Posted on: 8/22/2012
Luke John Basam, Reminger Co
View Latest Articles
An emerging and intriguing trend in project delivery is steadily moving across the country. Less than ten years ago the phrase "Integrated Project Delivery" was limited to appearances in theoretical lectures at construction seminars and conferences. Now Integrated Project Delivery is a registered mark with the United State Patent and Trademark office (held by Integrated Project Delivery Inc., a Florida corporation), the subject of an August 2008 Colorado law, and most notably two different types of Integrated Project Delivery (IPD) Agreements are to be introduced at the AIA National Convention in May of this year. The new AIA documents will offer a two-step approach, involving both "transitional" IPD documents (IPD for beginners) and a full scale version.
The Integrated Project Delivery method (IPD) is designed to remove shortcomings such as lack of cooperation and self-promotion that are affiliated with more traditional delivery methods.
IPD, in its purest form, brings the design team and contracting trades together into one firm that acts as a cohesive unit with the sole purpose of delivering a single project.
Proponents claim the IPD results in lower costs, less frequent litigation, quicker completion, and happier clients. Principles of collaboration, partnership, trust, transparency, and "relational contracts" drive the system. This article provides an overview and assessment of this developing project delivery method.
How it Works
IPD, like most things, is most easily understood through an example. For example, a prominent university needs a new research facility with state of the art everything. The university selects a construction manager ("CM") and design team, and the concept begins to form. While everything probably sounds pretty familiar so far, it is at this early design development state that the IPD method begins to diverge from its design – bid – build predecessors.
Unlike a more traditional delivery method, our CM transforms what was the "design first, then seek a bid" process with a "design assist" phase, or some variation thereof. In this design assist phase, the CM issues a "Request for Qualification" that notifies any potentially interested trade entities that a project is forthcoming. This initial notice will contain a brief project overview, project initiation dates, target completion dates, and estimated construction costs. The notice will also specifically identify which trades are requested to seek qualifications (plumbing, HVAC, electric, glazing, etc.). A pure IPD would involve all trades, but most existing IPDs only necessitate the integration of the major trades for the project at issue. The key distinction in an IPD project is that "Qualification" drives the selection of contractors, not a bid. The CM's qualification process may include a written proposal and a lengthy interview/presentation by the contractor seeking qualification.
The CM's notice invites the trade entities to become "Primary Team Members" or "IPD Team Members." Unique to the IPD method is that trade contractors will play an immediate and substantive role even at this early design stage. All Team Members, upon selection, take on a joint responsibility for the success of the project. Practically speaking, this responsibility is most easily seen in that all Team Members forego their traditional subcontracts that force risk down the ladder and indemnity up the ladder. Instead, they agree to a single Team Member Agreement. The Agreement is a pact which includes a consent to a joint Guaranteed Maximum Price, consent to share in project costs, and an accord to distribute profits based upon an accepted formula according to the scope of project involvement (a "shared savings clause"). All Team Members, from the CM and architect to the electrical contractor, also agree to share the full responsibility and benefits of the single contract which is held with the owner. Thus, just two contracts replace the smattering of subcontracts and purchase orders seen in the past.
At this point, the true benefits of IPD emerge. Under other delivery methods, were subcontractors had an economic incentive to (1) perform work that adhered strictly to drawings even if they knew it was a less than optimal design, (2) request a change order when the work was complete and design proved, expectedly, less than optimal, (3) re-do the work to achieve a satisfactory result, while (4) collecting an additional fee which serves their company's own bottom line. IPD philosophers refer to this as "local optimization" which results in "sub-optimal collective performance." Subcontracting of this type led to turf wars over budgets, scheduling, and safety, which led to the detriment of the overall project. To put it another way, despite what Ayn Rand might tell you, looking out for one's own best interests was not leading to collective success in the industry.
Under IPD, this same trade contractor, previously focused on local optimization, is now a Team Member, bound by promise, reputation, relationship, and economics to achieve the correct design as early on as possible. Because a change order from any one Team Member increases project cost and decreases the joint profit pool, all Team Members seek best design or "collective optimization" from day one. Practically speaking, Team Members discuss what might impede efficiency and deal with it up front. The different expertise of all Team Members is integrated, shared, and tested. No one proceeds in isolation, whether it be with regard to design or scheduling or budgeting or safety. On the design side, one anecdotal success story includes a mechanical contractor persuading a designer to off-set column supports to optimize conduit space, resulting in saved change orders and non-wasted labor. With regard to safety, the benefits of a single safety program, with all Team Members granted the authority to enforce it, are obvious.
Project positions are chosen based upon the best available individuals, selected from the ranks of any Team Member's company, with consent of the entire Team. Wages are paid by the Team and everyone is responsible to the Team as a whole, not only to their individual companies. Common office spaces are used, Team Member employees all wear hardhats with one joint logo, regular breakfast meetings occur, as do monthly budget discussions, all of which are mandatory per the parameters of the Team Member Agreement.
Challenges and Benefits
Crucial to the success of the system is that IPD Team Members develop a group mentality early on. While chains can survive weak leaks and mountain climbers remain tethered together even if they don't want to, an IPD Team Member who is not fully "integrated" into the concept can be devastating. There can be no finger pointing and no blaming. In an industry driven by contracts with strict parameters that define responsibility and risk, this concept is not an easy change. As such, the need for careful selection of trusted Team Members cannot be understated.
Furthermore, one of the biggest obstacles in implementing pure IPD is a struggle to obtain owner buy-in. Clients who are more familiar with traditional project delivery methods may be leery of a concept that fully aligns their bottom line with that of the contracting entities. It can be difficult to convince an owner that the project will likely come in under the presented GMP. More simply put, IPD is new and different and that is not always easily accepted in this industry.
On the other hand, IPD proponents boast of almost unheard of savings, up to 10 percent, of estimated project costs. One San Diego project manager estimated that under an IPD system, change orders are as low as under 4 percent, compared to change orders costing anywhere from 10 percent to 30 percent of the budget in other delivery methods. Furthermore, Building Information Modeling (the use of electronic 3-D drawings) has proven to be a natural partner for the IPD method. Further still, litigation costs are reported to be virtually non-existent.
When disputes arise Team Members will defer to an outside decision-maker, often a law firm, to interpret the Team Member Agreement and arrive at a solution. Overall, industry insiders abundantly praise the new method. It has found acceptance with the AIA and major construction companies across the country. IPD is clearly an emerging trend in the industry and something with which all construction attorneys need to be thoroughly familiar.
Luke Busam is a DRI member and a Cincinnati, Ohio, trial lawyer with the firm of Reminger Co., L.P.A. His practice focuses mainly on construction law and the representation of owners, contractors, architects, and engineers in construction-related matters.