Sutter Health

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Sutter Health

• Developing a Contracting Model to Support Lean
  Project Delivery
• LCI Relational Contracting Symposium
• November 18-19, 2004

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Who is Sutter Health
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Who is Sutter Health
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Past Experience
Problem Projects
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Sutter Health Capital Program

• The Executive Challenge
• Plan facilities that improve the patient
  experience and enhance operating margins for
  reinvestment
• Successfully execute the design and construction
  of 5.5B program
• Minimize risk
• Traverse the OSHPD approval process
• Provide real-time project reporting to a variety
  of groups

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Current Program

• 5.5 Billion (2004-2012)
• Acute Care Facilities
• Non-Acute (e.g. Outpatient Surgery)
• Medical Office Buildings
• Parking Facilities
• Remodeling Existing Space

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Facility Planning Developments Goal

• Increase reliability that projects conceptually
  approved and funded in year one are designed and
  constructed in year five . . .
• on-time or early
• within budget or less
• without claims
• safely (without creating patients), and
• without burn-out of FPD staff

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But, How?

• Standardize practices that worked well in the
  past
• Innovate and adopt new practices to support the
  goals

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Move to Lean Project Delivery
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Actions Taken by Sutter Health

• Sutter Lean Summit
• Internal FPD Training Collaboration
• Implement use of LPS
• Kick-off sessions project coaching
• Sponsor A/E Workshop on Lean Design
• Develop A/E/C Collaboration Portal
• Sponsor A/E/C Community Events
• Develop Assessment Tools

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Ongoing Opportunities

• Introduction to Lean and LPS seminars
• Super Charettes for Concept/SD
• Target Value Design
• Joint A/E CM/GC Agreements
• Collective Incentive Programs

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Applying Commercial Strategies

• Looking to the 5 Big Ideas to inform the
  commercial strategy
• Seeking alignment between the goals of Lean
  Project Delivery and commercial terms

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Build Teams from Sutter Health Community

• External efforts to build sense of community
  (e.g. Sutter Summit, Vendor Forums)
• Forge Integrated Project Team
• Early Selection of Architect and Cost-Plus CM/GC
• Early Selection of Major Trades by the team
  (Schematic Design/RFP Selection)

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Create Collaborative Design Environment

• CM/GC and trades have seat at the table
  throughout design
• Design-collaboration or design-build
  subcontractors (MEP, Fire, Curtain wall, skin)
• Sharing of intermediate design documents
• Constructability/buildability throughout design
• Value engineering throughout design
• Over-the-Shoulder pricing to inform design
  decisions
• Design-to-budget obligations

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Collectively Create Conditions of Satisfaction

• Develop joint site/existing condition
  investigation plan
• Jointly develop scope for third-party consultants
  and assessment of product
• Owner review of subcontracts to confirm alignment
  with commercial and Lean Project Delivery
  policies
• Owner review and approval of CM/GC bonuses to be
  paid as a cost of the work

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Joint Management of Financial Risk

• Separate contingency amounts for design,
  construction, escalation, and project uncertainty
• GMP proposal developed based upon sufficiently
  complete plans and specs (Sutter bears the
  escalation and permitting risks)
• Jointly manage design and construction
  contingency

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Joint Management of Financial Risk

• Limited bases for change orders (material scope
  change, changed site conditions, unforeseen
  regulatory or code interpretation)
• Elimination of negligence as measure of
  designers financial responsibility
• Joint monthly meetings to assess reasons for
  extra work and financial responsibility

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Joint Management of Financial Risk

• Attempt to raise quality of design by insisting
  fees be supported by resource loaded work plan
  (some A/E fees are GMP rather than fixed fee)
• Negotiate percentage for errors omissions
  that Sutter will pay for out of design
  contingency (deductible)
• Negotiate percentage over deductible that
  designer will be responsible for w/o proof of
  negligence
• Above these combined percentages, Sutter must
  show negligence in order to recover
• Attempt to have all participants have skin in
  the game

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Joint Management of Financial Risk

• Re-define basis of financial responsibility
• Sutter takes first dollar risks
• Architect negotiates its level of risk
• Fee informed by level of care and quality
  required

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Joint Management of Financial Risk

• CM/GC risk mitigated by construction phase
  contingency
• Access based upon recoverable extra cost for
  which change order not available (e.g. buy-out
  gap, missed coordination)
• Beyond contingency, CM/GC bears financial
  responsibility

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Developing Incentive Program

• Pool funded by contingency preservation and cost
  of work savings
• Allocation of savings to incentive pool based
  upon sliding scale (smaller of low hanging
  fruit)
• Team collectively participates in pool (allocate
  based upon fee?)
• Portion of incentive pool actually paid depends
  upon evaluation of non-price performance (5 Big
  Ideas, quality, reliability, safety, innovation,
  etc.) throughout the project (monthly/quarterly
  assessments

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Challenge to our Vendors

• Learn the skills needed for Lean Project Delivery
• Develop an internal implementation strategy (with
  measurement of progress)
• Demonstrate a commitment to continuous
  improvement
• Exhibit a willingness to share the learning in
  our project community

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FPDs Value Proposition

• Deliver best value to Affiliates to compliment
  their mission of patient care
• Innovate and create a project environment that is
  challenging and engaging
• Push our design and construction partners to
  learn with us
• Never settle for adequate

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• Discussion