Whitepaper: 01.25.2012

Thinking like Owners: How Integrated Project Delivery Helps Achieve the Best Final Outcome

by Doug Mangers, McCarthy Project Director

Schedule, cost, safety and quality are all key risk factors for every owner. One risk management strategy gaining momentum in recent years is an alternate delivery method known as Integrated Project Delivery, or IPD. This approach concentrates on value created for the owner: IPD contractually incents designers and contractors alike to focus on the best outcome at the best final cost. Team members are rewarded for exceeding established project goals. The owner benefits most of all, with new assurance that the project will be built on time and on budget.

With traditional delivery methods, designers and contractors often focus on their respective areas of expertise, with less consideration for the impact of their work on the entire project. IPD breaks down traditional silos, exposing and connecting each team member to the entire building process. The resulting, big-picture perspective achieved by team members creates better collaboration, information sharing and decision making — motivated by the sharing of risks and rewards. This big-picture perspective gives owners new and substantial advantages, reducing waste and optimizing efficiency throughout all phases of design, fabrication and construction.

Key to IPD’s success is the alignment of the entire team on owner budget expectations from the very start of the project, during the earliest phases of design. This is possible when all IPD team members participate in vetting and setting the budget parameters. Once every member has agreed to budget limitations and has ‘skin in the game,’ each is focused on more than just its individual area of expertise. The result? The project team is newly empowered and motivated to maximize the value of every owner dollar spent.

The project itself, from end to end, becomes the contractual responsibility of everyone. Team members are assigned responsibilities based on what’s best for the project. Given this perspective, individual team members work more efficiently, lower costs and reap financial rewards for exceeding project goals. Suddenly, the project’s profit potential is an open book, and transparency replaces suspicion with a far more powerful motivator: TRUST.

How IPD Works
This delivery method combines the talents and insights of the entire design and construction team to optimize results and increase value. IPD reduces waste and maximizes efficiency among all team members, as they work individually and collectively from design through construction to final delivery. An IPD agreement is developed to meet the unique requirements of the project, setting collaboration and performance targets for each team member. Owners can tailor each IPD agreement to the specific needs of each project, including the owner’s expectations for schedule, quality and cost.

While each IPD agreement tends to be as individual as the project itself, there are some characteristics that all IPD projects have in common. At the beginning of a project, a pool of funds is established as an incentive to achieve the best outcome. Clear performance goals are established, and if exceeded, team members are rewarded with their share of the incentive pool. Conversely, if benchmarks are not met, the pool reverts to the owner. The financial incentives are additional compensation tied directly to the overall project’s success, which is why participants must work together to maximize their individual returns. Most of all, this financial collaboration among all team members helps ensure that the owner pays the best final cost at project delivery.

The risk/reward commitment of each team member can be divided equally or weighted more heavily among one member versus the others. For example, the owner might assume 50 percent of the risk/reward, while the architect and contractor divide the remaining 50 percent (whether weighted equally, or once again, more heavily to one member than the other). The structure is entirely determined by mutual agreement among all parties.

Regardless of how details of the risk/reward opportunity are structured, IPD incentives yield an extraordinary level of collaboration among all team members, from the earliest stages of project design through delivery.

Setting Performance Benchmarks
Incentives can be tied to a variety of benchmarks, such as:

  • Value Engineering Suggestions
  • Schedule Performance (including milestone achievements)
  • Budget Performance (including contingency savings)
  • Safety Performance (including Owner Controlled Insurance Program (OCIP))
  • Quality Metrics (including sustainability)
  • Overall Performance Surveys
  • Any other metric identified by owner as project priority

The owner sets the expectations from day one, and then the team works collaboratively to achieve the stated goals.

The Value of a Common Goal
What is the result of such heightened collaboration? Traditional adversarial relationships among owners, designers and contractors begin to break down because everyone is working to grow the ‘bonus’ to be shared. Every IPD team member is contractually incented to do ‘the right thing’ and ensure that every decision is best for the project overall. Mutual respect for such close collaboration leads to the best outcome not only for the owner, but also for every other team member.

Many team members would ‘do the right thing’ regardless. Those who traditionally work in the overall project’s best interest (outside of an IPD arrangement) are often frustrated by the need to prod others to follow their example. The financial incentives of IPD lessen or even eliminate this need, resulting in the closer collaboration that leads to success.

Technology Empowers Closer Collaboration
Closer collaboration requires better communication, and yesterday’s stand-alone IT solutions aren’t up to the task. With the adoption of Building Information Modeling (BIM), the industry has been able to envision a new process for delivery of design and construction services themselves, in which the right team member provides information as needed. The construction team integrates early cost and schedule information into the model. Subcontractors are also generally brought on to the project team either at inception or as the design concepts are finalized. The constructors update the model with design details, rather than recreating those that the architect and engineer have traditionally provided.

The construction industry has adopted collaboration software to automate the distribution of real-time information to team members, so there is ‘one version of the truth’ everywhere. With today’s collaborative tools, all communications, documents, drawings, forms, files and other data are stored and kept up-to-date in one place. Without access to a central repository, team members would find it difficult if not impossible to tightly collaborate and achieve the financial incentives that IPD makes possible.

This level of information-sharing and collaboration leads to a no-blame culture, where the focus is on identifying and resolving problems, rather than pointing fingers and assigning blame. Owners see the difference in every aspect of the project, from schedule to quality to cost.

Toward the Best Outcome
For designers and contractors who already operate in a project’s overall best interests, IPD creates added financial incentive. In particular, designer and contractor organizations that are employee-owned have a built-in sense of IPD’s value. After all, they already think like owners, so they can appreciate their customers’ perspective. By channeling the innate instincts of these designers and contractors who already think like project owners, IPD provides owners with an exceptionally enhanced risk management tool for an uncertain world.

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