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Integrated-Project-Delivery Boosters Ignore Many Flashing Red Lights

May 6, 2010

Building teams can collaborate without complex multiparty contracts, say IPD skeptics

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By Nadine M. Post
This article originally appeared on Engineering News-Record.

Other highly desirable elements of IPD are mutual respect and trust among participants, collaborative innovation, intensified early planning, open communication within the team, use of building information modeling (BIM) by multiple parties, collocation of teams, transparent financials and use of lean principles of design, construction and operations. The report is available as a free download at www.aia.org/ipdcasestudies.

Five different “flavors” of the model contracts also present a problem. Lawyer Will Lichtig, a shareholder with McDonough, Holland & Allen, Sacramento, wrote the first one, in 2005, as general counsel for Sutter Health, Sacramento. Sutter, a system of non-profit hospitals, is an IPD pioneer.

Lichtig’s integrated form of agreement (IFOA) was adopted by the Lean Construction Institute (www.LCI.org) and other hospital systems. Lichtig explains his version of IPD in a 105-page report called “Managing Integrated Project Delivery,” published by the Construction Management Association of America. It is available for free at www.cmaanet.org.

Most multiparty contracts have what Lichtig calls “happy” language. For example, IFOA says, “The parties shall work together in the spirit of full cooperation, collaboration and mutual respect.”

The behavior clause gives the owner and other players leverage to boot a nonperformer off the team. But the happy language is derided. “Such words are not only useless but naive and illusory,” says Michael De Chiara, co-founder of lawyer Zetlin & De Chiara, New York City.

Even Simpson advises parties to leave “soft and fluffy language” out of the contract. “It’s not about trust—it’s about process,” he says. “If the process is set up properly, trust will follow.”

Dysfunctional

A big issue is that insurance and multiparty contracts currently don’t mix. Liability insurance traditionally has been underwritten and triggered on a basis of claims and fault. But signers of most IPD contracts promise, in writing, not to sue each other or point fingers, which can render liability insurance “dysfunctional and inoperative,” says David Hatem, a lawyer for design professionals with Donovan Hatem, Boston, who also works with Lexington Insurance Co., Boston.

Article 8.1 of the AIA C191 multiparty contract includes a waiver of claims and liability and lists a group of limited exceptions. Another model, AIA C195, sets up a “special purpose entity” for a project that effectively eliminates claims. Section 3.8.2.1 of the Associated General Contractors of America’s ConsensusDoc 300 provides a check-box option that might be considered a waiver of claims and/or liability, says Lichtig. However, it includes a traditional indemnity clause for personal injury and property damage, he says.

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There is a belief among teams delivering “true” IPD projects that there are reduced risks that historically have produced disputes. Still, a contract that makes an owner unable to access insurance is a big mistake, says Lichtig.

That’s why, until there are IPD insurance products, the IFOA has a limitation of liability, which maintains insurance. Parties can pursue claims for conduct below the standard of care, says Lichtig.

But forms that allow claims of any kind “subvert the salutary objectives of IPD in maintaining a no-claim environment,” says Hatem. “Participants become incentivized to make claims.”

Developing insurance products in the no-claim and no-fault IPD environment requires a fundamental change in the underwriting approach to conventional liability insurance. “Most insurers want no part of it,” says Hatem.

Lexington and Schinnerer & Co., an underwriter for CNA, have been trying to crack this nut for several years. Both expect to solve it with project-specific policies, which can be complicated. Schinnerer’s product likely will debut by July.

IPD vets caution that IPD, which has complicated team governance, is appropriate only for savvy owners. Most projects are led by an executive group that functions as the project’s board of directors and typically includes, at minimum, representatives of the owner, architect and contractor. The group makes decisions by consensus, but typically the owner reserves the right to break an impasse.

A senior management team made up of parties from each firm represented in the executive committee is usually supporting the executive committee. At the operating level, IPD teams are typically organized into discipline-based groups.

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