Design and Construct Contracts in Australian Residential Building

What it is

Design and construct, often written D&C, is a project delivery model where a single builder takes contractual responsibility for both the design and the construction of the home. The client gives the builder a brief or a set of performance requirements, and the builder produces the design, the documentation and the finished building under one contract.

In the Australian residential market, D&C is the default for project home builders and most multi-residential developers. It is less common in custom one-off housing, where the client usually engages an architect separately and then engages the builder to construct an already-documented design.

How it differs from traditional procurement

Under traditional procurement the client engages a designer to produce documentation, then engages a builder to construct that documentation under a fixed-price contract. The risk for design errors stays with the designer and the client. The builder builds what is drawn.

Under D&C the builder owns both halves. The design either originates in the builder's drafting room or is novated across from a consultant the client engaged early. Either way the builder warrants that the design will meet the agreed performance requirements and that the building will comply with the National Construction Code and the relevant state planning rules.

Risk to the builder

D&C concentrates design liability on the builder. That liability is broader than most builders appreciate at signing.

Performance specification risk

The contract usually frames the design obligation as a performance specification rather than a prescriptive specification. The builder has to deliver a home that performs to agreed criteria covering thermal performance, acoustic performance, structural adequacy and code compliance. If the building does not meet those criteria, rectification is the builder's cost regardless of which consultant got it wrong.

Novation risk

In many residential developments the client engages an architect and engineers up to a partial design stage, then novates those consultants to the builder once the head contract is signed. From that moment the builder is responsible for the prior design work and the prior design decisions, even though the builder did not control them. This is the trap that the Association of Consulting Architects and the Australian Institute of Architects have flagged repeatedly as a driver of defects in Australian multi-residential housing.

Variation risk

Because the design is in the builder's hands, the client expects the builder to absorb design coordination errors as part of the lump sum. Variations only flow when the client changes the brief or the regulator changes the rules. A builder used to traditional procurement is often surprised by how few variations are actually claimable under a D&C contract.

Code compliance

Under the National Construction Code published by the Australian Building Codes Board, residential buildings must satisfy specific performance requirements in volumes one and two. Under D&C the builder warrants that the finished design and the finished building both comply. The state regulators that audit residential construction, including the Victorian Building Authority and NSW Fair Trading, hold the builder responsible for both.

Novation in practice

Novation is the legal mechanism by which the consultant contracts are transferred from the client to the builder. The architect who started the job working for the homeowner ends up working for the builder, often with the same scope and the same fee. Three things matter.

What is novated

The novation deed should list every contract and every drawing the builder is taking over. If the engineering reports are not listed, they are not novated, and the builder has no claim if the engineering is wrong.

When novation happens

If novation happens too late the builder is bound by design decisions made by consultants who report to the client. If it happens too early the builder is paying for design hours that have not delivered value yet.

What survives novation

Pre-novation consultant work usually carries no warranty to the builder. The builder takes the design as it stands and is responsible for everything from the novation date forward, including the prior work.

When D&C makes sense in residential

D&C is well suited to repeat plans, project homes and multi-residential developments where the builder controls the design language and the design team. It is poorly suited to bespoke one-off custom homes where the client has a strong architectural vision and a long-running relationship with a designer.

Common mistakes

The first mistake is accepting novation of a consultant team that the builder has never worked with. The second is signing a D&C contract without a clear performance specification, which leaves the builder defending an unwritten standard set by the client's expectations. The third is treating D&C as a way to get a cheaper design by skipping documentation. The hours come back as rework on site, and the rework usually costs more than the documentation would have. Australia-wide research published through state regulators has linked under-documented D&C residential work to higher defect rates.