaining walls and structural steel. But the process exposed a recurring issue. Many subcontractors sign heavily amended agreements without truly understanding where the head contractor's design responsibility stops and theirs starts.
When latent site conditions popped up during the earthworks phase, the subcontractors who had explicitly drawn out their design boundaries and exclusions in their contract schedules handled the changes easily. On the flip side, those who just assumed it was a standard construct-only arrangement found themselves facing costly disputes over who owned the risk of the re-design.
The Key Takeaways for Subcontractors
Define 'Fit for Purpose' Practically: In a D&C environment, warranting that your work is "fit for its intended purpose" is a heavy legal burden. It means you aren't just promising to build what is on the drawing; you are guaranteeing the final product will function perfectly for the client's end-use (like ensuring structural steel framing can support specific thermal tolerances). Always explicitly check how that ultimate purpose is defined within the head contract's annexures.
Interrogate the Design Boundaries: Never assume the provided tender drawings are fully coordinated. You need to meticulously check your subcontract schedules to see if you hold the risk for coordinating your specific trade with existing services. Where possible, ask for access to the project's BIM or 3D models (such as Revit or Navisworks files) to do your own clash detection before signing. Always be sure to check if there is a specified Level of Design (LOD). An LOD400 or LOD500 specification is an expensive mistake if you haven’t allowed for it.
Formalise Latent Condition Documentation: If you hit an unforeseen physical issue on site, like buried asbestos or unexpected bedrock, stop work and follow the contractual notification process immediately. Do not attempt a quick, "helpful" fix on site without formal written approval. Submit an urgent Request for Information (RFI), followed strictly by a formal Notice of Delay and a claim for a Latent Condition under the exact timeframes in your AS subcontract. If you don’t follow these timeframes, you run the risk of being time-barred and lose your entitlements to delays and further costs.