Should You Use Integrated Project Delivery on Your Next Construction Project?

R. Thomas Dunn | Pierce Atwood | August 21, 2019

Complex construction projects have many moving parts and numerous stakeholders. Each project often contains its own unique challenges and obstacles. Finding the right solution does not often come by trying to utilize a one-size-fits-all approach. Indeed, complex issues call at times for customized responses.

Discerning the appropriate solution for particular problems involves a variety of decisions. Chief among many concerns is determining what the priorities are on a given project, and figuring out the best way to achieve those aims for all involved.

A contract solution that seeks to harness the potential of collaboration, and alignment of the priorities of all those involved in complex construction projects, is Integrated Project Delivery (“IPD”). IPD is a project delivery system that utilizes a team-based approach to construction projects where the risks and rewards of a project are shared by all of the stakeholders and, when done right, maximizes efficiency so projects are completed on time and on budget.

Like other tools, IPD is not a panacea. Nor is IPD the right solution for every project or every owner, contractor, or design professional. Still, for those willing and able to commit to true collaboration on complex construction projects, IPD offers promising potential for addressing many common problems in the construction industry.

The Failings of an Outdated System

While there may not be one solution that solves all problems in the construction industry, there are nevertheless certain problems that impact many, if not all, complex construction projects. Studies have shown that in the last fifty years, while all other major industries have more than doubled their average productivity, the construction industry has in contrast declined in productivity.[i]

In fact, it’s presently estimated that half of all construction activity is not productive.[ii] Some researchers have found that the actual time spent working on certain projects can be lower than 20 percent.[iii] One explanation for the ability of these striking inefficiencies to persist is by way of resort to the tired cliché, that the definition of insanity is doing the same thing over and over and expecting a different result. For the construction industry, its inefficiencies flow in part from trying to utilize the same antiquated approaches to project delivery and expecting to yield better, more efficient results.

One of the major drivers of such inefficiencies is the traditional project delivery system itself. Traditional project delivery systemically breeds inefficiency because it inherently contemplates that each individual participant is only responsible for their separate silo of responsibility. Both the process and the goals of individual participants are fragmented. A project could be a complete and utter failure for an owner, yet one or even several subcontractors could walk away lining their pockets, viewing the project as a tremendous success because they were able to complete their discrete task. Even if each of the individual participants recognize that “profit is a worthwhile goal” each participant is only “focused on making their own profit rather than on optimizing project outcome and increasing profit for all.”[iv]

A Shift in Thought

One way to start to break away from the inefficient, compartmentalized mindset is for project participants to start thinking about the big picture, that is, to focus on the needs, risks, and rewards associated with the overall project. Such a focus is the foundation of an IPD mindset, which, put another way, is to get all participants thinking like owners.[v] An owner’s mentality does not narrowly focus on accomplishing individual tasks, but instead recognizes how each constituent part needs to come together as a unified whole. Every decision has an eye towards improving the success of the overall project.[vi]

The main shift is to develop a model for an IPD project that aligns each of the participant’s interests with the overall project goals.[vii] To work towards achieving such alignment, it is necessary to set the ground rules for the appropriate attitudes that need to be maintained both at the inception and throughout an IPD project. The three essential attitudes or behavioral principles for a successful IPD project are: (1) mutual respect and trust; (2) willingness to collaborate; and (3) open communication.[viii]

Each behavior is connected to the other. Mutual respect and trust is needed so that participants are willing to collaborate; open communication is more readily attainable when the parties have mutual respect and trust; and, open and honest communication is part and parcel to true collaboration.

Key Contractual Principles

Having the right mindset and attitudes, while critical, is only part of what it takes for the successful implementation of IPD. Without the proper contractual foundations, even with the most collaborative-minded of participants, a project would not be able to achieve the full benefits of IPD. Among the most critical contractual principles necessary for successful implementation of IPD are:[ix]

A successful IPD project utilizes the above contractual principles to effectively bind the participants together to achieve the common goal of an efficient and profitable project. These principles should ideally be discussed at a “pre-negotiation workshop” which provides the opportunity for all stakeholders to become acquainted with these key IPD principles.[x] Later, when negotiation of the actual IPD agreement or agreements takes place, certain critical decisions will need to be made, including determining which participants will actually end up as part of the group that will share in the risks and rewards of the overall IPD project.

The Benefits of Using IPD

No Litigation

Utilizing IPD can yield numerous benefits for all participants involved in such projects. One key benefit is that true IPD removes the cost and uncertainty of litigation from the construction process. At the turn of the millennium, studies had shown that construction litigation expenditures were increasing at an average rate of 10 percent per year for over a decade.[xi] Current trends show likely increases in litigation into the foreseeable future.[xii] True IPD seeks to remove litigation from the construction process entirely by having all of the parties enter into liability waivers.

Only True Change Orders

Some early case studies into IPD projects have shown successful completion of projects with no litigation.[xiii] Similarly, IPD seeks to remove change orders, as they are currently utilized, from the construction process. Some estimates show that change orders account for approximately 8 to 14% of the cost of capital construction projects.[xiv] However, under IPD, with liability waivers and other contractual language in place, change orders are not – and cannot – be utilized as a means of generating additional profit for contractors and subcontractors. Instead, ordinary change orders are pre-determined to become the responsibility of the entire team. The only change orders that remain are those in which the owner expressly decides to add scope to the project.

Fewer Requests for Information

The early engagement of key participants as well as the increased role of all stakeholders in the design process also results in few Requests for Information (“RFIs”). RFIs are issued by contractors and subcontractors when they believe they need something regarding the design clarified.[xv] One study of non-IPD projects estimated that the average cost per RFI review and response was approximately $1,080 and there were an average of nearly 10 RFIs for every $1 million in construction cost.[xvi]

In an early case study of IPD projects, the majority of the projects analyzed had only between 100-300 RFIs, with a large percentage of those RFIs merely being used to document the ultimate decision made by the members of the project team.[xvii]

Early involvement of key stakeholders in the design process also benefits such contractors and subcontractors because it allows for them to better price their work as they have a more intimate understanding (as actual participants in the process) of the actual design.[xviii]

On Time, On Budget, Done Right

While the prospect of no litigation and a reduction in change orders and RFIs are desirable in their own right, the ultimate concern is whether the finished project meets expectations. One study found that approximately 75% of capital construction projects do not meet schedules and that 63% are over budget.[xix]

In contrast, a one study found the following regarding IPD projects:[xx]

All of which, because of the incentive structures in IPD, redounds to the benefit of all stakeholders.

Potential Risks of IPD

Notwithstanding the numerous benefits and potential of IPD, its implementation is not without risk. As with anything new, participants will have to adjust to its differences. Most of the key adjustments pivot around the impact of the more collaborative framework. The increased participation of more stakeholders early in the design phase shifts the bulk of the costs toward the beginning of IPD projects. Owners must be prepared to adjust their financing arrangements accordingly.

Additionally, the increased focus on collaboration places even more significant emphasis on trust between participants.[xxi] If participants are unfamiliar with each other, which can often occur in large, complex one-off projects, meaningful collaboration can be difficult. However, the biggest risk posed by IPD is that the owners bear the risk in the rare event of a catastrophic overrun, that is, cost overruns that are so significant that they completely consume all of the profit that was set aside to be potentially shared by the owner and non-owner participants.

Successful Implementation of IPD

With proper planning, IPD can be successfully implemented to avoid the potential risks. While there are some key factors that improve the likelihood of successfully implementing IPD, the lifeblood of an IPD project that must permeate every facet of such a project is a concrete commitment to collaboration by all stakeholders. This includes total buy-in on the part of the project owner. While all participants must fully engage in the collaborative endeavor, it is the owner who must first establish the collaborative tone.

Selection of the right team to collaborate with the owner is the next critical step.[xxii] Ideally, the more participants that have been exposed to IPD and collaborative design concepts the better. Still, prior exposure to such concepts, though important, is not necessarily as critical as the selection of participants with whom the owner has mutual respect and trust, and whom are willing to collaborate and embrace the IPD mindset. However, to supplement for any lack of familiarity with IPD among participants and also to bolster and facilitate the successful implementation of the IPD project, the guidance of IPD consultants and legal advisors should also be sought at as early as possible. In particular, legal counsel and consultants can help educate key participants, facilitate negotiations, and also address critical side issues like financing, insurance, and legal entity structure.

Once all of the key participants have been identified, each should be brought together for a “pre-negotiation workshop” which provides the opportunity for all stakeholders to become acquainted with the key IPD principles and concepts.[xxiii] Following this, the participants can then proceed to actual negotiations. As opposed to other forms of project delivery, IPD negotiations, at least initially, do not focus on the contractual terms. Rather, the focus is on setting the goals for the overall project, while also providing the opportunity for participants to express their interests and concerns. Later on in the negotiation (or likely subsequent negotiations), the parties will begin to distill the key terms that need to be addressed. Only after agreement as to the overall project goals are established and the key terms and issues have been addressed will the IPD contract then materialize.

In addition to embodying the overall project goals and addressing the key terms and issues, the IPD contract must also provide a stable (yet flexible) underlying framework. The contract must provide an appropriate balance between allowing for joint control and decision making, while also still recognizing the owner’s ultimate control over the entire project.[xxiv] Further, the contact needs to appropriately address the shared risks and rewards for the project by customizing the incentive structure for non-owner participants to drive shared accountability.[xxv]

Throughout the project, there are also certain best practices that can be utilized to help foster the collaborative framework established by the IPD contract. One is physical, the other is technological. As for the physical, best practices suggest that all key participants gather in person or co-locate on a continuous basis throughout the course of the project, otherwise called establishing the “Big Room.”[xxvi] Such close physical proximity fosters an environment for true collaboration by increasing the “quality and quantity of interactions” and helping to build “the relationships that create trust.”[xxvii]

On the technological side, best practices suggest utilizing Building Information Modeling (“BIM”). BIM is a “database that stores building information and translates it into a three-dimensional model.”[xxviii] BIM allows for the sharing and integration of all designs and specifications, which not only provides a common repository of all critical documents, but also helps to identify and correct design conflicts.

Conclusion

Integrated Product Delivery, while not appropriate for every project or every owner, presents a unique opportunity for all members in the construction industry to come together to solve its deep rooted issues. It is an approach that allows all those impacted by the failures of the stubborn and static system that has grown ever more litigious and inefficient to take part in the solution. IPD is a fresh approach to old problems. It holds significant promise for those stakeholders willing to commit. Learning about the great potential of this revolutionary method is one of the first steps in the right direction. Working together with all those in the industry is the next step.

Dispelling the Myths of Lean Construction and IPD

Justin L. Weisberg | K&L Gates

Over the last year we have witnessed a successful Congress in Chicago by the Lean Construction Institute, a growing number of projects adopting Lean Construction Processes (“LCP”), in Illinois, and the recognition of the completion of at least one significant project in Illinois, which utilized Integrated Project Delivery (“IPD”). Nevertheless, I have perceived that there is confusion in the industry relative to LCP and IPD based upon comments made at presentations given by practitioners in the construction industry, who have not been involved with, or studied Lean Construction. The following article provides a brief overview and a comparison of LCP and IPD to address the myths created by some of these comments.

The first and easiest myth to dispel is the myth that LCP and IPD are one and the same. LCP and IPD are clearly not the same. There are many more projects currently using LCP than projects utilizing IPD. Therefore, there is no question that a Lean Construction Project can exist even where the parties are working under a traditional construction contract.

Lean Construction is a process that aims to, for example, increase efficiency, improve quality control and align the expectations of the Owner with the vision of the Designer and the goals of the Builder. The development of Lean Construction has roots in manufacturing. Certain LCP concepts reflect methods derived from manufacturing processes such as those described in Workplace Management, Authored by Taiichi Ohno, Translated by Jon Miller, Gemba Press (2007). These processes focus on the elimination of waste, improving workflow and continuous improvement. Considering concepts originally derived from the assembly line, probably the most demonstrable reflection of a process developed for Lean Construction is Pull Planning.

Looking from the outside in, Pull Planning illustrates a process where work is planned and scheduled from the bottom up rather than from the top down. The Pull Planning sessions involve participation of trade contractors, the general contractor and design professionals as well as, in many instances, the Owner. Project participants would plan a given project by activities which would be identified on sticky notes placed on a wall. More recently, technology has been developed to allow the sticky notes to be virtually placed on large computer screens. The schedules are updated at sessions that occur on a periodic basis and the parties work toward scheduling activities to begin only when needed, in order to insure a continuous work flow. For example, instead of storing materials for months on site, the parties strive to limit deliveries of materials to a few days at most before they are incorporated into the Project.

LCP allow for vertical integration of responsibility, involving for example, foreman of subcontractors in the planning and scheduling process, instead of requiring those individuals to comply with schedules that they had no input in creating. The collaboration and empowerment of project participants can also have an impact on the motivation of the individuals responsible for completing the work in field. The Pull Planning process also provides a platform for communication of the project participants directly from the field to project managers, designers, and even representatives of the ownership team.

Unlike LCP, IPD is not a process, but a project delivery method with a basis in contract. One recognized IPD contract form is identified as, the ConsensusDocs 300, Standard Multi-Party Project Delivery (IPD) Agreement. It has been proven that IPD is not a necessary delivery system for LCP to be used, although the forms were developed at least in part to facilitate collaboration and support LCP, and both forms have provisions which assist in the implementation of LCP.

Given that Pull Planning is a significant element of an LCP project, the contract must provide for compensation of the contractor and key subcontractors beginning with the early design stage of the Project. Under the IPD forms, the Architect, Contractor and Owner are parties to the same agreement, facilitating the use of the Contractor’s services from the early stages of design. However, the use of a more traditional Construction Manager at Risk (“CMAR”) form of delivery would also provide contractor services during the design phase of the Project. Notably, a project utilizing LCP would require the Contractor to engage primary trade contractors during the design stage of the Project, although there is nothing that would limit the engagement of primary trade contractors in other construction forms including, Construction Manager Advisor (“CMA”), CMAR or a Design Build (“DB”). Moreover, a DB form of agreement is also an integrated agreement from the perspective that the design and construction is under one agreement with the Owner.

One factor identified by LCP practitioners supporting a preference for IPD as compared to traditional delivery has been the engagement of the Owner in the LCP. It is noted that IPD form agreements do incorporate certain LCP such as Pull Planning, Collaboration and BIM. However, many terms targeted to involve the Owner in LCP can be easily inserted into traditional contracts. Therefore, the question presented is whether there is any provision unique to IPD that facilitates LCP. Form IPD agreements attempt to facilitate collaboration through the use of a management by committee model based upon a Core Group with a representative of the Owner, Contractor and Designer. Provisions including Target Value, Profit Pool and Incentive Compensation are IPD provisions that at least in theory, shift the position of the Owner into a closer alignment with the other Project participants relative to compensation, performance and risk.

Target Value Design is based upon a team approach in which the Owner, Designer, General Contractor and primary trade contractors work together during the design process to develop a Target Value. During the design, the Project members work together to establish a design that will have a cost does not exceed the Target Value which is continuously validated throughout the design process. When the design documents are sufficiently developed, the Core Group proposes a Target Value, or Expected Maximum Price (the “Target”) to the Owner. Once accepted, the Designer, Contractor and primary trade contractors then work on cost basis placing some or all of profits at risk in a Risk Pool to defray costs that exceed the established Target. There is a contingency amount established for certain unknown costs such as escalation, but once the contingency is exhausted the profits of the Risk Pool members are applied to defray excesses above the Target. Once the Target is exhausted, the costs above the Target, contingency and Risk Pool are incurred by the Owner. Therefore, the myth that the risk of a cost overrun in an IPD project is assumed by the Owner alone is incorrect. As the IPD form of contract is relatively new, there might be a potential underwriting challenge concerning the limits of a builders risk policy based upon a Target.

In addition to amounts in the Risk Pool related to the Target, there are also funds put at risk for Goal Achievement. These funds not conditioned upon delivering the Project within the Target, but instead related to reaching certain set goals such as attendance at meetings, milestones, obtaining certain sustainability ratings or for example a successful safety record.

The IPD parties waive liability between each other removing the concept of fault from errors or defective work. The IPD contracts do attempt to preserve rights between the parties to the extent of available insurance, although there might be potential challenges by insurers concerning the impact of such waivers on coverage.

The IPD method of continuing to validate cost through design is significantly different from the traditional method of the creation of construction level drawings and then having the cost determined by bid. A CMA or CMAR arrangement would allow for construction expertise prior to completion of design, although in contrast to an IPD approach, input of recommended design alternatives would not occur until the value engineering phase after the design is relatively complete. The traditional design build model does integrate design and construction, although the validation of cost and schedule occurs at one time in cases where a GMP is established, usually by amendment at some level in the design process. Once the GMP is set, although there may be some sharing of risk between the Design Builder and Owner relative to contingency account savings, the ultimate risk for completion and cost falls on the Design Builder. This is in contrast to the sharing of risk in IPD where the initial risk of cost andPool is shouldered by the Contractor, the Designer and selected trade contractors, with the ultimate risk shouldered by the Owner once the Risk Pool is exhausted. Consequently, the motivation to reach completion of the Project within the Target is theoretically more aligned from the trade contractor level through Ownership with IPD, than other more traditional methods of Project delivery.

As with other forms of negotiated rather than hard bid contracts, IPD is based upon a cost plus open book compensation system. Unlike a system based upon a lump sum bid, an Owner managing a cost plus contract requires at least some sophistication in construction accounting in order to appropriately administrate the payment process. Given the selection of the construction team early in the design process, the competitive method of construction procurement which is available for traditional lump sum design build projects is simply not possible with IPD. This barrier to traditional competitive procurement can present a challenge to public projects, although recent statutory changes which allow alternative delivery methods, allow for competitive procurement based upon value rather than cost. It is also noted that in many cases, public agencies are relatively more sophisticated than private entities in auditing and reviewing design and construction costs, and will be in the best position to take advantage of an open book project delivery system as new statutes and regulations increase the flexibility of public project procurement.

IPD benefits of continuous cost validation and close integration of all project participants throughout the design and construction process could realize significant advantages on a complex project. This is particularly true in projects with significant programming requirements where the needs of the Owner are complex and are not fully defined prior to the design process. However, the benefits of IPD may be less apparent for a cookie cutter type of improvement which has few surprises and where relatively accurate estimation is possible based upon a schematic design. Given the cost of administrating an IPD project versus a traditional delivery method, the value of IPD might be questioned for cookie cutter projects that require little owner input. Consequently, the comparative popularity of IPD on complex healthcare facilities is not a surprise.

LCP is process oriented and can be successfully implemented to some extent regardless of the project delivery method involved. LCP can involve participants from the subcontractor’s field personnel to project executives. In contrast to LCP, IPD is a project delivery method that when weighed against other project delivery methods can provide benefits, when implemented on certain types of projects such as complex or challenging projects, procured on a negotiated basis. IPD contract forms like other construction contracts are specific to risk, obligations and compensation rather than the processes used by individuals and teams during design and construction

Will the use of IPD Suffer from the Technology that Supports IPD?

Stanley A. Martin – October 24, 2012

Integrated Project Delivery (IPD), although one of the bigger news-making concepts in the construction industry of late, remains more talked-about than accomplished.  Estimates suggest less than 40 such projects in the US, so there have probably been more seminars about IPD than actual projects!  And now, developments in technology lead credence to the idea that technology may reduce the incentive for owners to consider IPD for their projects.

IPD is touted as useful for project owners with complex projects, who need a collaborative approach to manage risk, particularly with a tight schedule or budget.  With IPD, owners, contractors and designers (as well as critical subs) have common goals and incentives.  Collaboration is driven by the contract structure and facilitated by technology which allows ready sharing of project drawings, details and other information.  Even with several converts, though, IPD is still a tough sell among capital facility owners.

Full disclosure: I am a member of an IPD task force sponsored by AGC of America, to disseminate information to members and the public about IPD.  IPD remains an intriguing and potentially rewarding delivery method for the right owners and projects.

Many owners wary of the multi-party relationship have embarked on “IPD lite” delivery methodologies, attempting to instill collaborative processes within the traditional contractual framework.  This “IPD lite” framework – which cannot be called a delivery system – relies upon technology to boost communication among team members.  Recent announcements on new technologies and platforms pave the way for owners to opt for increased information-sharing in support of “IPD lite” project management.  For instance, Gehry Technologies has announced its new “G|Team” online 3D file-sharing and BIM platform.  An ENR article discusses existing tools and apps that allow iPad and desktop users to carry thousands of plans.  One of the apps, PlanGrid, allows for sharing and management of plans on mobile platforms.

What does this all mean?  Better communication tools may result in project owners capitalizing on the same information exchange that is integral to IPD, without going the way of the multi-party agreement.

via Will the use of IPD suffer from the technology that supports IPD? – Lexology.