In Harmony: Integrated Project Delivery
Integrated Project Delivery, or IPD, is a term frequently used in the architecture/engineering/construction industry these days. But there’s a big difference between an integrated team approach, or IPD light, and a true multiparty agreement.
For starters, some approaches may require early collaboration among project team members—such as a construction manager/general contractor delivery method that brings the builder in during the design phase to provide feedback on cost and schedule. However, in these cases, each party is ultimately responsible and liable only for its own work. In contrast, a true IPD project contractually requires all parties, including the architect, owner, general contractor, subcontractors, design consultants, and suppliers, to solve problems together throughout the life of the project. The parties share responsibility for both risk and reward, with contracts dictating how partners will jointly address cost overruns regardless of which party was responsible for them as well as how financial incentives will be distributed if efficiencies are achieved that result in lower costs or shorter schedules.
This joint liability is the distinguishing characteristic of a true IPD project and ensures collaboration among the project team, because each party has a financial interest in resolving conflicts and problems and meeting project goals. As more healthcare owners look to utilize IPD, it’s important to know how these contracts work, the process for setting one up, and the key components that lead to successful implementation.
Unlike traditional contracts, IPD agreements are relational versus transactional, meaning the contract is based upon mutual trust, transparency, and clear communication by all. In a traditional agreement, the roles for the architect, contractor, and owner are outlined with individual responsibilities that don’t overlap. However, a multiparty agreement relies on the willingness of all parties to work together toward common goals and objectives, with overlapping responsibilities and collaborative efforts required by all. The decision by an owner to utilize IPD should be made ahead of the project start, bringing in team members with shared values and similar firm cultures to enhance the probability of success.
In 2015, RTA Architects (Colorado Springs, Colo.) was among IPD project team members chosen by leaders of Penrose-St. Francis Health Services in Colorado Springs, Colo., for its $102 million expansion of the St. Francis Medical Center. The organization chose IPD as the delivery method to better control cost and scheduling. The multiparty IPD agreement also included GE Johnson Construction as construction manager and general contractor, alongside electrical; plumbing; HVAC; and mechanical, structural, and electrical engineering partnering firms. This project will serve as an example to illustrate how an IPD contract looks in execution.
The general provisions of an IPD agreement indicate that a project will be delivered in a collaborative environment and align individual interests with those of the project. This collaboration must occur during all phases of design and construction, and the parties must agree to collectively outline and accomplish the project goals that are established in a target criteria amendment to the contract. This amendment identifies the scope of work, cost of work, schedule, performance goals (risk/reward), and other details. One key to achieving this is to collocate the entire team in one location, often referred to in Lean as a “Big Room,” where the actual design and production work is done. For the St. Francis Medical Center project, the team utilized space at an adjacent medical office building on campus.
During a traditional design approach, individual disciplines develop design ideas and concepts independently during various project phases, with cost estimates prepared for individual systems and then combined to arrive at an overall project budget. This approach frequently results in value-engineering to bring the project back within budget, with scope and costs adjusted in a disjointed way that often results in a project not meeting the owner’s conditions of satisfaction and extending the schedule.
Conversely, using a Lean target value design practice as part of IPD, a target cost, or budget number, is prepared during conceptual design. The target cost is broken down into key components, such as “building envelope” and “MEP systems,” and allows the team to design to the budget. The owner’s conditions of satisfaction are then easier to meet the first time around, and the project is more likely to remain on schedule.
This is also where risk and reward come into play. If the target cost isn’t met, some or all of the IPD team’s predetermined fee at-risk could be lost; conversely, if the team exceeds the project goals, it will be rewarded for its efforts based on a predetermined formula. For the St. Francis Medical Center project, the IPD team members agreed to place 50 percent of their anticipated profit at-risk.
IPD in practice
Once a project team develops its IPD contract, it can still take some time to get used to how it works. IPD’s inherent shared responsibility and liability requires a completely different mindset when addressing certain project elements, such as cost overruns, scope, and risk mitigation. Here are some examples of how this translates to project delivery.
Dealing with increased cost. One of the most challenging nuances of IPD is handling cost overruns. In a traditional contract, for example, if the plumbing contractor misses a portion of the scope or installs something wrong that must be replaced, it’s that subcontractor’s responsibility to fix it without increasing the project budget. With an IPD contract, however, all participants in the agreement share liability and are responsible for addressing the error without adding to the overall project cost.
In the same vein, the St. Francis Medical Center design incorporated an extension of the elevator shaft to serve potential added floors and provide access to a future helicopter landing pad. However, the design didn’t incorporate access into the shaft from the roof level, which wasn’t cited by the elevator inspector until after roofing materials, framing, and sheathing were complete and the elevator cabs were operational. The project team, including several subcontractors, designers, and the elevator vendor, worked together to provide access with minimal impact to the budget and no lost time in the schedule.
Having a “path back.” Because the overall project budget and target cost are developed during conceptualization, project scope may exceed the owner’s budget. During the criteria design phase, when design concepts and plans are developed, the project team prepares a list—called a path back list—that outlines acceptable changes to the scope and quality that the design team can employ to bring the project back within budget, if necessary. Path back is different than value engineering because it consists of items that offer cost reductions without compromising the owner’s goals and objectives for the project.
For example, on the St. Francis project, skylights over a reception area were included in the base design at the owner’s request but weren’t critical to the overall project goals. The project team determined that $26,000 could be saved by eliminating the skylights if a cost reduction was needed, so this item was added to the project’s path back list. In addition to identifying the cost, a decision date on whether to proceed with the skylights or not was established so that the design and construction process wouldn’t be impacted if that feature was eliminated.
Adding scope. The IPD approach allows scope to be added as long as the target cost isn’t exceeded. The owner creates a wish list during the criteria design phase that consists of specific scope items that it would like to include but aren’t critical to meeting project goals. Then, if savings are realized through design and construction, these savings can be used to add items from the wish list to the project. A cost for each item is prepared in advance, along with a decision date.
An example of a wish list item on the St. Francis project was two additional operating procedure rooms. When savings were identified early enough in the project, these two rooms were added without delaying the construction schedule.
Mitigating risk. Another tool for controlling costs is the risk mitigation log. Traditional contracts carry both an owner’s contingency for unforeseen cost increases as well as the contractor’s contingency, which is usually a percentage of the total value of the contract. This contingency is used by the contractor to cover items that they may have missed during bidding or for subcontractors who may not be performing their work satisfactorily. The risk log eliminates all construction contingency, from both the general contractor and the subcontractors, and replaces it with a detailed list of risk items that the team may encounter during design and construction. An estimate of the anticipated costs for each risk item is developed, which includes design and construction costs.
For example, additional costs may be required when acquiring necessary building permits. The St. Francis project team identified this as a risk item and set funds aside to cover it. Once all the permits had been obtained and all changes accounted for, the excess funds were then transferred to the owner for added scope from the wish list. The value of this approach is that the owner will have access to the savings as the risks in the project are mitigated. In a traditional project delivery, excess funds aren’t available to the owner until the end of construction, when it’s too late or too costly to make scope changes.
The St. Francis Medical Center expansion is currently in construction and completion is scheduled for late 2018. This was the first true IPD project for GE Johnson, RTA, and the owner. One surprise for the IPD team members was the difficulty experienced in transitioning from design to construction. The designers, contractors, and trade partners worked very closely during the design phase, but as the construction process started, foremen and workers in the field approached the construction process in a very traditional way, focusing on their scope of work and not looking out for the other trades around them.
To counter this, time was dedicated to communicating IPD concepts to the workers; however, this challenge persisted due to a workforce that naturally ebbs and flows, bringing new individuals to the site weekly who had to be brought up to speed. To remedy this problem, the foremen and job superintendents for each trade managed their work and their teams differently, recognizing that not all trades on the project were included in the multiparty agreement and didn’t have the same incentives.
Another takeaway that came to light was the role of the architect and contractor during the “punch list” process. Realizing how to be critical of another team member’s work in a constructive way is important in IPD. The purpose of the punch list is to deliver the quality that the owner requires and not to nitpick every flaw. While this isn’t unique to IPD, what was unique was that the team had to band together to achieve quality and counteract a natural temptation for each contractor and trade to focus only on their work—after all, if one team member stumbles, the whole team is affected.
John C. Hoelscher, AIA, is a principal at RTA Architects in Colorado Springs, Colo. He can be reached at firstname.lastname@example.org.