INTEGRATED PROJECT DELIVERY AN EXAMPLE OF RELATIONAL CONTRACTING

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INTEGRATED PROJECT DELIVERY AN EXAMPLE OF
RELATIONAL CONTRACTING
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Two types of contracts

• transactional where exchanges are made for goods
  and services
• relational contracts where the relationship
  takes on the properties of a minisociety with a
  vast array of norms beyond those centered on the
  exchange and its immediate processes

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WE IDENTIFIED FOUR MAJOR INTRENSIC PROBLEMS WITH
THE TRADITIONAL CONTRACTUAL APPROACH (based on
transactional contracts)
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Problem 1

• Good ideas are held back

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Problem 2

• Transactional Contracting limits cooperation and
  innovation

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Problem 3

• Inability to fully coordinate the project

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Problem 4

• The Pressure for local optimization

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APPROACHING THE SOLUTION

• Could we organize ourselves to function as a
  single company with unified goals and objectives?
  Could independent design firms and construction
  companies actually find a way to integrate
  project delivery? To use the earlier analogy,
  was there a way to take all of these rubber balls
  and connect each to the other so that they could
  all move in the same direction. A new set of
  questions suggested the new approach

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Everyone please shut your eyes and dream with me
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A new process which we called Integrated Project
Delivery (IPD) was taking shape.
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IPD

• A project delivery method in which the interests
  of the primary team members are aligned in such a
  way that the members can be integrated for
  optimal project performance.

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SHAPING THE TEAM

• We first incorporated a company called integrated
  project delivery as a sub S. Corporation
• Think of a joint venture established to deliver
  design build projects using integrated project
  delivery
• Or, we have team member led IPD project

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Two Principles govern our Team relationship

• With an IPD project, whether joint venture or
  team member led , all PTMs are responsible for
  all provisions of the prime contract with the
  Client.
• Primary Team Members share the risk and profit
  for total project performance.

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The Prime Contract

• A single contract binds the IPD team to the
  client. The prime contract may be any one of a
  number of standard forms that are available and
  spells out the commercial terms and defines the
  scope, schedule and cost of the project. One
  entity signs the prime contract. (Team Member or
  JV)

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The Team Member Agreement

• Each Primary Team Member (PTM), including the one
  who holds the prime contract, then enters into a
  single partnering agreement with the other
  PTM's

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Key Partnering Agreement provisions

• The PTMs each agree to be bound together
  accepting full responsibility for all of the
  terms and conditions of the prime contract,
  sharing together in the cost and profit in
  accordance with a pre-established formula. Each
  member is reimbursed for all verifiable direct
  costs that he incurs. Profit is calculated at the
  project level at the end of the project and
  divided based on the formula.
• Each of the PTMs provides a certificate of
  insurance in the form and amounts as indicated in
  the prime contract.
• Each PTM agrees to open their books pertaining to
  this project to the other PTMs and to the Client.

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Key Lean Principle Employed

• local optimization leads to sub-optimal project
  performance

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Mountain Climbers

• If one PTM makes a mistake each PTM will pay for
  it
• Cost reductions anywhere are shared among those
  in the Partnering Agreement and with the Client
• An overrun on the project will reduce the gross
  profit available for distribution

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Executive commitment
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Team Positions established
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Unity at the job site
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Team pay distribution
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The impact of IPD On the design process

• Team members bring forward best ideas early
• Value engineering takes place at the beginning of
  the project
• Effective solutions can be devised when there is
  no concern over which entity will pay for them
• Lean design now possible

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Dispute resolution

• Dispute resolution is handled by discussion and
  agreement between the PTMs.
• Instead of looking to the contract to settle
  disputes as in transactional contracting we can
  invoke the power of the relationships

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GOVERNING THE RELATIONSHIP
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EXAMPLES OF SUCCESS

• We have completed four successful IPD projects
  and have been awarded a five-year continuing
  services contract for design build work for
  Orlando Utilities Commission, an enthusiastic
  Client from a prior IPD project.

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The Last Planner
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Shared Manpower

• Electrical made use of manpower from other trades
  to pull wire

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Problem Resolution

• Second roof hatch added when first was partially
  masked by large conduit

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Handling Major Changes to the Work

• Cooling tower manufacturer changed at last moment

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Work Across Traditional Boundaries

• VFD best bought by electrical contractor

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Recovering From Oversights

• Elevation detail missing from drawing

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Avoiding Redundant Effort and Expense

• Core drilling
• Vertical chases
• Concrete placement
• Fire protection (safeing)
• Clean up
• Excavation

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Enhancements to Job Site Safety

• Uniform compliance to all safety requirements
• Cost shared by team

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Spending More to Save More

• Engineer prepares drawings at mechanicals office
  
• There were produced as shop drawings

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Sharing Rental Equipment

• No need to track who used equipment or for how
  long

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Early Fundamental Design Decisions Support
Construction

• Elevation of top of footers determined by team

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GC Goes the Extra Mile

• Backfill done in two steps to help electrical
  installation

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Cooperation across trades

• Pipe support points pre fabricated by steel
  fabricator

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Function Over Form in Design

• Column spacing determined by mechanical
  contractor

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Coordinate Design With Schedule

• Column cross sections selected to meet mill
  schedule

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PROBLEMS ENCOUNTERED

• Many problems have been encountered and solved
  but there have been a few worth noting

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PROBLEMS ENCOUNTERED

• The Uncommitted Member

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PROBLEMS ENCOUNTERED

• Old Habits Die Hard

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CONTINUING CONCERNS - AREAS FOR DEVELOPMENT

• Setting the price
• Managing Risk
• Standardizing Direct Cost Definition

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Setting the price

• With IPD, the value engineering process is so
  strong and effective that by the time we reach
  the design-development stage everyones best
  ideas are incorporated. The budget produced at
  that time, therefore, reflects all of the Teams
  creativity and experience

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Managing Risk

• a joint risk assessment committee could review
  the project monthly focusing on such areas as the
  team's performance, any indications of a team
  member problem, change orders and claims
  initiatives, payment history of the Client and
  any trends that may need correcting

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Standardizing Direct Cost Definition
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WORKING WITH NON IPD MEMBERS, EXPANDING THE TEAM
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REFLECTION ON THEORY (Greg Howell)

• This note proceeds by first considering two types
  of cost that arise in the course of doing work in
  an organization. This is followed by a discussion
  of the way managing these types of cost shape
  organizations and contracts. IPD is located in
  the resulting framework and suggestions offered.

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Types of costs

• Production cost - The cost expended producing
  goods and services
• Transactional costs the cost of doing the
  deal, associated with the movement of those
  goods and services across organizational or
  market boundaries

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Types of contracts

• transactional where exchanges are made for goods
  and services
• relational contracts where the relationship
  takes on the properties of a minisociety with a
  vast array of norms beyond those centered on the
  exchange and its immediate processes

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IPD Contract and Organization

• IPD employs both transactional and relational
  contracts. Externally, they enter a classic
  transactional contract with the client and some
  suppliers. Internally, members are bound by a
  relational contract described in the pact they
  all sign. The pact minimizes transactional cost
  by binding the parties together in a partnership
  for the duration of the project. Records are not
  kept to allocate costs or determine blame. They
  have yet to have a dispute internally or with a
  client.

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CONCLUSION

• IPD is a Relational Contracting approach that
  aligns project objectives with the interests of
  key participants. It creates an organization able
  to apply the principles and practices of the Lean
  Project Delivery System.

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CREDITS

• This article has benefited greatly from the input
  of Greg Howell and Glenn Ballard of the Lean
  Construction Institute.

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REFERENCES

•  Gunnarson, Sven, and Levitt, Raymond, E., 1982,
  Is a building a hierarchy or a market?,
  Proceedings of the 7th Internet Congress,
  Copenhagen, 1982.
• Macneil, Ian, R., 1974, The many futures of
  contract 47 Southern California Law Review 691,
  738(1974). (Also see The New Social Contract an
  inquiry into modern contractual relations, Yale
  University, 1980.)
• Ouchi, William, G., 1980, Markets,
  Bureaucracies, and Clans. Administrative Law
  Quarterly. Vol. 25, March 1980. (Also available
  on JSTOR.)
• Williamson, Oliver E., 1979, Transaction Cost
  Economics The Governance of Contractual
  Relations. Journal of Law and Economics,
  22233-261, 1979
• 1 CEO, Westbrook Air Conditioning Plumbing,
  Box

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