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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.

Under most multiparty contracts, the architect and contractor are paid on the basis of cost, plus some or all of their overhead and an agreed-upon profit, a percentage of which is at risk. The owner funds a contingency. If it is preserved, savings are shared with the team. If there is a cost overrun and the contingency is exhausted, team members fund it out of their collective profits up to limits set in the agreement. “We are asking the parties to strip profit out of their costs and tell us what it is,” says Lichtig.

IPD presents more risk for all parties. “If something goes terribly wrong, everyone’s hands are dirty,” says Brian Zeallear, senior associate with veteran IPD architect NBBJ, Seattle.

Some object to tying their fortunes to others. “You don’t necessarily need to take responsibility for other people’s mistakes,” to work collaboratively, says Robert Hazleton, vice president of steel contractor Herrick Corp., Stockton, Calif.

Structural engineer Jon D. Magnusson, chairman and CEO of Magnusson Klemencic Associates, Seattle, says, “Quality firms have cultures of collaboration that achieve IPD’s goals without the complications of a multiparty contract.”

Mortenson Construction, Minneapolis, agrees that a multiparty agreement is not essential for collaboration, or what it calls integrated delivery. ID is “not a contract method but a process and operational framework that can be realized under many contract types using early team selection,” says Derek Cunz, Mortenson’s general manager. “We have integrated with design partners under construction management-at-risk [CMAR] and design-build [DB] agreements, using virtual design and construction [VDC] and BIM to dramatically improve outcomes.” Cunz recommends using traditional base agreements, along with an umbrella agreement that defines the team integration process, incentives and rules of engagement.

In a paper coming out in about a month and sponsored by the National Association of State Facility Administrators (NASFA), three levels of what is dubbed “collaborative project delivery” are described. Only level three, or “required” IPD, includes a multiparty agreement. Level two is “enhanced” CMAR or DB—a kind of aspirational IPD. Level one is typical CMAR or DB, which still can be collaborative.

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“We are not all sold on level three, but there is a growing appreciation that collaboration early in the game among the owner, designer and contractor will reduce risk and drive costs down,” says Mike Kenig, vice chairman of Holder Construction Co., Atlanta, and co-chairman of NASFA’s industry liaison committee.

Differences

There are differences of opinion about many other IPD issues, including which party stands to benefit the most, which is most at risk and which sizes and types of projects are most appropriate for IPD.

All parties to a multiparty agreement are subject to potentially different, if not new, risks, agree sources. Owners can find themselves taking on greater cost, schedule, insurability, financial uncertainty and partner delivery risks. There are potentially increased risks for designers and builders if traditional liabilities are newly defined, agree many players.

IPD veteran Stan Chiu, vice president of HGA, Minneapolis, says, theoretically, all parties stand to gain equally, but practically speaking, the owner gets greater value and reliability.

Structural engineer Glenn Bell, CEO of Simpson Gumpertz & Heger Inc., Boston, thinks the contractor would gain the most. “Market forces likely will work to squeeze the design team first and the contractor next,” he says.

IPD veteran John Mack, VDC construction manager for Herrero Contractors Inc., San Francisco, says the construction manager/general contractor is most at risk because it does not have a tangible deliverable from the process, other than managing.

Mack thinks any trade doing prefabrication has the most to gain, but architects are close behind because construction administration costs go down.

Others say designers are the most at risk, albeit unevenly, especially those with higher amounts of professional liability coverage and higher deductibles, which are not reimbursible by the owner.

As far as risks are concerned, public owners should be aware of litigation under way on an almost $500-million state hospital, procured using IPD. The claim relates to the owner not using a low-responsible-bidder protocol. The plaintiffs allege that when sealed bids are not involved to produce the lowest price, there is potential for abuse of public funds, says a source close to the situation.

Sources also disagree on cost and size thresholds for IPD. “Increased project approval time suggests a financial threshold below which it may not be practical,” says Chiu. “I’ve heard $20 million used.”

Bell agrees the IPD contractual and management infrastructure typically will not be justified for a small project. Others agree complexity and required oversight seem to dictate IPD use on larger, complex projects; hospitals are a good example. But others say IPD is appropriate for all project types and sizes.

Sparling’s Leonidas says that, in order to make the IPD paradigm shift, all team members have to give themselves permission to take new risks. They also must shift from thinking that design is a discrete effort followed by construction to design as a sequence in the construction schedule.

Architect Gensler remains unconvinced. “Dancing together and singing Kumbaya doesn’t get my client the best price, especially when contractors and subcontractors are hungry. I just don’t get it,” he says.

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