Capital Project Solutions – December 2010
Integrated Project Delivery – A Year In Review William McMahon – President & COO Throughout 2010, Capital Project Solutions ran a series of articles dedicated to the topic of Integrated Project Delivery (IPD). We explored many issues related to IPD, from project identification to team selection to contract and incentive development. From three (3) IPD projects currently underway, we shared case studies and lessons learned throughout the series. This month’s issue will provide a recap of our yearlong discussion, outline advances made throughout the year and provide an opinion on how we see IPD playing out in the marketplace. If you have missed any of the previous articles or to learn more about other strategies to ensure your project’s success, visit KLMK Group at www.klmkgroup.com.
Key Discussion Areas Throughout the Year It has been an interesting year in the evolution of a revolutionary way of delivering healthcare capital facilities projects – Integrated Project Delivery (IPD). When we began our series of discussions earlier this year, we described the need in the marketplace for a new method of delivery for healthcare projects, as the traditional approach was becoming outdated. We stated that when expectations of healthcare owners are elevated the market must adapt to deliver desired outcomes. During the year, our discussion focused on the following critical elements in the IPD process: New Approach: In today’s healthcare environment, it has become crucial for owners to be creative and open-minded to meet the demands of patients, physicians, workers, financial institutions and government agencies. If a capital expansion project is the solution to a critical need, then we strongly suggested that owners explore a more integrated and collaborative approach to delivering the project. We described in detail the time that should be invested in the initial launch phase of a project in order to adequately analyze the opportunity to utilize an IPD approach on a healthcare capital project. 1
Capital Project Solutions – December 2010
Why IPD?: To answer the question, “Why should I choose Integrated Project Delivery for my project?” we suggested that you must first determine if IPD is a good fit for your organizational culture and then develop your value proposition. If you go through a self examination and find that IPD seems to align with your organization, you should next determine your value proposition (what you are trying to achieve strategically by your project) and then measure IPD’s ability to enable you to meet it. We still believe if lowest cost is the primary driver that determines value, then IPD is not the answer for your organization. Team Selection: IPD is a relational based concept and the selection of the project team should be based on that concept. This type of team selection requires a significant investment of time from both the Selection Committee and the candidate teams. Typically, this process requires more time than the traditional “transaction based” approach requires. The selection of the team and the process through which it is chosen is one of the most important processes an Owner and prospective firm will undertake on an IPD project and it will have lasting impact either in a negative or positive way. Spending time and money, during this process, will be a worthwhile investment if your approach is rooted in the correct motives. Education: A clear understanding of the pros and cons of going forward with the IPD concept is crucial to the success of the project. Take the time to educate yourself on the process of selecting the team, the contracting method and the ultimate goal of using an alternative delivery model. If you or your client is solely focused on fees, then this is a sign that you or they may not be ready to move forward with IPD. Contracting: The major premise of IPD is to deliver a capital facility project in the most efficient manner where hand offs, finger pointing, and backstabbing is eliminated. In order to 2
Capital Project Solutions – December 2010
accomplish these objectives, all parties must be willing to act in the best interest of the project, striving for the greater good. Only by having faith in the process and trusting the team will ensure that an IPD integrated form of agreement (IFOA) truly delivers the desired end result - an equitable contract that is fair and has value for all involved. Insurance: The IPD team must develop an insurance strategy that works in favor of the project while recognizing the inherent risks shared by all parties. In addition, there must be an equitable distribution of the all risks and rewards. Next, the contractual vehicle that embodies these tenets and creates performance incentives for the IPD team is created. This equitably drafted contract coupled with the appropriate risk and associated insurance strategy, should protect each team member and help break down the barriers that have been created from decades of “risk shifting”.
Follow Up From Case Studies (Where Are They Now?)
Rendering by: HDR
In the May 2010 edition of Capital Project Solutions, we provided an IPD Case Study for the expansion and relocation of the emergency department at Hurley Medical Center (HMC) in Flint, Michigan. Currently, construction of the facility is progressing nicely with the building enclosure completed. There has not been a single change order request or claim from MEP subcontractors and according to Granger Construction (Construction Manager and member of the Core Team), “this is truly a different way of delivering a healthcare project in a positive way.” The IPD team at HMC was extremely flexible and able to provide accurate cost information during the design phase, assisting the owner in maximizing value early. Early buyout also allowed the owner to take advantage of market-driven savings. In the September 2010 edition of Capital Project Solutions, we provided a case study on the Replacement Hospital Project for Owensboro Medical Health System (OMHS) in Owensboro, Kentucky. An important key takeaway learned at 3
Capital Project Solutions – December 2010
Rendering by: HGA Architects & Engineers
OMHS was the importance of defining the incentive plan as early as possible in the project. Ideally, the incentive plan should be developed as part of the contract negotiations. The OMHS incentive plan was not finalized until approximately eight (8) months after the signing of the contract. This limited the opportunity to incentivize the entire team. Since it was developed so late in the process, the plan primarily focused on the construction completion date and the ability to provide additional scope, requested by the owner, without impacting the GMP. By delaying development, the team missed the opportunity to tie the design team’s deliverables to the incentive plan, as construction designs (CD’s) were almost 70% complete at the time. As a result, the plan became more dependent on one team member (construction manager) rather than the entire IPD team. The challenge since the GMP was completed (in August), has been to stay within GMP budgets, considering the design was only about 70% complete. To date, the IPD team has been able to identify budget issues as a team and track and manage the process, so that when the design is 100% complete, all of the budget risks will have been identified. The team is proactively running a list of cost issues and, if drawings were printed today, they are confident they could identify the cost impacts before any official cost estimate was completed. Knowing that all of these costs will be captured within the funds set aside (IPD Design Contingency) for this purpose allows the owner to make other informed decisions about the project. The IPD team at OMHS has also been successful in managing the schedule. Prior to GMP, the owner requested a change in the floor stacking to accommodate a new program that they want to implement. Normally, this would have been devastating to the project schedule, however, the team was able to manage and maintain the current schedule while absorbing an eight (8) week design delay. The established collaborative relationship of the IPD team enabled the owner’s desire to be realized with no impact to the overall schedule.
4
Capital Project Solutions – December 2010
Additional Things We Have Learned… Now that we are under construction with several IPD projects, we are seeing how IPD projects are playing out and can share some lessons learned: Education of both the owner and industry participants remains a high priority for anyone contemplating an IPD approach. The key differences between IPD and more traditional approaches need to be understood as quickly as possible by all parties involved. Such differences can include some or all of the following: form of agreement, timing of selections, approach to risk sharing (and risk management), timing of when decisions need to be made and the processes for selecting trade contractors. Participants must agree on how to answer the following question – “How do I still know I am getting the best value if I’m not bidding things out?” Education surrounding the following issues is also critical: team compensation, incentive plans, management by a core group, safe harbor provisions, and continuous estimating. There are specific differences in how the team does business and how the project is developed. Those differences should be clearly articulated and discussed as early as possible. Building Information Modeling (BIM) and Offsite Fabrication – One of the primary benefits we have observed in utilizing BIM is the ability to identify design problems and coordination issues with the plans prior to installation of the materials. One direct result is that this allows for the majority of the piping and duct runs (vertical and horizontal) to be prefabricated thus significantly reducing the installation time. This also has a positive impact on jobsite safety as it moves personnel away from the site and reduces opportunities for accidents. Bringing the major subs on board early has also enhanced the benefits derived from utilizing BIM. The IPD team is able to build the BIM model simultaneously with the development of CD’s. By working in this manner, the team has been able to resolve issues and develop design solutions that are directly coordinated with the architects/engineers and are incorporated 5
Capital Project Solutions – December 2010
into the final CD’s which limits coordination issues as the building is constructed. Negotiation of integrated agreements and development of risk solutions is a very time consuming process. Because this is still a relatively new way of contracting and defining risk, this process should be started as early as possible. A qualified team of advisors (attorneys, bond counsel and insurance agents) that have experience in IPD and believe in its benefits should be consulted. Keep in mind that seeking counsel from advisors who are closed minded about this form of delivery will only lengthen this step and success is not guaranteed.
What We See in the Future… We remain very excited about the possibilities and advantages that an IPD model can bring a healthcare owner. At the end of the day, most healthcare owners want a more collaborative approach to the delivery of their healthcare projects, although not all are willing to invest the time and energy necessary to adopt a true IPD approach. IPD will continue to evolve as the industry becomes more educated and familiar with this model of delivery. Improvements in the economic climate will also affect IPD’s development and acceptance. We believe IPD, or at least elements of IPD, is here to stay and that the next ten years will continue to produce advances in the delivery of healthcare capital projects.
6