Capital Project Solutions – June 2010
Integrated Project Delivery Contracting Patrick Duke, Senior Vice President Throughout 2010, Capital Project Solutions will run a series of articles dedicated to Integrated Project Delivery (IPD). We will explore all issues related to IPD, from project identification to team selection to contract and incentive development. With three (3) IPD projects currently underway, we will share case studies and lessons learned throughout the series. Last month, we shared a case study of the Hurley Medical Center project. This month, we will explore IPD contracting and how it is different from traditional delivery contracts. If you should miss 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.
In the April 2010 issue of Capital Project Solutions, we discussed the importance of a Team based selection process for your IPD project. Because the very nature of IPD is collaborative, a selection process that allows you to witness the interaction between the team members in order to evaluate their chemistry becomes paramount. The selection process hinges on a series of “planned interactions” with select candidate teams to evaluate the level of integration among them. Once the Team is selected, you must continue all project activities with a focus on fostering the relational, collaborative and lean values that an IPD project should have. Therefore, the process for selecting and agreeing on an Integrated Form of Agreement (IFOA) should be based on planned interactions with your Team and all discussions should be collaborative and open.
Selecting the Integrated Form of Agreement (IFOA) Sutter Health was one of the early adopters of IPD in the healthcare market and with their legal counsel (McDonough Holland & Allen’s Will Lichtig) they worked to develop and utilize some of the first IFOA’s. Since their highly publicized experience in IPD, other agencies and organizations have developed versions 1
Capital Project Solutions – June 2010
of an IFOA for use in an IPD project. While several industry form contract documents exist in the marketplace, experts agree that an “ideal” contractual document does not. Essentially, there are three principal industry form IPD contract documents available for use: 1. Consensus DOCS 300 2. AIA A195, B195 and A295 (Transitional IPD) 3. AIA C195 (Single Purpose Entity) Regardless of which contract is used, the agreement should incorporate the following guiding principles: Trust cannot be contracted. The IFOA is only a tool and cannot guarantee the success of the project. The process of team selection and project governance to reduce the risk is critical. The contract document alone will not change behaviors. A well-crafted IFOA that creates the appropriate incentives and calls for a reasonable sharing of risk will reinforce mutual trust, whereas a poorly crafted contract will do the opposite. An IFOA between the owner, architect and construction manager must also include joining agreements for consultants and trade contractors, with the same cost-plus fee arrangements, shared incentive plan, shared contingency, shared liability with liability limitation, and Target Cost Approach concepts. Including joining agreements will insure the entire team is integrated.
Hot Buttons During Negotiation The healthcare owner has the most to gain and the most to lose from the delivery of a capital project. In most cases, the owner actively seeks to mitigate the risks associated with the following issues which are all related to risk:
2
Capital Project Solutions – June 2010
Damages (Liquidated, Consequential, Delay) Indemnity/Insurance Incentive/Disincentives Too often, in an effort to “mitigate” their own risk, core project team members will push risk down the supply chain to the subcontractor, sub consultant or material supplier who, in many cases, is ill-equipped to handle this risk though financial or legal means. In essence, this can leave the owner unknowingly exposed. In addition to sharing the risks, the IPD model seeks to share the rewards. Following are the chief tenets of IPD Risk Allocation: Collaborative Risk Allocation o Development of risk sharing agreement early – conduct a risk allocation workshop as part of the Project Initiation Process o Limit risk and provide upside to maximize the potential on the project Mutual Waiver of Consequential Damages Full Waiver of Subrogation Mutual Indemnification and Hold Harmless First, the 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”. When developing the incentive program, begin by identifying the key factor that will motivate each of the team members to achieve the owner’s goals. The majority of this task can be accomplished during an Incentives Work Session. Outcomes from the session must be included in the IFOA. As outlined in the 3
Capital Project Solutions – June 2010
table below, the goals and guidelines of the Incentive Plan should be both Strategic and Tactical:
Strategic Involve all core team members in goal setting; build consensus and champions in core team first
Tactical Define communication protocol when there is an issue and sets expectations of leadership
Determine the optimal process to bring on new members to the team
Regularly visit the goals – score periodically and offer feedback to improve performance Goals should be posted and advertised
Use offsite venue to gain focus, promote team building and address more issues
Team successes should be celebrated
The major premise of IPD is to deliver a capital facility project in the most efficient manor where hand offs, finger pointing, and backstabbing is eliminated. In order to accomplish these objectives, all parties must be willing to act in the best interest of project, striving for the greater good. Only by having faith in the process and trusting the team will an IPD IFOA truly deliver the desired end result - an equitable contract that is fair and has value for all Involved.
4