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2010 CAPITAL PROJECT SOLUTIONS Integrated Project Delivery Series

I N N O VA T I V E H E A L T H C A R E F A C I L I T Y S O L U T I O N S

JANUARY

2010 CAPITAL PROJECT SOLUTIONS Integrated Project Delivery Series

I N N O VA T I V E H E A L T H C A R E F A C I L I T Y S O L U T I O N S

Capital Project Solutions – January 2010

The Benefits of Conducting a Strategic Project Launch Readiness Assessment – Part 13 in a 13 Part Series Contracting Approach – Selecting the Appropriate Delivery Associated Contract Can Reduce Risks

Approach

and

William McMahon – President/COO

Throughout 2009, Capital Project Solutions ran a series of articles on Project Launch Preparedness. December’s issue discussed Project Delivery Team Organization and Approach.

This month's article explores the 12th and final spoke of the Strategic Project Launch Readiness Assessment (SPLRA) – Contracting and Delivery Approach. Throughout a SPLRA, every major issue that could potentially impact your launch will be identified and explored. The SPLRA will keep you focused on all the elements that impact the "Big 3" of your project -- scope, schedule, and budget. If you should miss any of the 13 articles in the series or to learn more about other strategies to ensure your project’s success, visit KLMK Group at www.klmkgroup.com.

The process of selecting a project delivery approach and applicable contract occurs during the Project Launch phase and is an important “spoke” on the SPLRA wheel. Any major project involves significant risk. Healthcare projects are especially risky because they have the potential to disrupt life-saving services.

During the project launch phase, the healthcare owner needs to select the delivery approach that best fits their project and minimizes their risk. First and foremost, a CEO needs to know the definition of project delivery approach – it is the planning, design, construction and other services necessary for organizing, executing and completing a building facility or project. Once that approach is determined, then it must be documented in a contract that specifically outlines the “business arrangement(s)” for the project.

A greater number of healthcare owners are beginning to explore alternative models for delivering projects. This shift is due to the 1

Capital Project Solutions – January 2010 frustrations associated with the traditional method of project delivery. It is outdated and full of inefficiencies, thus making it difficult to achieve desired outcomes. Despite decades of attempts to improve on traditional delivery approaches (designbid-award, design-build, construction manager at risk), projects are still frequently over-budget and delivered late.

More importantly, the completed facilities often do not improve the operational efficiency of the organization.

Understandably, owners are still searching for a reliable process that produces more predictable outcomes. The industry is abuzz over new ways of delivering projects. Currently, there is a revolutionary shift in the way projects are delivered and owners are beginning to become more curious about this process. The shift to a more integrated form of delivery has the greatest potential to correct the major problems associated with the traditional approaches. First, let’s review the traditional project delivery methods and then evaluate a more integrated approach.

Preconstruction-Construction Manager Typical PreconstructionConstruction Manager Delivery Team Organization

Under a typical PreConstruction-Construction Manager project delivery method, a healthcare owner contracts with an architect/engineer for design services and enters into a separate contract with a preconstruction-construction manager for construction services. The objective of this approach is to treat project planning, design, and construction as integrated tasks within a construction system. The team, by working together from project inception to project completion, attempts to serve the owner’s interest in optimum fashion. But, there’s no formal or contractual relationship between team members.

By striking a balance between construction costs, project quality and completion schedule, the team strives to produce a project of maximum value to the owner within the most economic timeframe. On most construction management projects, phased construction is applied and adherence to the established time schedule and construction budget is a prime responsibility of the construction manager.

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Capital Project Solutions – January 2010 The PreConstruction-Construction Manager project delivery method has been typically utilized by healthcare owners on their most complex and challenging projects. This approach takes into account that the design and decision making process is interactive and may involve an evolving design process as the clinical operations of the facility are being analyzed. Under this delivery method the owner will incur a significant amount of design fees before understanding the final construction cost. It is also incumbent on the owner to be the leader of this process and be able to make timely decisions. Should the owner lack sufficient “in house” expertise with time available to commit to the project, it will greatly impact the design process and lead to project delays before construction is even initiated. However, with this approach the owner does have significantly more control over the design and specifications of the systems that will ultimately be a part of their new facility.

Design-Build

Typical DesignBuild Team Organization

In the Design-Build delivery method, the owner contracts with a single entity for both design and construction management services. By doing so, the owner has one contract assigning single-point responsibility for the project. The design-build entity may be a single organization with both architectural and construction staffs or a construction organization that hires / affiliates with an architect as part of a design-build team. In this delivery method the architect is part of the design-build entity and not the agent of the owner. Thus, unlike all other project delivery methods, no one individual is acting in an agency relationship on the owner’s behalf. As is the case with the construction manager delivery method, the design-build method is also very conducive to a phased construction schedule.

In healthcare, design-build is a practical approach for projects that are easily defined and have a low risk of significant scope revisions. Parking garages, medical office buildings and outpatient care buildings are good 3

Capital Project Solutions – January 2010 examples of such projects. These types of projects typically require minimal involvement from a multi-disciplinary group of end users and the design period is usually not as lengthy. Once the guiding principles are established (such as the number of parking spaces in a garage, the number square feet in a medical office building or the number of operating rooms in an outpatient surgery center) it is easy for the design-build entity to provide the owner with a total project cost that can be reviewed and approved. In many instances, the owner utilizes these guiding principles to define the building scope in order to solicit competitive bids from design-build entities. With this selection process the final construction cost is known sooner in the overall process. One of the most attractive aspects of his delivery model is that change orders related to design errors and omissions are non-existent. With the design professional and contractor on the same team, they are both held accountable for errors and discrepancies on the drawings. Costs associated with any errors are thus not the obligation of the owner.

Integrated Project Delivery (IPD) Trends Driving Owners to IPD

Integrated Project Delivery or “IPD� is a project delivery method that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to optimize project results, increase value to the owner, reduce waste, and maximize efficiency through all phases of design, fabrication, and construction. In other words, true IPD is a collaborative capital project delivery approach that shares risk and reward via a integrated form of agreement (IFOA) or tri-party agreement to reduce the time and cost to bring a superior product (new facility) to market.

Integrated Project Delivery is relational, collaborative and lean in its truest nature. It is Relational because the contract signed by all parties provides financial incentive to mitigate risk. Its language creates the situation in which pushing risk down the chain in 4

Capital Project Solutions – January 2010 order to avoid it is not an option. IPD is Collaborative because it creates a larger talent pool during the critical coordination stage of a project and harnesses the insights of all participants.

The larger talent pool comes from gathering all necessary expertise at the outset of the project. Healthcare owners are becoming more accustomed to applying Lean principles to their operational processes. Therefore, transference of these same principles to the capital delivery process should be a rather seamless shift. IPD applies the same Lean principles to development and thus reduces waste and optimizes efficiency through all phases of design, fabrication, construction and occupancy. It creates an environment to allow proper allocation of resources and responsibilities in order to reduce errors and avoid rework.

IPD is not the right approach for every owner. The CEO and the project delivery team must first understand and buy into the principles of IPD which are as follows:         

Mutual respect and trust Mutual benefit and reward Collaborative innovation and decision making Early involvement of key participants (design team, contractor, specialty consultants and trade subcontractors) Early goal definition (scope, budget and schedule) Integrated process planning Open communication Application of technology (BIM, etc) Application of lean principles in planning, design and construction

In addition, the healthcare owner must fully understand what makes IPD different in the following critical areas:      

Teams Process Risk Compensation and Reward Communication and Technology Agreements 5

Capital Project Solutions – January 2010 During the SPLRA, it is important to analyze all project delivery options to determine which method will help you accomplish your facility strategic objective while minimizing your risk.

Evaluation of the method that is right for a particular owner and project should happen in the earliest project discussions. Your institution’s culture may lend to a more “traditional delivery approach” such as CM at Risk or Design-Build. But, if you are open to a more collaborative way of delivering a project, you should investigate an integrated delivery approach - IPD. IPD can eliminate inefficiencies in time and budget by bringing owners, contractors, consultants, architects and vendors onto the same team under a single set of contract, risk and rewards agreements.

This method helps to focus the team and reward each member for achieving optimal project results. Trust in and by all parties delivering the capital project is the crucial determining factor in the success of an IPD approach.

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I N N O VA T I V E H E A L T H C A R E F A C I L I T Y S O L U T I O N S

FEBRUARY

2010 CAPITAL PROJECT SOLUTIONS Integrated Project Delivery Series

Capital Project Solutions – February 2010

What is Integrated Project Delivery?

William McMahon, President/COO Steve Higgs, Senior Vice President This month, we launch a new series in Capital Project Solutions.

Throughout 2010, our newsletter will be devoted 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 four IPD projects underway, we will share case studies and lessons learned throughout the series. If you should miss any of the articles or to learn more about other strategies to ensure your project’s success, visit KLMK Group at www.klmkgroup.com.

The pressure is mounting! Healthcare owners must find a way to deliver a project that addresses the demands for the latest technology, concerns about the environment, new government regulations, changes in reimbursement, and transparency requirements all while getting sufficient return on their capital investment. And if that is not enough to worry about, everyone wants to ensure that their projects are delivered in the quickest and least costly manner possible.

When expectations of healthcare owners are elevated, the market must adapt to deliver desired outcomes. Old ways of doing things quickly become obsolete and ineffective. The traditional project delivery process has simply become outdated!

As a result, the AEC industry is looking for alternatives to the traditional project delivery method. There is a revolutionary shift in the way projects are delivered to a more integrated form of delivery, which will address most of the concerns of the healthcare owner as mentioned above.

IPD, as defined by the American Institute of Architects, is “a project delivery approach that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to optimize project results, increase value to the owner, reduce waste and maximize efficiency through all the phases of design, fabrication, construction and occupancy.” Efficiency goes up and 1

Capital Project Solutions – February 2010 waste goes down under a successful IPD process. In other words, true IPD is a collaborative capital project delivery method that shares risk and reward in an integrated form of agreement to reduce the time and cost to bring a superior product (a new, expanded or renovated facility) to market.

In the traditional delivery model (known as “design/bid/award”), a project is designed and is then bid to several construction firms.

Typically, the lowest bidder is awarded the contract. Operational decisions are made throughout the design process, but their impact on the cost or scope of the overall project may not be realized until later in the process. There are also multiple “hand offs” throughout the process which creates inherent wasted time and energy. In IPD, the team is brought on board at the start of the project so that cost and scope decisions can be determined by the entire team. Hand off’s are greatly reduced or eliminated.

Many healthcare owners believe that the traditional way of delivering projects is outdated and full of inefficiencies. Some of the symptoms of this broken system are:

• • • • • • • •

Cost surprises leading to a spiraling project cost Scope of project growing out of control Inability to stay within budget Unmet and unrealistic expectations Poorly functioning designs resulting in redesign Changing team members throughout the project Schedule delays impacting return on investment (ROI) and productivity Worst case: lawsuits or other liabilities

IPD takes a very collaborative approach to the delivery of a project and strives to eliminate waste and share risk and rewards among key team members through an integrated form of agreement. IPD integrates operational process into the design and construction of the project and truly gets all team members “singing from the same sheet of music” much earlier in the project.

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Capital Project Solutions – February 2010 Integrated Project Delivery is Relational, Collaborative and Lean:  It is Relational because the contract signed by all parties provides financial incentive to mitigate risk. An IPD contract reduces overall risk by making all parties responsible to each other.  IPD is Collaborative because it creates a larger talent pool during the critical coordination stage at the very beginning of a project and harnesses the insights of all participants. The larger talent pool comes from gathering all necessary expertise at the outset of the project. This concept is familiar to many healthcare owners who are applying Lean principles to their own operational processes.  IPD applies the same Lean principles to development and thus reduces waste and optimizes efficiency through all phases of design, fabrication, construction and occupancy.

It creates an environment to allow proper allocation of resources and responsibilities in order to reduce errors and avoid rework.

In today’s healthcare environment, it is 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 it is strongly suggested to explore an integrated and collaborative approach to delivering the project.

An owner should explore all options and keep an open mind when determining the most appropriate solution. With patience and diligence, options can to be found. Invest time in the initial launch and initiation phase of the project. Do not rush and miss new opportunities that exist in the delivery of healthcare capital projects. Finally, the delivery of capital projects can be fun as well as successful, and through an integrated and collaborative approach, the goals of your healthcare institution can be realized efficiently and effectively.

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MARCH

2010 CAPITAL PROJECT SOLUTIONS Integrated Project Delivery Series

I N N O VA T I V E H E A L T H C A R E F A C I L I T Y S O L U T I O N S

Capital Project Solutions – March 2010

Is Integrated Project Delivery Right For My Project?

Patrick Duke, SVP 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 four (4) IPD projects underway, we will share case studies and lessons learned throughout the series. Last month’s issue defined Integrated Project Delivery. This month, we will explore “Why IPD?” If you should miss any of the articles or to learn more about other strategies to ensure your project’s success, visit KLMK Group at www.klmkgroup.com.

Last month, we defined IPD as “a project delivery approach that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to optimize project results, increase value to the owner, reduce waste and maximize efficiency through all the phases of design, fabrication, construction and occupancy.” But how do you determine whether it is right for you?

If you are not considering a new capital project then IPD is probably not even on your radar screen. You are more likely concerned with the impact of healthcare reform, the upcoming Joint Commission visit, enforcing HIPAA regulations, quality assurance issues, physician acquisitions, patient satisfaction, staff turnover, infection control issues, census, and the list goes on.

But, maybe you are one of the CEOs that struggles daily with an aging facility, overcrowding and lack of sufficient space. To top it all off, you now have to figure out how you are going to care for your share of the additional 32 million uninsured patients that will be coming through your door. One of the solutions to these issues may be a new capital facility project. If that is the case, you will need to choose a project delivery model that allocates risk effectively and ensures the most value for your hard to come by capital dollars. We believe IPD is a delivery model that you

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Capital Project Solutions – March 2010 should explore, but it should only be chosen after thoroughly evaluating whether it is your best option.

To answer the question, “Why should I choose Integrated Project Delivery for my project?” you must first determine if IPD is a good fit for your organizational culture and then develop your value equation. The fit test begins with asking yourself and your key leaders the following questions: 1. Are my top leaders (CEO, COO, CFO…) ready to embrace the ideals of IPD and be the champions of the effort? Any successfully project starts with leadership from the top levels in an organization. If these individuals are not prepared to be champions of IPD then it is not likely to be successful.

2. Am I willing to trust my team? Trust must be earned over time. However, to start the process you must inherently have trust in the expertise and knowledge of each project partner.

If that is something that is more difficult for you early in the project delivery process, IPD is likely not a good fit.

3. Does my organization have a culture of continuous improvement? This is a core value of an IPD project. If your organization embraces positive change and evaluates and learns from it over time, then IPD will be a better fit.

4. Am I willing to take measured risks for the potential of more reward? On paper, your risks in an IPD project may be more than you find in traditional contract forms. However, we believe that in reality your risks are lower using IPD because of the process and behaviors that are contracted in the Integrated Form of Agreement.

5. Is there anyone internally that will try to sabotage the IPD process? You must evaluate all levels of your organization and determine if there are those that may resist a paradigm shift and positive change. They could prove to be detrimental later in the project life cycle.

6. Am I considering IPD as a competitive advantage because of the buzz it might create, or because I am committed to improving the performance of the industry? If your goal is to improve the delivery of capital projects to continuously strive for better performance that provides a higher value, then IPD will be a good fit.

7. Am I soley focused on the bottom line at all cost? IPD is not cheap. In most cases, it will not result in the lowest first cost.

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Capital Project Solutions – March 2010 However, it has the ability to eliminate waste from protective risk shelters and deliver more scope for your dollar.

8. Do I have the patience to trust the process and allow it to work? IPD is not a visit to the Town of Utopia. Changing behaviors that have been formed over decades does not happen overnight. You must work at the relationships of the team and be committed to the established ideals.

9. Do I have a collaborative organization or are we really fragmented? If you operate out of silo’s and have little cross collaboration, then IPD is likely not the best fit for you organization’s culture.

10. Do I and my internal team truly understand IPD and the ideals that surround it? It is important to understand how IPD works in practice as well as the ideals it embodies prior to determining if it is a fit for you.

If you go through the fit test and find that IPD seems to align with your organization, you should next determine your value equation and measure IPD’s ability to meet it. If lowest cost is the primary driver that determines value, then IPD is not suited well for your organization. If your goal is to realize the maximum amount of value from each dollar spent, then IPD can help.

Also of importance, is the value you place on collaboration and harnessing the collective talents of specialists at a project’s onset.

A good comparison is with care delivery models such as “integrative cancer treatment”. No longer do patients visit with physicians individually; they now have a comprehensive and integrative team approach to fighting their illness. This integrative approach expands the boundaries of conventional care by bringing together traditional tools for fighting cancer, such as surgery, radiation, chemotherapy, and immunotherapy, with complementary therapies, including nutritional support, naturopathic medicine, mind-body medicine, oncology rehabilitation, pain management, and spiritual support. The patient now has an entire team working together as one unit to provide the optimal solution to their problem.

IPD works in much the same way for your capital project. Instead of the owner meeting with the architect, who will design a visually pleasing facility; and then with the construction manager, who wants to build a structurally sound facility yet sees issues in the 3

Capital Project Solutions – March 2010 design; then with the engineers, who recognize issues in the mechanics of the design…and on and on. The team is brought together at the onset and they work collaboratively as one unit to identify the optimal solution to the owner’s problem – which is the need for a new facility that can be completed in the shortest amount of time possible, on budget, with limited change orders, and provide operational efficiences that deliver the utmost in patient care and experience. And, even more importantly, can limit the possibility of lawsuits at the conclusion of the project. By coming together as one cohesive unit most of the potential issues and problems can be identified, long before they become critical, and solutions implemented.

If you happen to be, or know of, a CEO/COO that is faced with an upcoming capital project, do yourself a favor, and allow yourself to concentrate on what is truly important – optimal patient care. With the increasing complexity of regulations and limited access to capital, it is necessary to choose a project delivery model that can effectively allocate risk and deliver the most value for each and every dollar you commit. IPD has the ability to do just that and we recommend that you invest the time to determine if it is right for your organization.

To learn more about Integrated Project Delivery, please visit our website and download our recently released white paper Integrated Project Delivery: “The Value Proposition” An Owner’s Guide for Launching a Healthcare Capital Project via IPD.

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APRIL

2010 CAPITAL PROJECT SOLUTIONS Integrated Project Delivery Series

I N N O VA T I V E H E A L T H C A R E F A C I L I T Y S O L U T I O N S

Capital Project Solutions – April 2010 Integrated Project Delivery Team Selection Patrick Duke, SVP 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 underway, we will share case studies and lessons learned throughout the series. Last month’s issue discussed how to determine if IPD is right for your project. This month, we will explore the team selection process and how it differs for IPD. If you should miss any of the articles or to learn more about other strategies to ensure your project’s success, visit KLMK Group at www.klmkgroup.com.

Our experience with Integrated Project Delivery continues to provide us with valuable lessons that can be applied to any project. We constantly analyze our decisions and processes utilized on past projects, delivered via the traditional method, to determine whether an alternative approach could have yielded better outcomes. One such area is the selection and formation of project teams. Over the years, we have learned that a relational based team selection approach provides more value than a transactional approach, which is prevalent among the traditional delivery model(s). Transactional team selection is based on quantitative criteria such as the scope of the project, the team’s experience relative to the scope, and the fee. With a relational based approach, the focus is much more qualitative. Issues such as the chemistry of the team, the trust among team members, their collaborative ability and process, and the interest of the owner/team far outweigh the individual interests of each of the members. The following table highlights the differences between the two delivery methods: Project Delivery Methods Traditional Quantitative Fragmented Assembled on an “as needed” basis Strongly hierarchical Self interest/focus Distrust

Relational Qualitative Integrated Assembled early Collaborative Team/Owner focus Trust 1

Capital Project Solutions – April 2010 Because the very nature of IPD is collaborative, it is imperative to establish a selection process that allows you to witness the interaction between the team members in order to evaluate the chemistry among potential team members.

Therefore, a relational based team selection approach is a natural fit. The easiest way to accomplish this is to conduct a series of “planned interactions” with select candidate teams to evaluate the integration among them. In an IPD project, selection becomes more of an art than a science as you evaluate each team member’s ability to be relational, collaborative and lean. These are not exactly quantitative elements, which is why this will most likely be different from any selection process in which the healthcare owner has been involved.

The Players Involved in IPD Prior to beginning any selection process, begin by identifying who will be selected. In IPD, the Core Team typically consists of the Owner, Architect and Contractor.

However, each project is different and there may be times that Specialty Consultants should be included in the inner circle. By understanding the specific needs and goals of the project, you can develop a tailored approach that will provide the best results.

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Capital Project Solutions – April 2010 The Team Selection Process The process for IPD team selection is broken down into four steps, culminating with the selection of the team.

Step 1: Determine the selection committee. The committee should consist of a mix of top organizational leaders and a variety of project stakeholders - project customers. Committee members should be prepared to invest quite a bit of time into the selection process as to not miss any interactions with interviewing Teams.

Step 2: Develop the Team selection criteria. This is where IPD truly differentiates itself from the traditional delivery method. As stated above, IPD Team selection is something of an art.

Technical competence and professional qualifications are assumed to be very high for any firm that is invited to participate. Developing criteria that allows teams to exhibit their ability to work together is very important.

Step 3: Identify candidate firms. Develop a list of architects and construction managers with the skills and qualifications necessary to fulfill the scope of the project.

It is also productive to add engineers or prime specialty consultants, such as medical equipment and technology planners. Local firms or firms that have been used in the past and have a relationship with the owner should be scrutinized with the same level of intensity as all others.

This different approach may eliminate some of the firms that have previously worked at the facility. When the list is developed you should create a Request for Integrated Team (RFIT) that outlines the process and criteria for selection.

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Capital Project Solutions – April 2010 Step 4: Issue the RFIT. Once the RFIT has been distributed, the following process should be implemented:

1. Conduct a pre-proposal Site Visit with all the firms on the list. This is the first and perhaps most important opportunity for the Selection Committee to evaluate the individual firms that may be involved with the project. It is worthwhile to spend a minimum of a half day with the firms being considered. In order to focus questions and conversations, the list of attendees should be divided by specialty – architect, contractor, engineer, etc. The individual groups should then be allowed to meet and engage in conversation as one another in a large group. All members of the Selection Committee should take part in this initial visit. The objective is for the Selection Committee to communicate exactly what they are looking for from each of the firms as well as the expectations for the dynamics of each team. This will also allow the Selection Committee to get to know all of the players better and observe how they interact with one another. Again, this is relational contracting with the core foundation based on trust. The Selection Committee should plan to meet immediately following the visit in order to discuss interactions with each firm 2.

Request for self assembly of Teams based on cross relationships between firms listed in the RFIT. The primary firms should also include any specialty consultants necessary to deliver the requested services.

Firms should be allowed to partner with companies not included in the initial RFIT list, but only after seeking the owner’s approval. By allowing firms to self assemble you will avoid conflicts and potential separation down the 4

Capital Project Solutions – April 2010 road. While not foolproof, partnerships based on past experiences and similar corporate cultures often provide the best outcomes. A time period of three weeks is advisable to allow teams to assemble.

3. Submittal of qualifications from each Team based on instructions in the RFIT. The entire Selection Committee should be involved in evaluating each firm’s Submittal of Qualifications. All evaluations should be based on previously developed selection criteria. In order to maintain a transparent process and one that can be audited, it is advisable to include the proposed evaluation tool in the RFIT. In the past, many complex weighted equations have been used to “grade” submissions.

However, we recommend using no more than 10 criteria and weighing them equally.

4. Short list to 3-4 Teams to continue the process.

Due to the detailed interactions that will take place during the final stages of selection, the short list should be limited to no more than four teams. Ideally, you should interview three teams.

5. Conduct half-day workshops with each of the short-listed Teams. Establish an overall goal for the deliverable expected from each Team, such as a proposed work plan for the project or option for design. Do not set a specific agenda. Instead, allow each team to develop their own plan in order to evaluate the group’s time management, organizational skills, and facilitation abilities.

This session provides each Team with the opportunity to gather information and ask questions in order to complete its presentation. Again, it is important for the Selection Committee to meet after the workshops and evaluate their interactions with each Team and its individual members. They should then review the Submittal of Qualifications and compare the evaluations from each meeting. Concerns should be noted and discussed at this meeting also. If any Team does not appear to be a fit, they should be eliminated prior to the final presentation.

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Capital Project Solutions – April 2010 6. Conduct final half-day presentations for each of the remaining Teams. Half-day workshops should be scheduled for the final presentations. As with all previous meetings, the entire Selection Committee should be present. Upon completion of the presentations, the Selection Committee should meet to evaluate the performance of each Team.

Select the IPD Team. The Selection Committee should now review its selection criteria and meet one week after the final presentations. This allows time for each Committee member to fully analyze the interactions throughout the entire process. Since each Team visit was followed by a Committee assessment and recap, there should be sufficient documentation to thoroughly evaluate each group. Each Committee member should complete a final evaluation form for the different Teams and then cast a single vote for his or her choice. To keep it simple, the Team with the most votes wins. In the event of a tie, consideration should be given to the possibility of having an additional Team interaction.

Relational based team selection requires a significant investment of time from both the Selection Committee and the candidate teams. Isn’t that how it should be though? This is one of the most important decisions an Owner and prospective firms will make on a project that will have lasting impact either in a negative or positive way. Spending time and spending money during this process will be a worthwhile investment if your approach is right.

This is not to say that you can’t get a good team from a transactional based approach, we just happen to believe, based on our experience, your chances are better through a relational based approach.

To learn more about Integrated Project Delivery and relational based team selection, please visit our website and download our recently released white paper - Integrated Project Delivery: “The Value Proposition” An Owner’s Guide for Launching a Healthcare Capital Project via IPD. Or join the IPD Thought Leaders for Healthcare group on Linked In.

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MAY

2010 CAPITAL PROJECT SOLUTIONS Integrated Project Delivery Series

I N N O VA T I V E H E A L T H C A R E F A C I L I T Y S O L U T I O N S

Capital Project Solutions – May 2010

Integrated Project Delivery Case Study: Hurley Medical Center Greg Weigle, Principal Consultant Josh McVeigh, Consultant 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’s issue explored the team selection process and discussed how it differs for IPD. This month, we will share a case study on Hurley Medical Center. If you should miss any of the articles or to learn more about other strategies to ensure your project’s success, visit KLMK Group at www.klmkgroup.com.

There is a common phrase that goes something like – “if you’ve seen one construction project, you’ve seen them all” – implying that all projects are just alike. Not true with hospital construction. Each project is unique in and of itself and thus each requires a distinct approach to delivery. In keeping up with the topic of IPD, our case study on the Emergency Department project at Hurley Medical Center will provide insight to the IPD process and the power of relational based team selection.

Project Scope Background: Hurley Medical Center (HMC) located in Flint, Michigan is undergoing the expansion and relocation of its Emergency Department (ED). The ED will move from its current location on the north side of campus to a combination of renovated space and new space attached to the east side of the facility. A portion of the existing ED will be renovated for the ED's clinical decision unit (CDU). New space in the basement of the addition will house infrastructure and mechanical space for the ED. As part of the expansion, the main lobby and entry to the hospital will be shifted from the north side of the campus to the south side. The new entrance will face towards the downtown area so as to integrate with the city and the primary approach to the campus.

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Capital Project Solutions – May 2010 The vehicular traffic will be segregated allowing easier access for traffic.

On the Ground Floor, there will be approximately 29,000 square feet (sf) of new contruction and 25,000 sf of renovation. On the basement level, there will be 14,000 sf of new construction which includes mechanical space, electrical space and unfinished shell space.

HMC's primary goal for the project is to improve the ability to continue to provide emergency services to the communities it serves. HMC currently serves approximately 76,000 patients annually in an ED with 53 total rooms. Based on significant statistical & operational analyses and comparison of best practices to reasonable standards, it was determined that a need existed for a total of 72 rooms which includes triage/treatment, acute, psych, and clinical decision. As a level 1 Trauma Center, acuity is high. Improvements include solving: 1) the lack of treatment rooms, 2) patient privacy, 3) staff & patient care support space, 4) separation of walk-in and ambulances, 5) inadequate mix of room acuity levels, 6) process flows and 7) the limited ability to manage swings and surges. The new ED will correct the above issues and provide care using an operationally efficient model.

Project Process Background: In 2008, HMC solicited KLMK Group to assist with converting their plans for a new ED into an active capital project. The first step taken was to conduct a Launch Gap Analysis over a two month period. The results of this process were an aligned vision for the expansion and identification of gaps that needed to be addressed in order to move ahead. During the next step of developing a Project Implementation Plan, it was determined that IPD would provide the best return on investment and enable maximum scope given limited resources and an uncertain business climate. KLMK was able to explain the IPD process, provide education as to the risks/benefits of the delivery method, and assist in the launch of their journey to a new ED.

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Capital Project Solutions – May 2010 The first step in the IPD process was to identify the team. As discussed last month, KLMK began by sending a Request For Integrated Team (RFIT) to Architects, Engineers and Construction Managers simultaneously. The invitees were asked to form teams and submit proposals for consideration.

Next, RFIT responses were evaluated and three teams were shortlisted to interview. The shortlisted teams were asked to participate in a design charette scenario which required two half days on site at the hospital. The teams were evaluated for creativity, chemistry, and problem solving approach, as this was more important to the hospital than the actual solution to the charette “problem” itself. Upon completion of the process, the successful team consisted of HDR (Architecture and Engineering) and Granger Construction (Construction Manager). In addition, several local and regional major trade contractors were added by HDR and Granger to complete the team.

In early 2009, the design phase was launched and the team commenced work. Since Building Information Modeling (BIM) was utilized on this project, it was very important to have the major trades involved with the development of the model so that the most effective and efficient built solution could be obtained.

Design was completed in April 2010 and construction commenced with a groundbreaking ceremony.

Key Project Information: The team (Hurley, KLMK, HDR, Granger and the Trades Team) has worked very hard to ensure that the project can meet its scope, schedule and budget goals. Several key items of interest about the project include: 

Governance. A committee structure was developed which includes a chain of command from the hospital board to the IPD Team. An Executive Steering Committee, made up of project team members and senior hospital leadership, meets on a monthly basis. A Core Team, consisting of project team members and key hospital representatives, meets weekly to discuss the ongoing key issues of the project. Also, there are several Sub Groups established to address key functions of the project and they communicate and connect with the Core 3

Capital Project Solutions – May 2010 Group. Finally, the IPD Team has several constituent groups, especially the BIM Team which has overseen the development and integrity of the model. 

PTCE (Project Target Cost Estimate). The Team has worked very hard to meet all budget targets. Without the IPD process and the commitment of its members, we would not have yet reached the construction phase. The ability to continuously evaluate design, means, and methods by all participants has allowed rapid response to maintain a real time budget and evaluate modifications as the design advanced through each stage. There is a commitment and ownership by all parties to achieve HMC’s goals for the new ED. IPD has created an environment that has made this possible.



Contract. Consensus Docs 300 was used as the basis of the contract. In addition, HMC and Granger (CM) have worked with the community to achieve a project labor agreement which will allow fair and open participation by vendors in its community.

Lessons Learned: Over the course of the last two years, there are three major lessons that we have learned regarding IPD: 

Organizational Culture. The success of IPD requires more than just a decision on a process. The organization must be able to adjust to the collaborative environment and be willing to evolve its mindset to support the delivery method. The Client Advisor must assess the capacity of the organization for this delivery method.



Management and Control. The management of an IPD Team is different from the management of traditional CM or design-build teams. It requires a greater understanding of the IPD dynamic and a more relaxed hold on the teams function.

The organization must monitor the team but ensure it has self governing abilities.

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Capital Project Solutions – May 2010 

External Factors. The IPD structure is sound and can hold up to external challenges such as local labor market conditions, public financing, etc. However, it is vitally important that all parties involved be educated as to the IPD process, this includes the Board of Directors. You cannot assume that people will pick up and understand all the nuances of IPD in an hour discussion. Consistent discussion and collaboration with all stakeholders is necessary to avoid roadblocks.

Hurley Medical Center is a prime example of the impact that IPD can have on a capital facility project. Early on, HMC’s visionary executive team realized the benefits that this delivery method would provide and trusted the process.

According to Jamal Ghani, HMC Senior Vice President for Operations, “We wanted to make sure that we had a very clear understanding from the get-go of what we were going to spend, how it would be built, what the outcome would be, how it could be delivered, and how we could be sure that the project will be done on time. Using IPD assured us that we have the team in place and all of the team is aligned to ensure that we have addressed everything.” HMC’s executive team has witnessed how IPD fosters collaboration among their team which has enabled the project to currently be on schedule and within budget.

5

JUNE

2010 CAPITAL PROJECT SOLUTIONS Integrated Project Delivery Series

I N N O VA T I V E H E A L T H C A R E F A C I L I T Y S O L U T I O N S

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:

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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

JULY

2010 CAPITAL PROJECT SOLUTIONS Integrated Project Delivery Series

I N N O VA T I V E H E A L T H C A R E F A C I L I T Y S O L U T I O N S

Capital Project Solutions – July 2010

Integrated Project Delivery – Risk and Insurance Model David Carter, Consultant Steve Higgs, Senior Vice President John Stanchina, Senior Vice President, Rutherfoord, Inc. 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 discussed Integrated Project Delivery contracting and how it differs from traditional delivery contracts. This month, we will explore issues related to insuring an IPD project. 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.

In our last issue of Capital Project Solutions, we addressed IPD contracting and the Integrated Form of Agreement (IFOA). In particular, we mentioned the importance of team collaboration in regard to document selection. Specifically, we addressed the need to ensure alignment of all interests between the Owner, Architect and Contractor for both risk and rewards.

The sharing of risk and rewards instilled in the IFOA helps break down the trust barriers associated with traditional contracts and allows the team to collaboratively develop the contract document that supports the interest of all parties. As part of the contract development, the team is charged with creating an incentive plan that outlines potential gains for a job well done. The same approach should be taken when developing a Risk Model for the project.

Risk sharing can be accomplished through a project specific insurance program that embodies the principle of trust inherent to an IPD agreement. This program should reduce the overall risk for the entire team as opposed to traditional project insurance coverage, which caters to the individual. By 1

Capital Project Solutions – July 2010

establishing a project specific insurance program the owner elects to set the appropriate tone by allocating risk more evenly and placing faith in the team and the IPD process. Therefore, the collaborative development of the project specific insurance program is paramount in aligning the team and creating the trust required for a successful project.

Insurance Products Ironically, the commercial insurance products available to all healthcare clients for use on their capital improvement projects are no different under an IPD delivery method than are available under a more traditional project approach. The difference comes in the approach to these options as risk management tools. The typical insurance products used to mitigate risk on a capital project improvement are: • • • • • •

General Liability (GL) Workers’ Compensation (WC) Excess / Umbrella Liability (XS) Pollution Legal Liability (PLL) Builder’s Risk (BR) Professional Liability (PL)

The owner still has the option of securing these products in the traditional sense under an IFOA but the recommendation is to create a project specific insurance program that allows for a more even distribution of the associated risks of any capital improvement project and enhances the trust of the team.

Additionally, the owner can realize the added benefits of ensuring adequate coverage is provided for the project, thus, mitigating exposures often realized in traditional project coverage.

Workers’ Compensation / General & Excess Liability In today’s world, the purchase of an insurance product to protect personal and business assets is commonplace. It is intuitive that the premium of any insurance policy must be weighed against the benefit. A risk management approach cannot simply be to over 2

Capital Project Solutions – July 2010

purchase insurance as a means of managing the risk. This strategy would not be financially feasible or prudent. Since a major capital project creates unique exposures for the entire project team, an owner must view GL and WC policies with an eye toward risk sharing.

The traditional approach to managing GL, WC, and XS has several inherent problems: Each entity is required to carry separate coverage through multiple insurers.

Gaps may exist in coverage that expose the owner and team to increased risk.

Gaps in coverage may only be identified upon receiving a claim.

Profit is applied to coverage at each level of the hierarchy.

CM and subs are responsible for monitoring that everyone has obtained adequate and appropriate coverage.

By bundling these insurance products into a project specific policy under an IFOA, it is possible to create an effective option for managing risk, incentivizing safe work habits and sharing risk and rewards.

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Capital Project Solutions – July 2010

For the reasons listed above, it is recommended that GL, WC, and XS be purchased through a Controlled Insurance Program (CIP) under a project specific IFOA. A CIP can be purchased by either the owner or the contractor. The team must decide ownership early in the process based on the team’s specific needs. A CIP is generally most effective on projects that: are greater than $100 million in construction value, have many subcontractors, are labor intensive, are staffed by a team that is committed to safety and able to provide proper claim and risk management.

Generally, the cost of a CIP on such a project will be less than GL, WC, and XS costs under the traditional tiered approach.

Although there is better chance of achieving financial savings on projects over $100M, a CIP should be strongly considered on smaller projects as well. Under a CIP, the sponsor of the program requires subcontractors to identify and remove insurance costs from their bids. This may ultimately reduce overall costs while at the same time enhancing coverage by 4

Capital Project Solutions – July 2010

providing project specific coverage / limits and thus mitigating the risk to the entire team. An additional benefit of the CIP allows for a greater pool of subcontractor bidders as inadequate coverage and associated insurance cost are no longer a burden for the subcontractors.

Financially, the CIP is comprised of a fixed and variable premium subject to the loss experience. The fixed premium is generally 40-50% of the maximum cost and the variable premium is 50-60% of the maximum cost. It should be noted that the total cost premium, both fixed and variable, should be carried in the project budget to cover potential work performance claims and to limit potential exposure since there is not a guarantee there will be savings at the end of the job. Any savings from the CIP, which could be .5%-1.5% based on safety performance, can be used to incentivize the IPD team. The split of the savings or overages, if they occur, need to be determined in advance and solidified in the IFOA. Utilizing a CIP as part of an IFOA: simplifies the process with a single policy that covers all the players on team, eliminates gaps in coverage, eliminates the multi-tiered markups, may reduce the overall risk and cost to the entire team.

Professional Liability In addition to the CIP, the IFOA should also include a project specific professional liability policy. Although, every professional design firm is required to carry professional liability insurance, such policies carry inherent limitations and increase associated risks to the project team. Some of the major limitations of such policies include: •

Owners share the design firm's professional policy limit with many other firms. Professional liability policies have a single aggregate policy limit that applies to 5

Capital Project Solutions – July 2010

all liabilities and defense costs arising from current and past work of the insured. If there is a claim, the owner has to hope it is near the front of the line to be sure of adequate protection.

•

Protection is here today and gone tomorrow.

Many professional liability claims arise well after project completion. An owner has to depend on a design firm to stay in business and continuously renew its insurance in order to have a policy against which to claim in the future.

•

The owner cannot be added as an additional insured. Most professional liability underwriters for design firms will not name the owner as an additional insured. If the owner is sued for a professional loss caused by the design firm, the indemnification clause in the owner / design firm contract may provide protection but the professional policy will not defend the owner.

•

Limitation of liability. Many design firms will not work without a limitation of liability equal to their fees and a waiver of consequential damages.

Additionally, such professional policies, when utilized in the traditional sense, carry many of the same risks associated with GL, WC, and XS policies such as multiple insurers, inadequate limits, coverage gaps, and the potential for cross litigation.

A project specific professional liability policy replaces the practice policy of the design firms and frees the team from the limitations of those policies. Additionally, it provides multiple added benefits for the IPD Team including: • • •

Consistency in coverage for the entire team.

Financial security from professional liability throughout the life of the project.

Limit of liability that is dedicated to the specific project.

Design firms policy serves as excess coverage.

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•

•

• •

Contractor’s pollution liability (including mold liability) can be included to provide coverage for pollution conditions arising out of construction work and defense costs are covered for third-party claims arising from the design team's errors.

The policy is offered on a project-specific basis for up to 10 years (the extended reporting period or ERP is included in that term) and annually for all construction ("blanket" coverage) of the named insured.

Limits of liability can be secured up to $25 million with one single insurer.

Single source of responsibility for claims.

A project specific professional liability policy is held by the owner or the lead design firm of the IFOA with the premium being paid in full by the owner. The policy is typically negotiated as dedicated limits over a deductible and the term is from the beginning of design, through construction plus 3 to 10 years. A project specific liability policy will likely be the most expensive vehicle for providing professional liability coverage when compared to traditional means. However, in an IFOA the benefits outweigh the costs and could ultimately be the least costly insurance product if a catastrophic event were to occur.

In an IPD agreement formulated on the guiding principal of trust, careful selection and implementation of insurance coverage can act as the bond that holds the team together. Both a CIP and project specific Professional Liability Policy provide for a more controlled risk management solution for the entire team.

Providing coverage that binds all parties to the same risks further solidifies the collaborative approach required for a successful IPD project and can lead to financial incentives for a job well done.

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AUGUST

2010 CAPITAL PROJECT SOLUTIONS Integrated Project Delivery Series

I N N O VA T I V E H E A L T H C A R E F A C I L I T Y S O L U T I O N S

Capital Project Solutions – August 2010

Integrated Project Delivery – Incentive Plan David Carter, Consultant 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 discussed the risk and insurance related to Integrated Project Delivery. This month, we will explore designing an incentive plan under an IPD agreement. 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.

In the July 2010 issue of Capital Project Solutions, we discussed the collaborative development of the project specific insurance program when utilizing an Integrated Project Delivery (IPD) approach. In order to ensure success and to achieve owner satisfaction, the specific insurance program is paramount for aligning the team, creating trust, and evenly distributing risks. Directly related to the allocation of risks under IPD, is the development of a reward sharing plan or incentive plan. In an IPD agreement, the design and construction professionals must be willing to accept more risk and exceed minimum expectations. Therefore, it is in the owner’s best interest to create an incentive plan whereby monetary rewards are distributed to the IPD team for delivering a final product that exceeds what would typically be expected with a traditional project.

This month, we will review the risk and reward equation for an IPD agreement.

Risk In any capital project, the owner inherently carries the most risk and has the most to gain or lose. Most owners seek to mitigate risks associated with the following: Liquidated Damages Consequential Damages Delay Damages Indemnity Insurance Claims and Dispute Resolution Inspections 1

Capital Project Solutions – August 2010

Overhead Costs Contract Interpretation In the traditional project delivery approach, the risks listed above are shifted from the owner to other project delivery team members through contract language and insurance products. However, this shifting of risk creates an attitude of self-preservation rather than one of performing in the best for the team. Additionally, traditional risk shifting is more costly for the owner.

The behavior generated by the traditional method of risk shifting and the additional costs this incurs are two of the forces driving many owners toward IPD agreements.

Under the traditional project delivery method, owners have purchased insurance to mitigate risks inherent with the Guaranteed Maximum Price (GMP) or its associated consequential damages. Broad indemnities and high limits for liquidated damages or hold harmless clauses have typically been required. Prudent design/construction professionals will view a project from a risk management perspective first, and then as a professional service provider. The risk placed on the design/construction professional is then pushed down the supply chain to subcontractors, vendors, etc.

More times than not, these subcontractors and suppliers are not capable of handling the burden of the additional risk leaving the owner exposed. Under the traditional project delivery method and risk shifting, the risk equation largely favors the owner. However, what has to come to fruition with the advent of IPD is the fact that sharing risks with the project team provides the owner with a better, more cost effective product. The behavior generated by the traditional method of risk shifting and the additional costs this incurs are two of the forces driving many owners toward IPD agreements.

In an IPD agreement, risk sharing occurs on multiple levels by all signing parties. Developing the risk allocation strategy early in the process helps break down the traditional barriers associated with a capital delivery project and helps to build trust between the owner and the other team members.

Major considerations to address in the development of the risk sharing equation in the IPD agreement are as follows: Collaborative Risk Allocation o Development of risk sharing agreement early o Limit risk and provide upside to maximize the potential on the project Mutual Waiver of Consequential Damages Full Waiver of Subrogation 2

Capital Project Solutions – August 2010

Mutual Indemnification and Hold Harmless An Insurance Strategy that Works in Favor of the Project Once the risk sharing equation is defined and the appropriate project specific insurance programs are determined, the team can proceed with the development of an equitable contract document, which protects each team member and embodies the principles of trust inherent to an IPD agreement. By accepting additional risk, it is only fair for the team to also share in the potential rewards.

Reward The creation of an incentive plan that is fair and objective under an IPD agreement can be a difficult and daunting challenge. An owner may question why the design and construction professionals should be incentivized to do their respective jobs. The design and construction professionals can easily make the argument they should be compensated for the additional risk burden. However, the underlying intent of all incentive plans should be to motivate the team to achieve goals beyond those typically realized with traditional project delivery. Owners expect their project to be delivered on time and under budget regardless of the delivery method. An IPD incentive plan should create a dynamic that fuels innovation and creativity to push the team to identify ways to deliver the project under budget, ahead of schedule and beyond owner’s expectations. To illustrate the structure and nature of a typical incentive plan, the following describes the arrangement created for a $385M replacement hospital project utilizing an IPD agreement.

Purpose of Incentive Plan The owner believes that an appropriate incentive plan will inspire the team to collaborate in order to eliminate waste and duplication in cost and time; increase the quality of the final product; make the project safer; generate savings in final costs; optimize team cooperation and “global” outlook; and improve the quality of the project.

Structure of the Incentive Plan Any incentive plan should include all members of the IPD agreement, including the owner. In this case, the IPD team elected to share the incentive pool with the major trade contractors, who are not signing members of the IPD agreement but who were an integral part of the team in the development of the current state of the project. The purpose of the incentive plan is driven by the underlying principles of the IPD 3

Capital Project Solutions – August 2010

agreement. The plan outlines the minimum requirements that must be met in order for the team to receive incentive pool funds as well as the distribution structure to the various team members. Incentive is provided for creativity, innovation, meeting minimum requirements and achieving clearly defined stretch goals, all of which ultimately benefit the owner.

Minimum Requirements to be Incentive Eligible 1. The project budget reconciliation must indicate that the final cost is less than the Target Construction Value (TCV) agreed to in the executed GMP Amendment. Note: Owner requested changes to the TCV will be identified by the Core Team, and their cost/time impacts will be projected for the Owner at the time these changes are approved, and will be accounted for when comparing the final cost to the original TCV. 2.

The Owner’s Program and Scope, amended and agreed to in the executed GMP, must be delivered.

3.

The duration of the project, given normal weather patterns, should be less than that agreed to in the GMP Amendment.

Note: Owner requested changes to the scope that put stress on the original schedule will be accounted for when comparing the original and final durations. (see #1 above)

4.

The Safety Program should be fully implemented and detailed.

Monthly reports are to be presented to all members of the IPD Team by the 15th day of the following month.

5.

The project must be closed out legally and financially within 90 days of completing Patient Move.

Incentive Pool Funding The bonus pool will be funded from a percentage of the savings within the executed GMP Amendment total construction budget. The savings sources within the GMP amount will include remaining IPD team contingency, net buy-out savings and innovation savings. The amount realized throughout the project will be deposited into the IPD Team Contingency.

Payout will only occur if all minimum eligibility requirements are met. If no savings exist at the completion of the project, the bonus pool will not be funded. In this example, the Core Team agreed to a pool cap and the savings split between the IPD Team and the Owner. The numbers below have been inserted for illustrative purposes only. Savings options to fund the pool are as follows: 4

Capital Project Solutions – August 2010

1.

2.

3.

If minimum requirements are met and savings remain from unspent IPD team contingency that are considered buyout savings: Total Pool Cap: $2 Million Spilt: 75% Owner; 25% IPD Team In addition, if minimum requirements are met, savings remain from unspent IPD team contingency , and they are clearly attributed to innovation from IPD team members: Total Pool Cap: $2 Million Spilt: 25% Owner; 75% IPD Team Innovative savings ideas will be submitted to the Core Group for consideration. They must meet the following criteria: o Generate savings in both budget and schedule. o Motivate all team members involved in the project. o Unify team so the project participants win or lose together. o Optimize cooperation and “global” outlook of team. o Eliminate waste and duplication. o Provide same or better level of quality throughout the Project.

There is also opportunity for the IPD team members to earn additional incentive by achieving the following stretch goals: Substantial Completion is reached two months prior to schedule defined within the GMP: $1 Million Alternates at the value of the GMP are delivered to the Owner with no Owner Contingency Contribution: $1 Million

An IPD agreement is built on the underlying principle of trust. Inherent to this trust, is the fact that the team must agree to share in both the risk and reward of the project. The risk sharing structure should be outlined early in the development of the IPD contract. Defining risk allocations early on breaks down the barriers associated with the traditional delivery method and creates the trust required for a successful IPD project. Additionally, defining the reward structure creates a bind that forces the team to work collaboratively to achieve the established goals, which are ultimately designed to provide the owner with the best possible product.

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I N N O VA T I V E H E A L T H C A R E F A C I L I T Y S O L U T I O N S

SEPTEMBER

2010 CAPITAL PROJECT SOLUTIONS Integrated Project Delivery Series

Capital Project Solutions – September 2010

Integrated Project Delivery – Case Study Owensboro Medical Health System Tim McCurley, Senior Consultant 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 discussed developing an incentive plan to accompany the IPD integrated form of agreement. This month, we will share lessons learned from the IPD team at Owensboro Medical Health System (OMHS). 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.

Recently, comments have been made regarding Integrated Project Delivery (IPD). Some say that it is the future of project delivery, yet others think it is merely a “here today, gone tomorrow” fad, one that will soon be replaced with the next big idea. For the team created to deliver the new $385M hospital for Owensboro Medical Health System (OMHS), we are living it, breathing it and making it work. This case study examines the OMHS IPD team – its dynamics, integration and functionality.

Rendering by: HGA Architects & Engineers

The Facts OMHS determined that, in order to meet the needs of their expanding community, they would need a new healthcare campus.

The new

campus includes a 477 bed, 780,000 square foot replacement hospital and a Medical Office Building. The campus is being built on a 160-acre green field site that is located on the east side of the city of Owensboro, Kentucky.

In planning for the new facility, the OMHS leadership team evaluated numerous capital project delivery options. It was determined that IPD would provide the greatest return on investment while avoiding the challenges that often plague a project of this size.

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The Process The first step in the process was for the OMHS leadership team to select the IPD participates. Being unfamiliar with the IPD process, Owensboro followed a more traditional approach to selecting the team.

Each company was identified individually as opposed to following the process that we identified in our April issue of Capital Project Solutions and thus the process took a bit longer than would be expected. In fact, it was not until after the teams were chosen that KLMK was actually hired. The IPD team at Owensboro now consists of the following: Owner - Owensboro Medical Health System Architect - HGA Architects and Engineers Construction Manager – Turner Universal MEPT Engineer - Smith, Seckman, Reid, Inc. Project Manager - KLMK Group The next step was to develop an Integrated Form of Agreement (IFOA) that bound the group into a single, cohesive team. Each signing member of the IFOA was provided with one vote in making decisions regarding the project. KLMK, which acts as an unbiased facilitator and advisor for the group, does not have a vote. A representative from each firm makes up what is known as the Core Team. The Core Team is responsible for the general governance and direction of the project.

Its main responsibilities are to identify the most advantageous way to deliver the new facility and to advise hospital leadership on key project issues.

After setting the target budget and schedule, the Core Team established six Component Teams and assigned a target budget for each of these team. The Component Teams are cross-functional and are responsible for developing major elements of the design that adhere to the proposed target budget and schedule. Each team includes representatives from the architect; mechanical, electrical, plumbing, technology (MEPT) engineer; civil engineer: construction manager; major subcontractors; and specialty consultants. The six Component Teams are: Site Structure Envelope Interiors 2

Capital Project Solutions – September 2010

Thermal comfort Power and Technology It was necessary to cross-pollinate the component teams in order to avoid situations where decisions made by one group may unknowingly affect another group. For example, in our Envelope Component Team, HGA and the envelope design assist partner were finalizing details for patient room windows when it was decided that the windows should be made a bit larger. Since the structural engineer was involved in the process, it was immediately identified that this change would require additional bracing to the structure, which meant additional steel would be needed. And, since the mechanical engineer was also on team, he was able to evaluate whether the heat load of the additional glass would affect the mechanical system. By having cross functional members on the component team, the implications of such a change were brought forward and evaluated and thus the team was able to make a thoughtful decision based on the impact to cost and schedule. In a traditional delivery model, the architect would have decided to change the detail and would have issued the drawing package, prior to addressing the implications to the other members of the team and the project as a whole. It could have been months before the team realized the impact to the structure and cooling system as well as whether the additional cost of the change would even be beneficial to the project. Utilizing an IPD approach allowed the team to make an informed decision within a couple weeks and indeed determined it was beneficial to the project with full confidence that all of the implications of the issue had been addressed.

Trust There is indeed something to be said regarding the trust that team members must place in one another. It is one of those circular references that always seem to pop up similar to what you see in an excel spreadsheet. However, in this case, it is a good thing, a very good thing. Under the traditional project delivery method, there always seems to be an inherit distrust between designers, contractors and owners. Designers spend endless hours creating unique and inviting designs that are good enough to be built. Yet, as soon as a contractor gets his hands on the documents, the first thing he does is review them 3

Capital Project Solutions – September 2010

for inaccuracies, mistakes, and inconsistencies. Having identified issues, the contractor submits the first change order, and now the owner no longer trusts his architect and is skeptical if his contractor is out to change order the project to death. At OMHS, the mentality is quite different. During design, the contractor’s Senior Project Manager is at the table advising the team of cost issues, constructability issues, schedule issues, etc. Additionally, the CM typically includes his subcontractor that will be completing the work. Therefore, when these documents are printed, there should be very few surprises. The pricing, for the most part, should be known. With this type of process and its associated result, one can only attribute it to the trust that was established between the team members. The architect trusts that his contractor partner is giving him the best pricing information available in order to ensure the design will meet the project budget. The contractor trusts that his architect and engineering partners will not go beyond the means of the project limits. All of this results in the owner trusting that the team is acting in the best interest of the project. In Owensboro, as with any project, trust in your partners is the key to the success. And, it has proven to be extremely beneficial for this team.

The OMHS project is not perfect and no one expected it to be. What the team is striving for is a more efficient process, with fewer changes orders, and no finger pointing. As with any dynamic working environment, from time to time, the Core Team has to analyze how things are being done, and tweak the process to better accommodate the ever-changing project. There have been several instances at Owensboro, where the Core Team met to evaluate how the project was progressing, what is working, what is not working and what could be improved. In one instance, the Core Team realized the team was getting bogged down in a multitude of minor project issues. While trying to keep track of every issue and give an update on a weekly basis, it was apparent the process was not as efficient as it should have been.

All the while major issues were not given the attention they deserved.

The team decided to take a lean approach where we would identify the top four or five major issues and have the component teams focus on resolving those issues on a weekly basis, then move on to the next issue once the other issues were resolved. This approach makes the component teams much more efficient in managing the issues.

Opportunities for process improvement are constantly being evaluated by the Core Team and will continue to occur until the project ends 4

Capital Project Solutions – September 2010

Incentive Plan As discussed in last month's issue, an appropriate incentive plan should inspire the team to collaborate in order to eliminate waste and duplication in cost and time; increase the quality of the final product; make the project safer; generate savings in final costs; optimize team cooperation and “global� outlook; and improve the quality of the project.

Once the IFOA was in place, the Core Team quickly met to discuss and develop an incentive plan. The team insisted on including all members of the IFOA and additionally, major trade contractors who were integral participants in developing the current state of the project. The team worked together to challenge themselves to create a plan that would only provide incentives if they go above and beyond the status quo of delivering the project on budget and on schedule. The plan outlines the minimum requirements that must be met in order for the team to receive incentive pool funds as well as the distribution structure of the incentives to the various team members. The incentive package was designed to benefit the owner by delivering the project under budget and ahead of schedule.

Incentive is only provided for: meeting minimum requirements outlined in the plan for creativity in problem solving innovation in design and construction achieving clearly defined stretch goals Currently, the Owensboro project is wrapping up design and has been under construction for five months. All indications show that the project is progressing under budget and on schedule. In addition, the Core Team is aiming to better the current scheduled completion date.

OMHS leadership has been pleased with the IPD process and the team is confident that by utilizing this delivery method the team will be able to exceed expectations. If a team possesses all of the right dynamics, the IPD process offers them the best opportunity for success.

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I N N O VA T I V E H E A L T H C A R E F A C I L I T Y S O L U T I O N S

OCTOBER

2010 CAPITAL PROJECT SOLUTIONS Integrated Project Delivery Series

Capital Project Solutions – October 2010

Integrated Project Delivery – The Pre-Cursor to Alternative Financing & Procurement?

Patrick E. 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 four (4) IPD projects currently underway, we will share case studies and lessons learned throughout the series. Last month, we featured lessons learned from an IPD project at Owensboro Medical Health System. This month, we will discuss opportunities for alternative financing and IPD. 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.

In the August 2010 issue of Capital Project Solutions, we discussed the collaborative development of an incentive plan by the Integrated Project Delivery (IPD) Team to balance the risk and reward equation among project participants. While IPD provides a better framework to allocate risks in a capital project, it still falls short in providing the Owner with means for effectively mitigating or sharing their financial and completed operations risks. In the midst of an anemic economic recovery where hospitals face pressure from declining volumes, they also are learning to navigate the waters of recent financial and healthcare reform. While this indeed is a turbulent time for hospitals and “belt tightening” is the phrase of the day, the need for facility improvements and expansions still exists.

During the past nine months, Moody’s has reported declining credit ratings for the majority of hospitals, which has significantly affected owner’s ability to secure capital. The need for capital is one of many variables that is fueling consolidation at all levels in the healthcare industry. Hospitals are merging with one another as well as with physician practices in an effort to increase their bargaining and buying power in a given market. All of these activities are beginning to blur what historically have been clear definitions of core and non-core real estate assets and service lines for a hospital. During this time of uncertainty, IPD has gained momentum as an alternative approach for the delivery of capital projects. Thus, it would only make sense to 1

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explore whether the adoption of IPD could be a pre-cursor to Alternative Financing and Procurement as has been the case in Canada.

A Lesson from the North?

Throughout the healthcare reform debate in the United States, we were exposed, more than ever, to the public Canadian Healthcare System.

The focus of most healthcare stories was on the actual access and availability, or lack thereof, for patients in the Canadian public system.

The one topic that never seemed to make the nightly news was the actual facilities where patients are receiving care. Canada is currently experiencing a tremendous building boom in order to ensure that each Province has safe, accessible and efficient hospitals and medical centers to meet patient demand. So, how are the Provinces delivering the new facilities that are included in this hospital building boom? Alternative Financing and Procurement.

Provinces such as Ontario have established execution agencies within the Provincial government such as Infrastructure Ontario to correct their infrastructure deficits. This agency drives the development of critical infrastructure and public use projects such as schools, hospitals, and roads. They do this through public-private partnerships known to many as P3 Projects. However, to the Province of Ontario they are known as Alternative Financing and Procurement (AFP) projects.

AFP integrates the finance, design, build and completed operations phases of a facility project. Backed by the Province’s credit, the projects are financed by private syndication and the delivery team shares the risk and reward over the useful life of the facility improvement. The Province pays nothing until construction is complete and the facility is available for its intended use. The delivery team maintains the facility and provides a lifetime warranty to the Province. The warranty ensures that the facility will be operational and functioning as intended. The Province pays an availability payment (similar to a lease payment) for the agreed upon term of the policy.

Understanding the AFP concept and comparing it to traditional delivery models, yields the following distinct differences: The Owner (in this case the Province) transfers financing and completed operations risk more effectively to the project delivery team.

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The Owner preserves cash during the construction period as no payment is made until after the building is available for its intended use.

The private lender, not the Owner, provides necessary due diligence to ensure the project delivery team delivers on time and within budget.

The project delivery team provides a “Warranty” to the Owner that the facility will be available over the term agreed upon.

True integration of design and construction with building maintenance and lifecycle costs is achieved and not just discussed.

While IPD in its current state provides for better risk transfer between all project participants than the traditional project delivery model, it falls short of providing the Owner with any relief from the financing and completed operations risks as AFP does. In the defense of project delivery teams, there has never been incentive for them to take on financing and completed operations risks on a given healthcare facility project. Is the time right for that paradigm to shift?

Barriers to Healthcare Project AFP in the United States In the midst of a perfect storm, AFP may indeed be an answer to the healthcare Owner with facility expansion and modernization plans. It would allow for cash preservation while maintaining a focus on scarce resources to drive efficiency in care models to meet Accountable Care Organization standards being implemented by CMS. However, AFP has the following barriers to overcome prior to its introduction: Credit Worthiness Still Rules – The majority of hospitals in the United States are still privately owned and this does not seem likely to change anytime soon. Therefore, any expansion plans would require credit worthiness in order to finance the deal. Even in single tenant Medical Office Building deals where the hospital becomes a tenant and seeks a third party to develop and own the building, the hospital must be credit worthy to make the deal happen. To close an AFP deal in the United States, a private not-for-profit hospital system would first be required to be credit worthy.

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Capital Project Solutions – October 2010

The Controlling Mindset – The mindset that a healthcare owner must control and maintain its core real estate assets, such as acute care centers, still rules the day. In recent years, there has been a shift regarding outpatient service facilities and certain support functions within a healthcare organization. To allow AFP in any form to be implemented, healthcare owners and their boards must be willing to relinquish control over their traditional core real estate assets.

Policy of the Day – Hospitals are highly regulated and those that enjoy a tax-exempt status have many requirements that they must meet to maintain this status. In addition, states have various regulations for reimbursement of services that are deemed to be in regulated or non-regulated space. To facilitate a delivery model like AFP, policy makers will need to enact regulations that provide incentive for this type of deal.

These barriers can be overcome, but this will not happen overnight. As more municipalities look at ways to fund critical infrastructure through public-private partnerships, policy makers are beginning to come around to delivery models such as AFP. Conclusion As we contemplate the changes in the healthcare industry over the past two years and then look toward the future, it seems inevitable that traditional models of project delivery will continue to be challenged.

Even IPD in its current practice may not be aligned with the true risk equation for a healthcare owner in the 21st century. The question is whether healthcare owners are willing to relinquish the control of core real estate assets and whether United States policy makers will create an environment conducive to some hybrid form of AFP.

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I N N O VA T I V E H E A L T H C A R E F A C I L I T Y S O L U T I O N S

NOVEMBER

2010 CAPITAL PROJECT SOLUTIONS Integrated Project Delivery Series

Capital Project Solutions – November 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.

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Capital Project Solutions – November 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 – November 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 – November 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.

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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 – November 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.

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