Design-Build for a Custom Home: How It Works and What to Watch

The traditional way to build a custom home goes in a line. You hire an architect, the architect finishes the drawings, the drawings go out to builders, and you pick a bid. Design, then bid, then build.

Design-build skips the middle step. One company handles both the design and the construction, under one agreement or a pair of linked ones. Sometimes that's a builder with designers or an architect on staff. Sometimes it's an architect and a builder who team up and offer it together. Either way, you have one party responsible for getting from idea to finished house.

It can work very well. It also changes where you need to pay attention, mostly because the price never gets tested against another builder's.

How it usually works

Most design-build arrangements come in two phases.

Design and preconstruction. You sign an agreement for the design work, usually for a fee. The team designs the house and prices it as they go, with the builder's estimators looking at the drawings while they're still being drawn. You should see budget updates at set points: after schematic design, after design development, and before construction drawings are finished.

Construction. Once the design is far enough along, you sign a construction contract. In design-build this is usually cost plus or a GMP, set from the estimate the team built during design. Sometimes part of the design fee is credited back if you go ahead with construction.

The handoff between those two phases is the moment that matters most. It's when the price gets set, and it's the last easy point to walk away.

What you get

Budget feedback during design. This is the biggest advantage. In a design-bid-build process, you can finish drawings and then learn from the bids that the house costs 30% more than you hoped (illustrative). In design-build, the people pricing the house are in the room while it's being designed, so a budget problem shows up while it's still cheap to fix.

One point of responsibility. If something in the drawings doesn't work in the field, there's no argument between the architect and the builder about whose problem it is. It's the same company's problem.

A faster start. Since the builder already knows the project, site work and long-lead orders can sometimes start before every drawing is finished.

What you give up

Competitive bids. In design-bid-build, several builders price the same drawings, and the bids check each other. In design-build there's one price, from the company that designed the house. That doesn't make it a bad price. It means you need another way to know whether it's a fair one.

A designer who works only for you. In the traditional model, the architect is on your side of the table when the builder's work gets reviewed. In design-build, the designer and the builder are on the same team. That's the point of it, and it's also the tradeoff: nobody on the project has the job of checking the builder's work on your behalf unless you arrange for it.

An easy exit. If the price at the end of design is more than you can do, can you take the drawings to another builder? That depends entirely on the agreement, and it's worth knowing before you start.

How to protect yourself

Set a target budget in writing at the start, and require a budget check at each design milestone. If an estimate comes in over the target, the agreement should say what happens next: the team redesigns to get back on budget, or you decide whether to keep going.

Ask for competition where it still exists. Even without competing builders, the subcontractors can be bid. Ask the builder to get multiple quotes on the major trades and to show you the quotes, not just the number they chose.

Get the construction contract terms early. Since it'll likely be cost plus or a GMP, everything in Fixed price, GMP, or cost plus applies: the fee, what's billed as cost, the contingency, your audit rights. Know those terms before you've spent months designing a house with this team, when walking away gets harder.

Get a second set of eyes on the price before you sign for construction. With no competing bids to compare, a review of the estimate is the closest thing you have to a check.

Questions worth asking

• What does the design phase cost, and is any of it credited if I go ahead with construction?
• When will I see budget updates, and what happens if one comes in over my target?
• If I don't go ahead with construction, do I own the drawings and can another builder use them?
• Will the construction contract be cost plus or a GMP, and can I see a sample now?
• Will you get multiple subcontractor quotes on the major trades, and will I see them?
• Who on the project is looking out for my interests on design quality and cost?