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2010 CAPITAL PROJECT SOLUTIONSIntegrated Project Delivery Series
2010 CAPITAL PROJECT SOLUTIONSIntegrated Project Delivery Series
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Capital Project Solutions – January 2010
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The Benefits of Conducting a Strategic Project Launch Readiness Assessment – Part 13 in a 13 Part Series Contracting Approach – Selecting the Appropriate Delivery Approach and Associated Contract Can Reduce Risks William McMahon – President/COO
Throughout 2009, Capital Project Solutions ran a series of articles on Project Launch Preparedness. December’s issue discussed Project Delivery Team Organization and Approach. This month's article explores the 12th and final spoke of the Strategic Project Launch Readiness Assessment (SPLRA) – Contracting and Delivery Approach. Throughout a SPLRA, every major issue that could potentially impact your launch will be identified and explored. The SPLRA will keep you focused on all the elements that impact the "Big 3" of your project -- scope, schedule, and budget. If you should miss any of the 13 articles in the series or to learn more about other strategies to ensure your project’s success, visit KLMK Group at www.klmkgroup.com.
The process of selecting a project delivery approach and applicable contract occurs during the Project Launch phase and is an important “spoke” on the SPLRA wheel. Any major project involves significant risk. Healthcare projects are especially risky because they have the potential to disrupt life-saving services. During the project launch phase, the healthcare owner needs to select the delivery approach that best fits their project and minimizes their risk. First and foremost, a CEO needs to know the definition of project delivery approach – it is the planning, design, construction and other services necessary for organizing, executing and completing a building facility or project. Once that approach is determined, then it must be documented in a contract that specifically outlines the “business arrangement(s)” for the project. A greater number of healthcare owners are beginning to explore alternative models for delivering projects. This shift is due to the
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frustrations associated with the traditional method of project delivery. It is outdated and full of inefficiencies, thus making it difficult to achieve desired outcomes. Despite decades of attempts to improve on traditional delivery approaches (design-bid-award, design-build, construction manager at risk), projects are still frequently over-budget and delivered late. More importantly, the completed facilities often do not improve the operational efficiency of the organization. Understandably, owners are still searching for a reliable process that produces more predictable outcomes. The industry is abuzz over new ways of delivering projects. Currently, there is a revolutionary shift in the way projects are delivered and owners are beginning to become more curious about this process. The shift to a more integrated form of delivery has the greatest potential to correct the major problems associated with the traditional approaches. First, let’s review the traditional project delivery methods and then evaluate a more integrated approach. Preconstruction-Construction Manager Under a typical PreConstruction-Construction Manager project delivery method, a healthcare owner contracts with an architect/engineer for design services and enters into a separate contract with a preconstruction-construction manager for construction services. The objective of this approach is to treat project planning, design, and construction as integrated tasks
within a construction system. The team, by working together from project inception to project completion, attempts to serve the owner’s interest in optimum fashion. But, there’s no formal or contractual relationship between team members. By striking a balance between construction costs, project quality and completion schedule, the team strives to produce a project of maximum value to the owner within the most economic timeframe. On most construction management projects, phased construction is
applied and adherence to the established time schedule and construction budget is a prime responsibility of the construction manager.
Typical Preconstruction-Construction Manager Delivery
Team Organization
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The PreConstruction-Construction Manager project delivery method has been typically utilized by healthcare owners on their most complex and challenging projects. This approach takes into account that the design and decision making process is interactive and may involve an evolving design process as the clinical operations of the facility are being analyzed. Under this delivery method the owner will incur a significant amount of design fees before understanding the final construction cost. It is also incumbent on the owner to be the leader of this process and be able to make timely decisions. Should the owner lack sufficient “in house” expertise with time available to commit to the project, it will greatly impact the design process and lead to project delays before construction is even initiated. However, with this approach the owner does have significantly more control over the design and specifications of the systems that will ultimately be a part of their new facility. Design-Build In the Design-Build delivery method, the owner contracts with a single entity for both design and construction management services. By doing so, the owner has one contract assigning single-point responsibility for the project. The design-build entity may be a single organization with both architectural and construction staffs or a construction organization that hires /
affiliates with an architect as part of a design-build team. In this delivery method the architect is part of the design-build entity and not the agent of the owner. Thus, unlike all other project delivery methods, no one individual is acting in an
agency relationship on the owner’s behalf. As is the case with the construction manager delivery method, the design-build method is also very conducive to a phased construction schedule.
In healthcare, design-build is a practical approach for projects that are easily
defined and have a low risk of significant scope revisions. Parking garages, medical office buildings and outpatient care buildings are good
Typical Design-Build Team
Organization
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examples of such projects. These types of projects typically require minimal involvement from a multi-disciplinary group of end users and the design period is usually not as lengthy. Once the guiding principles are established (such as the number of parking spaces in a garage, the number square feet in a medical office building or the number of operating rooms in an outpatient surgery center) it is easy for the design-build entity to provide the owner with a total project cost that can be reviewed and approved. In many instances, the owner utilizes these guiding principles to define the building scope in order to solicit competitive bids from design-build entities. With this selection process the final construction cost is known sooner in the overall process. One of the most attractive aspects of his delivery model is that change orders related to design errors and omissions are non-existent. With the design professional and contractor on the same team, they are both held accountable for errors and discrepancies on the drawings. Costs associated with any errors are thus not the obligation of the owner.
Integrated Project Delivery (IPD) Integrated Project Delivery or “IPD” is a project delivery method that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to optimize project results, increase value to the owner, reduce waste, and maximize efficiency through all phases of design, fabrication, and construction. In
other words, true IPD is a collaborative capital project delivery approach that shares risk and reward via a integrated form of agreement (IFOA) or tri-party agreement to reduce the time and cost to bring a superior product (new facility) to
market. Integrated Project Delivery is relational, collaborative and lean in its truest nature. It is Relational because the contract signed by all parties provides financial incentive to mitigate risk. Its language creates the situation in which pushing risk down the chain in
Trends Driving Owners to IPD
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order to avoid it is not an option. IPD is Collaborative because it creates a larger talent pool during the critical coordination stage of a project and harnesses the insights of all participants. The larger talent pool comes from gathering all necessary expertise at the outset of the project. Healthcare owners are becoming more accustomed to applying Lean principles to their operational processes. Therefore, transference of these same principles to the capital delivery process should be a rather seamless shift. IPD applies the same Lean principles to development and thus reduces waste and optimizes efficiency through all phases of design, fabrication, construction and occupancy. It creates an environment to allow proper allocation of resources and responsibilities in order to reduce errors and avoid rework. IPD is not the right approach for every owner. The CEO and the project delivery team must first understand and buy into the principles of IPD which are as follows: Mutual respect and trust
Mutual benefit and reward
Collaborative innovation and decision making
Early involvement of key participants (design team,
contractor, specialty consultants and trade subcontractors)
Early goal definition (scope, budget and schedule)
Integrated process planning
Open communication
Application of technology (BIM, etc)
Application of lean principles in planning, design and
construction
In addition, the healthcare owner must fully understand what makes IPD different in the following critical areas:
Teams
Process
Risk
Compensation and Reward
Communication and Technology
Agreements
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During the SPLRA, it is important to analyze all project delivery options to determine which method will help you accomplish your facility strategic objective while minimizing your risk. Evaluation of the method that is right for a particular owner and project should happen in the earliest project discussions. Your institution’s culture may lend to a more “traditional delivery approach” such as CM at Risk or Design-Build. But, if you are open to a more collaborative way of delivering a project, you should investigate an integrated delivery approach - IPD. IPD can eliminate inefficiencies in time and budget by bringing owners, contractors, consultants, architects and vendors onto the same team under a single set of contract, risk and rewards agreements. This method helps to focus the team and reward each member for achieving optimal project results. Trust in and by all parties delivering the capital project is the crucial determining factor in the success of an IPD approach.
2010 CAPITAL PROJECT SOLUTIONSIntegrated Project Delivery Series
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Capital Project Solutions – February 2010
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What is Integrated Project Delivery? William McMahon, President/COO Steve Higgs, Senior Vice President This month, we launch a new series in Capital Project Solutions. Throughout 2010, our newsletter will be devoted to Integrated Project Delivery (IPD). We will explore all issues related to IPD, from project identification to team selection to contract and incentive development. With four IPD projects underway, we will share case studies and lessons learned throughout the series. If you should miss any of the articles or to learn more about other strategies to ensure your project’s success, visit KLMK Group at www.klmkgroup.com. The pressure is mounting! Healthcare owners must find a way to deliver a project that addresses the demands for the latest technology, concerns about the environment, new government regulations, changes in reimbursement, and transparency requirements all while getting sufficient return on their capital investment. And if that is not enough to worry about, everyone wants to ensure that their projects are delivered in the quickest and least costly manner possible. When expectations of healthcare owners are elevated, the market must adapt to deliver desired outcomes. Old ways of doing things quickly become obsolete and ineffective. The traditional project delivery process has simply become outdated! As a result, the AEC industry is looking for alternatives to the traditional project delivery method. There is a revolutionary shift in the way projects are delivered to a more integrated form of delivery, which will address most of the concerns of the healthcare owner as mentioned above. IPD, as defined by the American Institute of Architects, is “a project delivery approach that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to optimize project results, increase value to the owner, reduce waste and maximize efficiency through all the phases of design, fabrication, construction and occupancy.” Efficiency goes up and
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waste goes down under a successful IPD process. In other words, true IPD is a collaborative capital project delivery method that shares risk and reward in an integrated form of agreement to reduce the time and cost to bring a superior product (a new, expanded or renovated facility) to market. In the traditional delivery model (known as “design/bid/award”), a project is designed and is then bid to several construction firms. Typically, the lowest bidder is awarded the contract. Operational decisions are made throughout the design process, but their impact on the cost or scope of the overall project may not be realized until later in the process. There are also multiple “hand offs” throughout the process which creates inherent wasted time and energy. In IPD, the team is brought on board at the start of the project so that cost and scope decisions can be determined by the entire team. Hand off’s are greatly reduced or eliminated.
Many healthcare owners believe that the traditional way of delivering projects is outdated and full of inefficiencies. Some of the symptoms of this broken system are:
• Cost surprises leading to a spiraling project cost • Scope of project growing out of control • Inability to stay within budget • Unmet and unrealistic expectations • Poorly functioning designs resulting in redesign • Changing team members throughout the project • Schedule delays impacting return on investment (ROI)
and productivity • Worst case: lawsuits or other liabilities
IPD takes a very collaborative approach to the delivery of a project and strives to eliminate waste and share risk and rewards among key team members through an integrated form of agreement. IPD integrates operational process into the design and construction of the project and truly gets all team members “singing from the same sheet of music” much earlier in the project.
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Integrated Project Delivery is Relational, Collaborative and Lean:
It is Relational because the contract signed by all parties provides financial incentive to mitigate risk. An IPD contract reduces overall risk by making all parties responsible to each other.
IPD is Collaborative because it creates a larger talent pool during the critical coordination stage at the very beginning of a project and harnesses the insights of all participants. The larger talent pool comes from gathering all necessary expertise at the outset of the project. This concept is familiar to many healthcare owners who are applying Lean principles to their own operational processes.
IPD applies the same Lean principles to development and thus reduces waste and optimizes efficiency through all phases of design, fabrication, construction and occupancy. It creates an environment to allow proper allocation of resources and responsibilities in order to reduce errors and avoid rework.
In today’s healthcare environment, it is crucial for owners to be creative and open-minded to meet the demands of patients, physicians, workers, financial institutions and government agencies. If a capital expansion project is the solution to a critical need, then it is strongly suggested to explore an integrated and collaborative approach to delivering the project. An owner should explore all options and keep an open mind when determining the most appropriate solution. With patience and diligence, options can to be found. Invest time in the initial launch and initiation phase of the project. Do not rush and miss new opportunities that exist in the delivery of healthcare capital projects. Finally, the delivery of capital projects can be fun as well as successful, and through an integrated and collaborative approach, the goals of your healthcare institution can be realized efficiently and effectively.
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Capital Project Solutions – March 2010
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Is Integrated Project Delivery Right For My Project? Patrick Duke, SVP Throughout 2010, Capital Project Solutions will run a series of articles dedicated to Integrated Project Delivery (IPD). We will explore all issues related to IPD, from project identification to team selection to contract and incentive development. With four (4) IPD projects underway, we will share case studies and lessons learned throughout the series. Last month’s issue defined Integrated Project Delivery. This month, we will explore “Why IPD?” If you should miss any of the articles or to learn more about other strategies to ensure your project’s success, visit KLMK Group at www.klmkgroup.com. Last month, we defined IPD as “a project delivery approach that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to optimize project results, increase value to the owner, reduce waste and maximize efficiency through all the phases of design, fabrication, construction and occupancy.” But how do you determine whether it is right for you? If you are not considering a new capital project then IPD is probably not even on your radar screen. You are more likely concerned with the impact of healthcare reform, the upcoming Joint Commission visit, enforcing HIPAA regulations, quality assurance issues, physician acquisitions, patient satisfaction, staff turnover, infection control issues, census, and the list goes on. But, maybe you are one of the CEOs that struggles daily with an aging facility, overcrowding and lack of sufficient space. To top it all off, you now have to figure out how you are going to care for your share of the additional 32 million uninsured patients that will be coming through your door. One of the solutions to these issues may be a new capital facility project. If that is the case, you will need to choose a project delivery model that allocates risk effectively and ensures the most value for your hard to come by capital dollars. We believe IPD is a delivery model that you
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should explore, but it should only be chosen after thoroughly evaluating whether it is your best option. To answer the question, “Why should I choose Integrated Project Delivery for my project?” you must first determine if IPD is a good fit for your organizational culture and then develop your value equation. The fit test begins with asking yourself and your key leaders the following questions: 1. Are my top leaders (CEO, COO, CFO…) ready to embrace
the ideals of IPD and be the champions of the effort? Any successfully project starts with leadership from the top levels in an organization. If these individuals are not prepared to be champions of IPD then it is not likely to be successful.
2. Am I willing to trust my team? Trust must be earned over time. However, to start the process you must inherently have trust in the expertise and knowledge of each project partner. If that is something that is more difficult for you early in the project delivery process, IPD is likely not a good fit.
3. Does my organization have a culture of continuous improvement? This is a core value of an IPD project. If your organization embraces positive change and evaluates and learns from it over time, then IPD will be a better fit.
4. Am I willing to take measured risks for the potential of more reward? On paper, your risks in an IPD project may be more than you find in traditional contract forms. However, we believe that in reality your risks are lower using IPD because of the process and behaviors that are contracted in the Integrated Form of Agreement.
5. Is there anyone internally that will try to sabotage the IPD process? You must evaluate all levels of your organization and determine if there are those that may resist a paradigm shift and positive change. They could prove to be detrimental later in the project life cycle.
6. Am I considering IPD as a competitive advantage because of the buzz it might create, or because I am committed to improving the performance of the industry? If your goal is to improve the delivery of capital projects to continuously strive for better performance that provides a higher value, then IPD will be a good fit.
7. Am I soley focused on the bottom line at all cost? IPD is not cheap. In most cases, it will not result in the lowest first cost.
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However, it has the ability to eliminate waste from protective risk shelters and deliver more scope for your dollar.
8. Do I have the patience to trust the process and allow it to work? IPD is not a visit to the Town of Utopia. Changing behaviors that have been formed over decades does not happen overnight. You must work at the relationships of the team and be committed to the established ideals.
9. Do I have a collaborative organization or are we really fragmented? If you operate out of silo’s and have little cross collaboration, then IPD is likely not the best fit for you organization’s culture.
10. Do I and my internal team truly understand IPD and the ideals that surround it? It is important to understand how IPD works in practice as well as the ideals it embodies prior to determining if it is a fit for you.
If you go through the fit test and find that IPD seems to align with your organization, you should next determine your value equation and measure IPD’s ability to meet it. If lowest cost is the primary driver that determines value, then IPD is not suited well for your organization. If your goal is to realize the maximum amount of value from each dollar spent, then IPD can help. Also of importance, is the value you place on collaboration and harnessing the collective talents of specialists at a project’s onset. A good comparison is with care delivery models such as “integrative cancer treatment”. No longer do patients visit with physicians individually; they now have a comprehensive and integrative team approach to fighting their illness. This integrative approach expands the boundaries of conventional care by bringing together traditional tools for fighting cancer, such as surgery, radiation, chemotherapy, and immunotherapy, with complementary therapies, including nutritional support, naturopathic medicine, mind-body medicine, oncology rehabilitation, pain management, and spiritual support. The patient now has an entire team working together as one unit to provide the optimal solution to their problem. IPD works in much the same way for your capital project. Instead of the owner meeting with the architect, who will design a visually pleasing facility; and then with the construction manager, who wants to build a structurally sound facility yet sees issues in the
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design; then with the engineers, who recognize issues in the mechanics of the design…and on and on. The team is brought together at the onset and they work collaboratively as one unit to identify the optimal solution to the owner’s problem – which is the need for a new facility that can be completed in the shortest amount of time possible, on budget, with limited change orders, and provide operational efficiences that deliver the utmost in patient care and experience. And, even more importantly, can limit the possibility of lawsuits at the conclusion of the project. By coming together as one cohesive unit most of the potential issues and problems can be identified, long before they become critical, and solutions implemented. If you happen to be, or know of, a CEO/COO that is faced with an upcoming capital project, do yourself a favor, and allow yourself to concentrate on what is truly important – optimal patient care. With the increasing complexity of regulations and limited access to capital, it is necessary to choose a project delivery model that can effectively allocate risk and deliver the most value for each and every dollar you commit. IPD has the ability to do just that and we recommend that you invest the time to determine if it is right for your organization. To learn more about Integrated Project Delivery, please visit our website and download our recently released white paper - Integrated Project Delivery: “The Value Proposition” An Owner’s Guide for Launching a Healthcare Capital Project via IPD.
2010 CAPITAL PROJECT SOLUTIONSIntegrated Project Delivery Series
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Capital Project Solutions – April 2010
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Integrated Project Delivery Team Selection Patrick Duke, SVP Throughout 2010, Capital Project Solutions will run a series of articles dedicated to Integrated Project Delivery (IPD). We will explore all issues related to IPD, from project identification to team selection to contract and incentive development. With three (3) IPD projects underway, we will share case studies and lessons learned throughout the series. Last month’s issue discussed how to determine if IPD is right for your project. This month, we will explore the team selection process and how it differs for IPD. If you should miss any of the articles or to learn more about other strategies to ensure your project’s success, visit KLMK Group at www.klmkgroup.com. Our experience with Integrated Project Delivery continues to provide us with valuable lessons that can be applied to any project. We constantly analyze our decisions and processes utilized on past projects, delivered via the traditional method, to determine whether an alternative approach could have yielded better outcomes. One such area is the selection and formation of project teams. Over the years, we have learned that a relational based team selection approach provides more value than a transactional approach, which is prevalent among the traditional delivery model(s). Transactional team selection is based on quantitative criteria such as the scope of the project, the team’s experience relative to the scope, and the fee. With a relational based approach, the focus is much more qualitative. Issues such as the chemistry of the team, the trust among team members, their collaborative ability and process, and the interest of the owner/team far outweigh the individual interests of each of the members. The following table highlights the differences between the two delivery methods: Project Delivery Methods
Traditional Relational
Quantitative Qualitative Fragmented Integrated Assembled on an “as needed” basis Assembled early Strongly hierarchical Collaborative Self interest/focus Team/Owner focus Distrust Trust
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Because the very nature of IPD is collaborative, it is imperative to establish a selection process that allows you to witness the interaction between the team members in order to evaluate the chemistry among potential team members. Therefore, a relational based team selection approach is a natural fit. The easiest way to accomplish this is to conduct a series of “planned interactions” with select candidate teams to evaluate the integration among them. In an IPD project, selection becomes more of an art than a science as you evaluate each team member’s ability to be relational, collaborative and lean. These are not exactly quantitative elements, which is why this will most likely be different from any selection process in which the healthcare owner has been involved.
The Players Involved in IPD Prior to beginning any selection process, begin by identifying who will be selected. In IPD, the Core Team typically consists of the Owner, Architect and Contractor. However, each project is different and there may be times that Specialty Consultants should be included in the inner circle. By understanding the specific needs and goals of the project, you can develop a tailored approach that will provide the best results.
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The Team Selection Process The process for IPD team selection is broken down into four steps, culminating with the selection of the team.
Step 1: Determine the selection committee. The committee should consist of a mix of top organizational leaders and a variety of project stakeholders - project customers. Committee members should be prepared to invest quite a bit of time into the selection process as to not miss any interactions with interviewing Teams. Step 2: Develop the Team selection criteria. This is where IPD truly differentiates itself from the traditional delivery method. As stated above, IPD Team selection is something of an art. Technical competence and professional qualifications are assumed to be very high for any firm that is invited to participate. Developing criteria that allows teams to exhibit their ability to work together is very important. Step 3: Identify candidate firms. Develop a list of architects and construction managers with the skills and qualifications necessary to fulfill the scope of the project. It is also productive to add engineers or prime specialty consultants, such as medical equipment and technology planners. Local firms or firms that have been used in the past and have a relationship with the owner should be scrutinized with the same level of intensity as all others. This different approach may eliminate some of the firms that have previously worked at the facility. When the list is developed you should create a Request for Integrated Team (RFIT) that outlines the process and criteria for selection.
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Step 4: Issue the RFIT. Once the RFIT has been distributed, the following process should be implemented:
1. Conduct a pre-proposal Site Visit with all the firms on the list. This is the first and perhaps most important opportunity for the Selection Committee to evaluate the individual firms that may be involved with the project. It is worthwhile to spend a minimum of a half day with the firms being considered. In order to focus questions and conversations, the list of attendees should be divided by specialty – architect, contractor, engineer, etc. The individual groups should then be allowed to meet and engage in conversation as one another in a large group. All members of the Selection Committee should take part in this initial visit. The objective is for the Selection Committee to communicate exactly what they are looking for from each of the firms as well as the expectations for the dynamics of each team. This will also allow the Selection Committee to get to know all of the players better and observe how they interact with one another. Again, this is relational contracting with the core foundation based on trust. The Selection Committee should plan to meet immediately following the visit in order to discuss interactions with each firm 2. Request for self assembly of Teams based on cross relationships between firms listed in the RFIT. The primary firms should also include any specialty consultants necessary to deliver the requested services. Firms should be allowed to partner with companies not included in the initial RFIT list, but only after seeking the owner’s approval. By allowing firms to self assemble you will avoid conflicts and potential separation down the
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road. While not foolproof, partnerships based on past experiences and similar corporate cultures often provide the best outcomes. A time period of three weeks is advisable to allow teams to assemble.
3. Submittal of qualifications from each Team based on instructions in the RFIT. The entire Selection Committee should be involved in evaluating each firm’s Submittal of Qualifications. All evaluations should be based on previously developed selection criteria. In order to maintain a transparent process and one that can be audited, it is advisable to include the proposed evaluation tool in the RFIT. In the past, many complex weighted equations have been used to “grade” submissions. However, we recommend using no more than 10 criteria and weighing them equally.
4. Short list to 3-4 Teams to continue the process. Due to the detailed interactions that will take place during the final stages of selection, the short list should be limited to no more than four teams. Ideally, you should interview three teams. 5. Conduct half-day workshops with each of the short-listed Teams. Establish an overall goal for the deliverable expected from each Team, such as a proposed work plan for the project or option for design. Do not set a specific agenda. Instead, allow each team to develop their own plan in order to evaluate the group’s time management, organizational skills, and facilitation abilities. This session provides each Team with the opportunity to gather information and ask questions in order to complete its presentation. Again, it is important for the Selection Committee to meet after the workshops and evaluate their interactions with each Team and its individual members. They should then review the Submittal of Qualifications and compare the evaluations from each meeting. Concerns should be noted and discussed at this meeting also. If any Team does not appear to be a fit, they should be eliminated prior to the final presentation.
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6. Conduct final half-day presentations for each of the remaining Teams. Half-day workshops should be scheduled for the final presentations. As with all previous meetings, the entire Selection Committee should be present. Upon completion of the presentations, the Selection Committee should meet to evaluate the performance of each Team.
Select the IPD Team. The Selection Committee should now review its selection criteria and meet one week after the final presentations. This allows time for each Committee member to fully analyze the interactions throughout the entire process. Since each Team visit was followed by a Committee assessment and recap, there should be sufficient documentation to thoroughly evaluate each group. Each Committee member should complete a final evaluation form for the different Teams and then cast a single vote for his or her choice. To keep it simple, the Team with the most votes wins. In the event of a tie, consideration should be given to the possibility of having an additional Team interaction.
Relational based team selection requires a significant investment of time from both the Selection Committee and the candidate teams. Isn’t that how it should be though? This is one of the most important decisions an Owner and prospective firms will make on a project that will have lasting impact either in a negative or positive way. Spending time and spending money during this process will be a worthwhile investment if your approach is right. This is not to say that you can’t get a good team from a transactional based approach, we just happen to believe, based on our experience, your chances are better through a relational based approach. To learn more about Integrated Project Delivery and relational based team selection, please visit our website and download our recently released white paper - Integrated Project Delivery: “The Value Proposition” An Owner’s Guide for Launching a Healthcare Capital Project via IPD. Or join the IPD Thought Leaders for Healthcare group on Linked In.
2010 CAPITAL PROJECT SOLUTIONSIntegrated Project Delivery Series
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Capital Project Solutions – May 2010
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Integrated Project Delivery Case Study: Hurley Medical Center Greg Weigle, Principal Consultant Josh McVeigh, Consultant Throughout 2010, Capital Project Solutions will run a series of articles dedicated to Integrated Project Delivery (IPD). We will explore all issues related to IPD, from project identification to team selection to contract and incentive development. With three (3) IPD projects currently underway, we will share case studies and lessons learned throughout the series. Last month’s issue explored the team selection process and discussed how it differs for IPD. This month, we will share a case study on Hurley Medical Center. If you should miss any of the articles or to learn more about other strategies to ensure your project’s success, visit KLMK Group at www.klmkgroup.com. There is a common phrase that goes something like – “if you’ve seen one construction project, you’ve seen them all” – implying that all projects are just alike. Not true with hospital construction. Each project is unique in and of itself and thus each requires a distinct approach to delivery. In keeping up with the topic of IPD, our case study on the Emergency Department project at Hurley Medical Center will provide insight to the IPD process and the power of relational based team selection.
Project Scope Background:
Hurley Medical Center (HMC) located in Flint, Michigan is undergoing the expansion and relocation of its Emergency Department (ED). The ED will move from its current location on the north side of campus to a combination of renovated space and new space attached to the east side of the facility. A portion of the existing ED will be renovated for the ED's clinical decision unit (CDU). New space in the basement of the addition will house infrastructure and mechanical space for the ED. As part of the expansion, the main lobby and entry to the hospital will be shifted from the north side of the campus to the south side. The new entrance will face towards the downtown area so as to integrate with the city and the primary approach to the campus.
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The vehicular traffic will be segregated allowing easier access for traffic.
On the Ground Floor, there will be approximately 29,000 square feet (sf) of new contruction and 25,000 sf of renovation. On the basement level, there will be 14,000 sf of new construction which includes mechanical space, electrical space and unfinished shell space.
HMC's primary goal for the project is to improve the ability to continue to provide emergency services to the communities it serves. HMC currently serves approximately 76,000 patients annually in an ED with 53 total rooms. Based on significant statistical & operational analyses and comparison of best practices to reasonable standards, it was determined that a need existed for a total of 72 rooms which includes triage/treatment, acute, psych, and clinical decision. As a level 1 Trauma Center, acuity is high. Improvements include solving: 1) the lack of treatment rooms, 2) patient privacy, 3) staff & patient care support space, 4) separation of walk-in and ambulances, 5) inadequate mix of room acuity levels, 6) process flows and 7) the limited ability to manage swings and surges. The new ED will correct the above issues and provide care using an operationally efficient model. Project Process Background: In 2008, HMC solicited KLMK Group to assist with converting their plans for a new ED into an active capital project. The first step taken was to conduct a Launch Gap Analysis over a two month period. The results of this process were an aligned vision for the expansion and identification of gaps that needed to be addressed in order to move ahead. During the next step of developing a Project Implementation Plan, it was determined that IPD would provide the best return on investment and enable maximum scope given limited resources and an uncertain business climate. KLMK was able to explain the IPD process, provide education as to the risks/benefits of the delivery method, and assist in the launch of their journey to a new ED.
Capital Project Solutions – May 2010
3
The first step in the IPD process was to identify the team. As discussed last month, KLMK began by sending a Request For Integrated Team (RFIT) to Architects, Engineers and Construction Managers simultaneously. The invitees were asked to form teams and submit proposals for consideration. Next, RFIT responses were evaluated and three teams were shortlisted to interview. The shortlisted teams were asked to participate in a design charette scenario which required two half days on site at the hospital. The teams were evaluated for creativity, chemistry, and problem solving approach, as this was more important to the hospital than the actual solution to the charette “problem” itself. Upon completion of the process, the successful team consisted of HDR (Architecture and Engineering) and Granger Construction (Construction Manager). In addition, several local and regional major trade contractors were added by HDR and Granger to complete the team. In early 2009, the design phase was launched and the team commenced work. Since Building Information Modeling (BIM) was utilized on this project, it was very important to have the major trades involved with the development of the model so that the most effective and efficient built solution could be obtained. Design was completed in April 2010 and construction commenced with a groundbreaking ceremony. Key Project Information: The team (Hurley, KLMK, HDR, Granger and the Trades Team) has worked very hard to ensure that the project can meet its scope, schedule and budget goals. Several key items of interest about the project include: Governance. A committee structure was developed which
includes a chain of command from the hospital board to the IPD Team. An Executive Steering Committee, made up of project team members and senior hospital leadership, meets on a monthly basis. A Core Team, consisting of project team members and key hospital representatives, meets weekly to discuss the ongoing key issues of the project. Also, there are several Sub Groups established to address key functions of the project and they communicate and connect with the Core
Capital Project Solutions – May 2010
4
Group. Finally, the IPD Team has several constituent groups, especially the BIM Team which has overseen the development and integrity of the model.
PTCE (Project Target Cost Estimate). The Team has worked very hard to meet all budget targets. Without the IPD process and the commitment of its members, we would not have yet reached the construction phase. The ability to continuously evaluate design, means, and methods by all participants has allowed rapid response to maintain a real time budget and evaluate modifications as the design advanced through each stage. There is a commitment and ownership by all parties to achieve HMC’s goals for the new ED. IPD has created an environment that has made this possible.
Contract. Consensus Docs 300 was used as the basis of the
contract. In addition, HMC and Granger (CM) have worked with the community to achieve a project labor agreement which will allow fair and open participation by vendors in its community.
Lessons Learned: Over the course of the last two years, there are three major lessons that we have learned regarding IPD: Organizational Culture. The success of IPD requires
more than just a decision on a process. The organization must be able to adjust to the collaborative environment and be willing to evolve its mindset to support the delivery method. The Client Advisor must assess the capacity of the organization for this delivery method.
Management and Control. The management of an IPD
Team is different from the management of traditional CM or design-build teams. It requires a greater understanding of the IPD dynamic and a more relaxed hold on the teams function. The organization must monitor the team but ensure it has self governing abilities.
Capital Project Solutions – May 2010
5
External Factors. The IPD structure is sound and can hold up to external challenges such as local labor market conditions, public financing, etc. However, it is vitally important that all parties involved be educated as to the IPD process, this includes the Board of Directors. You cannot assume that people will pick up and understand all the nuances of IPD in an hour discussion. Consistent discussion and collaboration with all stakeholders is necessary to avoid roadblocks.
Hurley Medical Center is a prime example of the impact that IPD can have on a capital facility project. Early on, HMC’s visionary executive team realized the benefits that this delivery method would provide and trusted the process. According to Jamal Ghani, HMC Senior Vice President for Operations, “We wanted to make sure that we had a very clear understanding from the get-go of what we were going to spend, how it would be built, what the outcome would be, how it could be delivered, and how we could be sure that the project will be done on time. Using IPD assured us that we have the team in place and all of the team is aligned to ensure that we have addressed everything.” HMC’s executive team has witnessed how IPD fosters collaboration among their team which has enabled the project to currently be on schedule and within budget.
2010 CAPITAL PROJECT SOLUTIONSIntegrated Project Delivery Series
JUN
E
I N N O VAT I V E H E A L T H C A R E FA C I L I T Y S O L U T I O N S
Capital Project Solutions – June 2010
1
Integrated Project Delivery Contracting
Patrick Duke, Senior Vice President
Throughout 2010, Capital Project Solutions will run a series of articles
dedicated to Integrated Project Delivery (IPD). We will explore all issues
related to IPD, from project identification to team selection to contract
and incentive development. With three (3) IPD projects currently
underway, we will share case studies and lessons learned throughout
the series. Last month, we shared a case study of the Hurley Medical
Center project. This month, we will explore IPD contracting and how it
is different from traditional delivery contracts. If you should miss any of
the previous articles or to learn more about other strategies to ensure
your project’s success, visit KLMK Group at www.klmkgroup.com.
In the April 2010 issue of Capital Project Solutions, we discussed
the importance of a Team based selection process for your IPD
project. Because the very nature of IPD is collaborative, a
selection process that allows you to witness the interaction
between the team members in order to evaluate their chemistry
becomes paramount. The selection process hinges on a series of
“planned interactions” with select candidate teams to evaluate the
level of integration among them. Once the Team is selected, you
must continue all project activities with a focus on fostering the
relational, collaborative and lean values that an IPD project should
have. Therefore, the process for selecting and agreeing on an
Integrated Form of Agreement (IFOA) should be based on
planned interactions with your Team and all discussions should be
collaborative and open.
Selecting the Integrated Form of Agreement (IFOA)
Sutter Health was one of the early adopters of IPD in the
healthcare market and with their legal counsel (McDonough
Holland & Allen’s Will Lichtig) they worked to develop and utilize
some of the first IFOA’s. Since their highly publicized experience
in IPD, other agencies and organizations have developed versions
Capital Project Solutions – June 2010
2
of an IFOA for use in an IPD project. While several industry form
contract documents exist in the marketplace, experts agree that
an “ideal” contractual document does not. Essentially, there are
three principal industry form IPD contract documents available
for use:
1. Consensus DOCS 300
2. AIA A195, B195 and A295 (Transitional IPD)
3. AIA C195 (Single Purpose Entity)
Regardless of which contract is used, the agreement should
incorporate the following guiding principles:
Trust cannot be contracted.
The IFOA is only a tool and cannot guarantee the success of
the project.
The process of team selection and project governance to
reduce the risk is critical. The contract document alone will
not change behaviors.
A well-crafted IFOA that creates the appropriate incentives
and calls for a reasonable sharing of risk will reinforce mutual
trust, whereas a poorly crafted contract will do the opposite.
An IFOA between the owner, architect and construction
manager must also include joining agreements for consultants
and trade contractors, with the same cost-plus fee
arrangements, shared incentive plan, shared contingency,
shared liability with liability limitation, and Target Cost
Approach concepts. Including joining agreements will insure
the entire team is integrated.
Hot Buttons During Negotiation
The healthcare owner has the most to gain and the most to lose
from the delivery of a capital project. In most cases, the owner
actively seeks to mitigate the risks associated with the following
issues which are all related to risk:
Capital Project Solutions – June 2010
3
Damages (Liquidated, Consequential, Delay)
Indemnity/Insurance
Incentive/Disincentives
Too often, in an effort to “mitigate” their own risk, core project
team members will push risk down the supply chain to the
subcontractor, sub consultant or material supplier who, in many
cases, is ill-equipped to handle this risk though financial or legal
means. In essence, this can leave the owner unknowingly
exposed.
In addition to sharing the risks, the IPD model seeks to share the
rewards. Following are the chief tenets of IPD Risk Allocation:
Collaborative Risk Allocation
o Development of risk sharing agreement early – conduct a
risk allocation workshop as part of the Project Initiation
Process
o Limit risk and provide upside to maximize the potential
on the project
Mutual Waiver of Consequential Damages
Full Waiver of Subrogation
Mutual Indemnification and Hold Harmless
First, the team must develop an insurance strategy that works in
favor of the project while recognizing the inherent risks shared by
all parties. In addition, there must be an equitable distribution of
the all risks and rewards. Next, the contractual vehicle that
embodies these tenets and creates performance incentives for
the IPD team is created. This equitably drafted contract coupled
with the appropriate risk and associated insurance strategy,
should protect each team member and help break down the
barriers that have been created from decades of “risk shifting”.
When developing the incentive program, begin by identifying the
key factor that will motivate each of the team members to
achieve the owner’s goals. The majority of this task can be
accomplished during an Incentives Work Session. Outcomes from
the session must be included in the IFOA. As outlined in the
Capital Project Solutions – June 2010
4
table below, the goals and guidelines of the Incentive Plan should
be both Strategic and Tactical:
Strategic Tactical
Involve all core team members in goal
setting; build consensus and
champions in core team first
Define communication protocol when
there is an issue and sets expectations
of leadership
Determine the optimal process to
bring on new members to the team
Regularly visit the goals – score
periodically and offer feedback to
improve performance
Use offsite venue to gain focus,
promote team building and address
more issues
Goals should be posted and advertised
Team successes should be celebrated
The major premise of IPD is to deliver a capital facility project in
the most efficient manor where hand offs, finger pointing, and
backstabbing is eliminated. In order to accomplish these
objectives, all parties must be willing to act in the best interest of
project, striving for the greater good. Only by having faith in the
process and trusting the team will an IPD IFOA truly deliver the
desired end result - an equitable contract that is fair and has value
for all Involved.
2010 CAPITAL PROJECT SOLUTIONSIntegrated Project Delivery Series
JULY
I N N O VAT I V E H E A L T H C A R E FA C I L I T Y S O L U T I O N S
Capital Project Solutions – July 2010
1
Integrated Project Delivery – Risk and Insurance Model
David Carter, Consultant
Steve Higgs, Senior Vice President
John Stanchina, Senior Vice President, Rutherfoord, Inc.
Throughout 2010, Capital Project Solutions will run a series of articles
dedicated to Integrated Project Delivery (IPD). We will explore all issues
related to IPD, from project identification to team selection to contract
and incentive development. With three (3) IPD projects currently
underway, we will share case studies and lessons learned throughout
the series. Last month, we discussed Integrated Project Delivery
contracting and how it differs from traditional delivery contracts. This
month, we will explore issues related to insuring an IPD project. If you
have missed any of the previous articles or to learn more about other
strategies to ensure your project’s success, visit KLMK Group at
www.klmkgroup.com.
In our last issue of Capital Project Solutions, we addressed IPD
contracting and the Integrated Form of Agreement (IFOA). In
particular, we mentioned the importance of team collaboration in
regard to document selection. Specifically, we addressed the need
to ensure alignment of all interests between the Owner,
Architect and Contractor for both risk and rewards.
The sharing of risk and rewards instilled in the IFOA
helps break down the trust barriers associated with
traditional contracts and allows the team to
collaboratively develop the contract document that
supports the interest of all parties. As part of the
contract development, the team is charged with
creating an incentive plan that outlines potential gains
for a job well done. The same approach should be
taken when developing a Risk Model for the project.
Risk sharing can be accomplished through a project
specific insurance program that embodies the
principle of trust inherent to an IPD agreement. This
program should reduce the overall risk for the entire
team as opposed to traditional project insurance
coverage, which caters to the individual. By
Capital Project Solutions – July 2010
2
establishing a project specific insurance program the owner elects
to set the appropriate tone by allocating risk more evenly and
placing faith in the team and the IPD process. Therefore, the
collaborative development of the project specific insurance
program is paramount in aligning the team and creating the trust
required for a successful project.
Insurance Products
Ironically, the commercial insurance products available to all
healthcare clients for use on their capital improvement projects
are no different under an IPD delivery method than are available
under a more traditional project approach. The difference comes
in the approach to these options as risk management tools. The
typical insurance products used to mitigate risk on a capital
project improvement are:
• General Liability (GL)
• Workers’ Compensation (WC)
• Excess / Umbrella Liability (XS)
• Pollution Legal Liability (PLL)
• Builder’s Risk (BR)
• Professional Liability (PL)
The owner still has the option of securing these products in the
traditional sense under an IFOA but the recommendation is to
create a project specific insurance program that allows for a
more even distribution of the associated risks of any capital
improvement project and enhances the trust of the team.
Additionally, the owner can realize the added benefits of ensuring
adequate coverage is provided for the project, thus, mitigating
exposures often realized in traditional project coverage.
Workers’ Compensation / General & Excess Liability
In today’s world, the purchase of an insurance product to protect
personal and business assets is commonplace. It is intuitive that
the premium of any insurance policy must be weighed against the
benefit. A risk management approach cannot simply be to over
Capital Project Solutions – July 2010
3
purchase insurance as a means of managing the risk. This strategy
would not be financially feasible or prudent. Since a major capital
project creates unique exposures for the entire project team, an
owner must view GL and WC policies with an eye toward risk
sharing.
The traditional approach to managing GL, WC, and XS has several
inherent problems:
Each entity is required to carry separate coverage through
multiple insurers.
Gaps may exist in coverage that expose the owner and
team to increased risk.
Gaps in coverage may only be identified upon receiving a
claim.
Profit is applied to coverage at each level of the hierarchy.
CM and subs are responsible for monitoring that
everyone has obtained adequate and appropriate
coverage.
By bundling these insurance products into a project specific policy
under an IFOA, it is possible to create an effective option for
managing risk, incentivizing safe work habits and sharing risk and
rewards.
Capital Project Solutions – July 2010
4
For the reasons listed above, it is recommended that GL, WC,
and XS be purchased through a Controlled Insurance Program
(CIP) under a project specific IFOA. A CIP can be purchased by
either the owner or the contractor. The team must decide
ownership early in the process based on the team’s specific
needs. A CIP is generally most effective on projects that:
are greater than $100 million in construction value,
have many subcontractors,
are labor intensive,
are staffed by a team that is committed to safety and able
to provide proper claim and risk management.
Generally, the cost of a CIP on such a project will be less than
GL, WC, and XS costs under the traditional tiered approach.
Although there is better chance of achieving financial savings on
projects over $100M, a CIP should be strongly considered on
smaller projects as well. Under a CIP, the sponsor of the
program requires subcontractors to identify and remove
insurance costs from their bids. This may ultimately reduce
overall costs while at the same time enhancing coverage by
Capital Project Solutions – July 2010
5
providing project specific coverage / limits and thus mitigating the
risk to the entire team. An additional benefit of the CIP allows
for a greater pool of subcontractor bidders as inadequate
coverage and associated insurance cost are no longer a burden
for the subcontractors.
Financially, the CIP is comprised of a fixed and variable premium
subject to the loss experience. The fixed premium is generally
40-50% of the maximum cost and the variable premium is 50-60%
of the maximum cost. It should be noted that the total cost
premium, both fixed and variable, should be carried in the project
budget to cover potential work performance claims and to limit
potential exposure since there is not a guarantee there will be
savings at the end of the job. Any savings from the CIP, which
could be .5%-1.5% based on safety performance, can be used to
incentivize the IPD team. The split of the savings or overages, if
they occur, need to be determined in advance and solidified in the
IFOA.
Utilizing a CIP as part of an IFOA:
simplifies the process with a single policy that covers all
the players on team,
eliminates gaps in coverage,
eliminates the multi-tiered markups,
may reduce the overall risk and cost to the entire team.
Professional Liability
In addition to the CIP, the IFOA should also include a project
specific professional liability policy. Although, every professional
design firm is required to carry professional liability insurance,
such policies carry inherent limitations and increase associated
risks to the project team. Some of the major limitations of such
policies include:
• Owners share the design firm's professional policy
limit with many other firms. Professional liability
policies have a single aggregate policy limit that applies to
Capital Project Solutions – July 2010
6
all liabilities and defense costs arising from current and
past work of the insured. If there is a claim, the owner
has to hope it is near the front of the line to be sure of
adequate protection.
• Protection is here today and gone tomorrow.
Many professional liability claims arise well after project
completion. An owner has to depend on a design firm to
stay in business and continuously renew its insurance in
order to have a policy against which to claim in the
future.
• The owner cannot be added as an additional
insured. Most professional liability underwriters for
design firms will not name the owner as an additional
insured. If the owner is sued for a professional loss
caused by the design firm, the indemnification clause in
the owner / design firm contract may provide protection
but the professional policy will not defend the owner.
• Limitation of liability. Many design firms will not work
without a limitation of liability equal to their fees and a
waiver of consequential damages.
Additionally, such professional policies, when utilized in the
traditional sense, carry many of the same risks associated with
GL, WC, and XS policies such as multiple insurers, inadequate
limits, coverage gaps, and the potential for cross litigation.
A project specific professional liability policy replaces the practice
policy of the design firms and frees the team from the limitations
of those policies. Additionally, it provides multiple added benefits
for the IPD Team including:
• Consistency in coverage for the entire team.
• Financial security from professional liability throughout
the life of the project.
• Limit of liability that is dedicated to the specific project.
Design firms policy serves as excess coverage.
Capital Project Solutions – July 2010
7
• Contractor’s pollution liability (including mold liability)
can be included to provide coverage for pollution
conditions arising out of construction work and defense
costs are covered for third-party claims arising from the
design team's errors.
• The policy is offered on a project-specific basis for up to
10 years (the extended reporting period or ERP is
included in that term) and annually for all construction
("blanket" coverage) of the named insured.
• Limits of liability can be secured up to $25 million with
one single insurer.
• Single source of responsibility for claims.
A project specific professional liability policy is held by the owner
or the lead design firm of the IFOA with the premium being paid
in full by the owner. The policy is typically negotiated as
dedicated limits over a deductible and the term is from the
beginning of design, through construction plus 3 to 10 years. A
project specific liability policy will likely be the most expensive
vehicle for providing professional liability coverage when
compared to traditional means. However, in an IFOA the
benefits outweigh the costs and could ultimately be the least
costly insurance product if a catastrophic event were to occur.
In an IPD agreement formulated on the guiding principal of trust,
careful selection and implementation of insurance coverage can
act as the bond that holds the team together. Both a CIP and
project specific Professional Liability Policy provide for a more
controlled risk management solution for the entire team.
Providing coverage that binds all parties to the same risks further
solidifies the collaborative approach required for a successful IPD
project and can lead to financial incentives for a job well done.
2010 CAPITAL PROJECT SOLUTIONSIntegrated Project Delivery Series
AU
GU
ST
I N N O VAT I V E H E A L T H C A R E FA C I L I T Y S O L U T I O N S
Capital Project Solutions – August 2010
1
Integrated Project Delivery – Incentive Plan
David Carter, Consultant
Throughout 2010, Capital Project Solutions will run a series of articles
dedicated to Integrated Project Delivery (IPD). We will explore all issues
related to IPD, from project identification to team selection to contract
and incentive development. With three (3) IPD projects currently
underway, we will share case studies and lessons learned throughout
the series. Last month, we discussed the risk and insurance related to
Integrated Project Delivery. This month, we will explore designing an
incentive plan under an IPD agreement. If you have missed any of the
previous articles or to learn more about other strategies to ensure your
project’s success, visit KLMK Group at www.klmkgroup.com.
In the July 2010 issue of Capital Project Solutions, we discussed the
collaborative development of the project specific insurance program
when utilizing an Integrated Project Delivery (IPD) approach. In order to
ensure success and to achieve owner satisfaction, the specific insurance
program is paramount for aligning the team, creating trust, and evenly
distributing risks. Directly related to the allocation of risks under IPD, is
the development of a reward sharing plan or incentive plan. In an IPD
agreement, the design and construction professionals must be willing to
accept more risk and exceed minimum expectations. Therefore, it is in
the owner’s best interest to create an incentive plan whereby monetary
rewards are distributed to the IPD team for delivering a final product
that exceeds what would typically be expected with a traditional project.
This month, we will review the risk and reward equation for an IPD
agreement.
Risk
In any capital project, the owner inherently carries the most risk and
has the most to gain or lose. Most owners seek to mitigate risks
associated with the following:
Liquidated Damages
Consequential Damages
Delay Damages
Indemnity
Insurance
Claims and Dispute Resolution
Inspections
Capital Project Solutions – August 2010
2
The behavior generated
by the traditional
method of risk shifting
and the additional costs
this incurs are two of
the forces driving many
owners toward IPD
agreements.
Overhead Costs
Contract Interpretation
In the traditional project delivery approach, the risks listed above are
shifted from the owner to other project delivery team members
through contract language and insurance products. However, this
shifting of risk creates an attitude of self-preservation rather than one of
performing in the best for the team. Additionally, traditional risk shifting
is more costly for the owner.
Under the traditional project delivery method, owners have purchased
insurance to mitigate risks inherent with the Guaranteed Maximum
Price (GMP) or its associated consequential damages. Broad indemnities
and high limits for liquidated damages or hold harmless clauses have
typically been required. Prudent design/construction professionals will
view a project from a risk management perspective first, and then as a
professional service provider. The risk placed on the
design/construction professional is then pushed down the supply chain
to subcontractors, vendors, etc. More times than not, these
subcontractors and suppliers are not capable of handling the burden of
the additional risk leaving the owner exposed. Under the traditional
project delivery method and risk shifting, the risk equation largely favors
the owner. However, what has to come to fruition with the advent of
IPD is the fact that sharing risks with the project team provides the
owner with a better, more cost effective product. The behavior
generated by the traditional method of risk shifting and the additional
costs this incurs are two of the forces driving many owners toward IPD
agreements.
In an IPD agreement, risk sharing occurs on multiple levels by all signing
parties. Developing the risk allocation strategy early in the process
helps break down the traditional barriers associated with a capital
delivery project and helps to build trust between the owner and the
other team members. Major considerations to address in the
development of the risk sharing equation in the IPD agreement are as
follows:
Collaborative Risk Allocation
o Development of risk sharing agreement early
o Limit risk and provide upside to maximize the potential on
the project
Mutual Waiver of Consequential Damages
Full Waiver of Subrogation
Capital Project Solutions – August 2010
3
Mutual Indemnification and Hold Harmless
An Insurance Strategy that Works in Favor of the Project
Once the risk sharing equation is defined and the appropriate project
specific insurance programs are determined, the team can proceed with
the development of an equitable contract document, which protects
each team member and embodies the principles of trust inherent to an
IPD agreement. By accepting additional risk, it is only fair for the team
to also share in the potential rewards.
Reward
The creation of an incentive plan that is fair and objective under an IPD
agreement can be a difficult and daunting challenge. An owner may
question why the design and construction professionals should be
incentivized to do their respective jobs. The design and construction
professionals can easily make the argument they should be compensated
for the additional risk burden. However, the underlying intent of all
incentive plans should be to motivate the team to achieve goals beyond
those typically realized with traditional project delivery. Owners expect
their project to be delivered on time and under budget regardless of the
delivery method. An IPD incentive plan should create a dynamic that
fuels innovation and creativity to push the team to identify ways to
deliver the project under budget, ahead of schedule and beyond owner’s
expectations. To illustrate the structure and nature of a typical
incentive plan, the following describes the arrangement created for a
$385M replacement hospital project utilizing an IPD agreement.
Purpose of Incentive Plan
The owner believes that an appropriate incentive plan will
inspire the team to collaborate in order to eliminate waste and
duplication in cost and time; increase the quality of the final
product; make the project safer; generate savings in final costs;
optimize team cooperation and “global” outlook; and improve
the quality of the project.
Structure of the Incentive Plan
Any incentive plan should include all members of the IPD
agreement, including the owner. In this case, the IPD team
elected to share the incentive pool with the major trade
contractors, who are not signing members of the IPD
agreement but who were an integral part of the team in the
development of the current state of the project. The purpose of the
incentive plan is driven by the underlying principles of the IPD
Capital Project Solutions – August 2010
4
agreement. The plan outlines the minimum requirements that must be
met in order for the team to receive incentive pool funds as well as the
distribution structure to the various team members. Incentive is
provided for creativity, innovation, meeting minimum requirements and
achieving clearly defined stretch goals, all of which ultimately benefit the
owner.
Minimum Requirements to be Incentive Eligible
1. The project budget reconciliation must indicate that the final
cost is less than the Target Construction Value (TCV) agreed
to in the executed GMP Amendment. Note: Owner requested
changes to the TCV will be identified by the Core Team, and
their cost/time impacts will be projected for the Owner at the
time these changes are approved, and will be accounted for
when comparing the final cost to the original TCV.
2. The Owner’s Program and Scope, amended and agreed to in
the executed GMP, must be delivered.
3. The duration of the project, given normal weather patterns,
should be less than that agreed to in the GMP Amendment.
Note: Owner requested changes to the scope that put stress
on the original schedule will be accounted for when comparing
the original and final durations. (see #1 above)
4. The Safety Program should be fully implemented and detailed.
Monthly reports are to be presented to all members of the IPD
Team by the 15th day of the following month.
5. The project must be closed out legally and financially within 90
days of completing Patient Move.
Incentive Pool Funding
The bonus pool will be funded from a percentage of the savings within
the executed GMP Amendment total construction budget. The savings
sources within the GMP amount will include remaining IPD team
contingency, net buy-out savings and innovation savings. The amount
realized throughout the project will be deposited into the IPD Team
Contingency. Payout will only occur if all minimum eligibility
requirements are met. If no savings exist at the completion of the
project, the bonus pool will not be funded. In this example, the Core
Team agreed to a pool cap and the savings split between the IPD Team
and the Owner. The numbers below have been inserted for illustrative
purposes only. Savings options to fund the pool are as follows:
Capital Project Solutions – August 2010
5
1. If minimum requirements are met and savings remain from
unspent IPD team contingency that are considered buyout
savings:
Total Pool Cap: $2 Million
Spilt: 75% Owner; 25% IPD Team
2. In addition, if minimum requirements are met, savings remain
from unspent IPD team contingency , and they are clearly
attributed to innovation from IPD team members:
Total Pool Cap: $2 Million
Spilt: 25% Owner; 75% IPD Team
Innovative savings ideas will be submitted to the Core
Group for consideration. They must meet the following
criteria:
o Generate savings in both budget and schedule.
o Motivate all team members involved in the project.
o Unify team so the project participants win or lose
together.
o Optimize cooperation and “global” outlook of team.
o Eliminate waste and duplication.
o Provide same or better level of quality throughout the
Project.
3. There is also opportunity for the IPD team members to earn
additional incentive by achieving the following stretch goals:
Substantial Completion is reached two months prior to
schedule defined within the GMP: $1 Million
Alternates at the value of the GMP are delivered to the
Owner with no Owner Contingency Contribution: $1
Million
An IPD agreement is built on the underlying principle of trust. Inherent
to this trust, is the fact that the team must agree to share in both the
risk and reward of the project. The risk sharing structure should be
outlined early in the development of the IPD contract. Defining risk
allocations early on breaks down the barriers associated with the
traditional delivery method and creates the trust required for a
successful IPD project. Additionally, defining the reward structure
creates a bind that forces the team to work collaboratively to achieve
the established goals, which are ultimately designed to provide the
owner with the best possible product.
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Capital Project Solutions – September 2010
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Integrated Project Delivery – Case Study
Owensboro Medical Health System
Tim McCurley, Senior Consultant
Throughout 2010, Capital Project Solutions will run a series of articles
dedicated to Integrated Project Delivery (IPD). We will explore all issues
related to IPD, from project identification to team selection to contract
and incentive development. With three (3) IPD projects currently
underway, we will share case studies and lessons learned throughout
the series. Last month, we discussed developing an incentive plan to
accompany the IPD integrated form of agreement. This month, we will
share lessons learned from the IPD team at Owensboro Medical
Health System (OMHS). If you have missed any of the previous articles
or to learn more about other strategies to ensure your project’s
success, visit KLMK Group at www.klmkgroup.com.
Recently, comments have been made regarding Integrated Project
Delivery (IPD). Some say that it is the future of project delivery,
yet others think it is merely a “here today, gone tomorrow” fad,
one that will soon be replaced with the next big idea. For the
team created to deliver the new $385M hospital for Owensboro
Medical Health System (OMHS), we are living it, breathing it and
making it work. This case study examines the OMHS IPD team –
its dynamics, integration and functionality.
The Facts
OMHS determined that, in order to meet the needs of their expanding
community, they would need a new healthcare campus. The new
campus includes a 477 bed, 780,000 square foot replacement hospital
and a Medical Office Building. The campus is being built on a 160-acre
green field site that is located on the east side of the city of Owensboro,
Kentucky.
In planning for the new facility, the OMHS leadership team evaluated
numerous capital project delivery options. It was determined that IPD
would provide the greatest return on investment while avoiding the
challenges that often plague a project of this size.
Rendering by: HGA Architects & Engineers
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The Process
The first step in the process was for the OMHS leadership team to
select the IPD participates. Being unfamiliar with the IPD process,
Owensboro followed a more traditional approach to selecting the team.
Each company was identified individually as opposed to following the
process that we identified in our April issue of Capital Project Solutions
and thus the process took a bit longer than would be expected. In fact,
it was not until after the teams were chosen that KLMK was actually
hired. The IPD team at Owensboro now consists of the following:
Owner - Owensboro Medical Health System
Architect - HGA Architects and Engineers
Construction Manager – Turner Universal
MEPT Engineer - Smith, Seckman, Reid, Inc.
Project Manager - KLMK Group
The next step was to develop an Integrated Form of Agreement (IFOA)
that bound the group into a single, cohesive team. Each signing
member of the IFOA was provided with one vote in making decisions
regarding the project. KLMK, which acts as an unbiased facilitator and
advisor for the group, does not have a vote. A representative from
each firm makes up what is known as the Core Team. The Core Team
is responsible for the general governance and direction of the project.
Its main responsibilities are to identify the most advantageous way to
deliver the new facility and to advise hospital leadership on key project
issues.
After setting the target budget and schedule, the Core Team established
six Component Teams and assigned a target budget for each of these
team. The Component Teams are cross-functional and are responsible
for developing major elements of the design that adhere to the
proposed target budget and schedule. Each team includes
representatives from the architect; mechanical, electrical, plumbing,
technology (MEPT) engineer; civil engineer: construction manager;
major subcontractors; and specialty consultants. The six Component
Teams are:
Site
Structure
Envelope
Interiors
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Thermal comfort
Power and Technology
It was necessary to cross-pollinate the component teams in order
to avoid situations where decisions made by one group may
unknowingly affect another group. For example, in our Envelope
Component Team, HGA and the envelope design assist partner
were finalizing details for patient room windows when it was
decided that the windows should be made a bit larger. Since the
structural engineer was involved in the process, it was immediately
identified that this change would require additional bracing to the
structure, which meant additional steel would be needed. And,
since the mechanical engineer was also on team, he was able to
evaluate whether the heat load of the additional glass would affect
the mechanical system. By having cross functional members on the
component team, the implications of such a change were brought
forward and evaluated and thus the team was able to make a thoughtful
decision based on the impact to cost and schedule. In a traditional
delivery model, the architect would have decided to change the detail
and would have issued the drawing package, prior to addressing the
implications to the other members of the team and the project as a
whole. It could have been months before the team realized the impact
to the structure and cooling system as well as whether the additional
cost of the change would even be beneficial to the project. Utilizing an
IPD approach allowed the team to make an informed decision within a
couple weeks and indeed determined it was beneficial to the project
with full confidence that all of the implications of the issue had been
addressed.
Trust
There is indeed something to be said regarding the trust that team
members must place in one another. It is one of those circular
references that always seem to pop up similar to what you see in an
excel spreadsheet. However, in this case, it is a good thing, a very good
thing. Under the traditional project delivery method, there always
seems to be an inherit distrust between designers, contractors and
owners. Designers spend endless hours creating unique and inviting
designs that are good enough to be built. Yet, as soon as a contractor
gets his hands on the documents, the first thing he does is review them
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for inaccuracies, mistakes, and inconsistencies. Having identified issues,
the contractor submits the first change order, and now the owner no
longer trusts his architect and is skeptical if his contractor is out to
change order the project to death. At OMHS, the mentality is quite
different. During design, the contractor’s Senior Project Manager is at
the table advising the team of cost issues, constructability issues,
schedule issues, etc. Additionally, the CM typically includes his
subcontractor that will be completing the work. Therefore, when these
documents are printed, there should be very few surprises. The pricing,
for the most part, should be known. With this type of process and its
associated result, one can only attribute it to the trust that was
established between the team members. The architect trusts that his
contractor partner is giving him the best pricing information available in
order to ensure the design will meet the project budget. The
contractor trusts that his architect and engineering partners will not go
beyond the means of the project limits. All of this results in the owner
trusting that the team is acting in the best interest of the project. In
Owensboro, as with any project, trust in your partners is the key to the
success. And, it has proven to be extremely beneficial for this team.
The OMHS project is not perfect and no one expected it to be. What
the team is striving for is a more efficient process, with fewer changes
orders, and no finger pointing. As with any dynamic working
environment, from time to time, the Core Team has to analyze how
things are being done, and tweak the process to better accommodate
the ever-changing project. There have been several instances at
Owensboro, where the Core Team met to evaluate how the project
was progressing, what is working, what is not working and what could
be improved. In one instance, the Core Team realized the team was
getting bogged down in a multitude of minor project issues. While
trying to keep track of every issue and give an update on a weekly basis,
it was apparent the process was not as efficient as it should have been.
All the while major issues were not given the attention they deserved.
The team decided to take a lean approach where we would identify the
top four or five major issues and have the component teams focus on
resolving those issues on a weekly basis, then move on to the next issue
once the other issues were resolved. This approach makes the
component teams much more efficient in managing the issues.
Opportunities for process improvement are constantly being evaluated
by the Core Team and will continue to occur until the project ends
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Incentive Plan
As discussed in last month's issue, an appropriate incentive plan
should inspire the team to collaborate in order to eliminate
waste and duplication in cost and time; increase the quality of
the final product; make the project safer; generate savings in
final costs; optimize team cooperation and “global” outlook; and
improve the quality of the project.
Once the IFOA was in place, the Core Team quickly met to
discuss and develop an incentive plan. The team insisted on
including all members of the IFOA and additionally, major trade
contractors who were integral participants in developing the
current state of the project. The team worked together to
challenge themselves to create a plan that would only provide incentives
if they go above and beyond the status quo of delivering the project on
budget and on schedule. The plan outlines the minimum requirements
that must be met in order for the team to receive incentive pool funds
as well as the distribution structure of the incentives to the various
team members. The incentive package was designed to benefit the
owner by delivering the project under budget and ahead of schedule.
Incentive is only provided for:
meeting minimum requirements outlined in the plan
for creativity in problem solving
innovation in design and construction
achieving clearly defined stretch goals
Currently, the Owensboro project is wrapping up design and has been
under construction for five months. All indications show that the
project is progressing under budget and on schedule. In addition, the
Core Team is aiming to better the current scheduled completion date.
OMHS leadership has been pleased with the IPD process and the team
is confident that by utilizing this delivery method the team will be able
to exceed expectations. If a team possesses all of the right dynamics, the
IPD process offers them the best opportunity for success.
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Capital Project Solutions – October 2010
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Integrated Project Delivery – The Pre-Cursor to
Alternative Financing & Procurement?
Patrick E. Duke – Senior Vice President
Throughout 2010, Capital Project Solutions will run a series of articles
dedicated to Integrated Project Delivery (IPD). We will explore all issues
related to IPD, from project identification to team selection to contract
and incentive development. With four (4) IPD projects currently
underway, we will share case studies and lessons learned throughout
the series. Last month, we featured lessons learned from an IPD
project at Owensboro Medical Health System. This month, we will
discuss opportunities for alternative financing and IPD. If you have
missed any of the previous articles or to learn more about other
strategies to ensure your project’s success, visit KLMK Group at
www.klmkgroup.com.
In the August 2010 issue of Capital Project Solutions, we discussed the
collaborative development of an incentive plan by the Integrated Project
Delivery (IPD) Team to balance the risk and reward equation among
project participants. While IPD provides a better framework to allocate
risks in a capital project, it still falls short in providing the Owner with
means for effectively mitigating or sharing their financial and completed
operations risks. In the midst of an anemic economic recovery where
hospitals face pressure from declining volumes, they also are learning to
navigate the waters of recent financial and healthcare reform. While
this indeed is a turbulent time for hospitals and “belt tightening” is the
phrase of the day, the need for facility improvements and expansions
still exists.
During the past nine months, Moody’s has reported declining credit
ratings for the majority of hospitals, which has significantly affected
owner’s ability to secure capital. The need for capital is one of many
variables that is fueling consolidation at all levels in the healthcare
industry. Hospitals are merging with one another as well as with
physician practices in an effort to increase their bargaining and buying
power in a given market. All of these activities are beginning to blur
what historically have been clear definitions of core and non-core real
estate assets and service lines for a hospital. During this time of
uncertainty, IPD has gained momentum as an alternative approach for
the delivery of capital projects. Thus, it would only make sense to
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explore whether the adoption of IPD could be a pre-cursor to
Alternative Financing and Procurement as has been the case in Canada.
A Lesson from the North?
Throughout the healthcare reform debate in the United States, we were
exposed, more than ever, to the public Canadian Healthcare System.
The focus of most healthcare stories was on the actual access and
availability, or lack thereof, for patients in the Canadian public system.
The one topic that never seemed to make the nightly news was the
actual facilities where patients are receiving care. Canada is currently
experiencing a tremendous building boom in order to ensure that each
Province has safe, accessible and efficient hospitals and medical centers
to meet patient demand. So, how are the Provinces delivering the new
facilities that are included in this hospital building boom? Alternative
Financing and Procurement.
Provinces such as Ontario have established execution agencies within
the Provincial government such as Infrastructure Ontario to correct
their infrastructure deficits. This agency drives the development of
critical infrastructure and public use projects such as schools, hospitals,
and roads. They do this through public-private partnerships known to
many as P3 Projects. However, to the Province of Ontario they are
known as Alternative Financing and Procurement (AFP) projects.
AFP integrates the finance, design, build and completed operations
phases of a facility project. Backed by the Province’s credit, the projects
are financed by private syndication and the delivery team shares the risk
and reward over the useful life of the facility improvement. The
Province pays nothing until construction is complete and the facility is
available for its intended use. The delivery team maintains the facility
and provides a lifetime warranty to the Province. The warranty ensures
that the facility will be operational and functioning as intended. The
Province pays an availability payment (similar to a lease payment) for the
agreed upon term of the policy.
Understanding the AFP concept and comparing it to traditional delivery
models, yields the following distinct differences:
The Owner (in this case the Province) transfers financing and
completed operations risk more effectively to the project
delivery team.
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The Owner preserves cash during the construction period as
no payment is made until after the building is available for its
intended use.
The private lender, not the Owner, provides necessary due
diligence to ensure the project delivery team delivers on time
and within budget.
The project delivery team provides a “Warranty” to the
Owner that the facility will be available over the term agreed
upon.
True integration of design and construction with building
maintenance and lifecycle costs is achieved and not just
discussed.
While IPD in its current state provides for better risk transfer between
all project participants than the traditional project delivery model, it falls
short of providing the Owner with any relief from the financing and
completed operations risks as AFP does. In the defense of project
delivery teams, there has never been incentive for them to take on
financing and completed operations risks on a given healthcare facility
project. Is the time right for that paradigm to shift?
Barriers to Healthcare Project AFP in the United States
In the midst of a perfect storm, AFP may indeed be an answer to the
healthcare Owner with facility expansion and modernization plans. It
would allow for cash preservation while maintaining a focus on scarce
resources to drive efficiency in care models to meet Accountable Care
Organization standards being implemented by CMS. However, AFP has
the following barriers to overcome prior to its introduction:
Credit Worthiness Still Rules – The majority of hospitals in
the United States are still privately owned and this does not
seem likely to change anytime soon. Therefore, any expansion
plans would require credit worthiness in order to finance the
deal. Even in single tenant Medical Office Building deals where
the hospital becomes a tenant and seeks a third party to
develop and own the building, the hospital must be credit
worthy to make the deal happen. To close an AFP deal in the
United States, a private not-for-profit hospital system would
first be required to be credit worthy.
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The Controlling Mindset – The mindset that a healthcare
owner must control and maintain its core real estate assets,
such as acute care centers, still rules the day. In recent years,
there has been a shift regarding outpatient service facilities and
certain support functions within a healthcare organization. To
allow AFP in any form to be implemented, healthcare owners
and their boards must be willing to relinquish control over
their traditional core real estate assets.
Policy of the Day – Hospitals are highly regulated and those
that enjoy a tax-exempt status have many requirements that
they must meet to maintain this status. In addition, states have
various regulations for reimbursement of services that are
deemed to be in regulated or non-regulated space. To facilitate
a delivery model like AFP, policy makers will need to enact
regulations that provide incentive for this type of deal.
These barriers can be overcome, but this will not happen overnight. As
more municipalities look at ways to fund critical infrastructure through
public-private partnerships, policy makers are beginning to come around
to delivery models such as AFP.
Conclusion
As we contemplate the changes in the healthcare industry over the past
two years and then look toward the future, it seems inevitable that
traditional models of project delivery will continue to be challenged.
Even IPD in its current practice may not be aligned with the true risk
equation for a healthcare owner in the 21st century. The question is
whether healthcare owners are willing to relinquish the control of core
real estate assets and whether United States policy makers will create
an environment conducive to some hybrid form of AFP.
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Capital Project Solutions – November 2010
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Integrated Project Delivery – A Year In Review
William McMahon – President & COO
Throughout 2010, Capital Project Solutions ran a series of articles
dedicated to the topic of Integrated Project Delivery (IPD). We explored
many issues related to IPD, from project identification to team selection
to contract and incentive development. From three (3) IPD projects
currently underway, we shared case studies and lessons learned
throughout the series. This month’s issue will provide a recap of our
yearlong discussion, outline advances made throughout the year and
provide an opinion on how we see IPD playing out in the marketplace.
If you have missed any of the previous articles or to learn more about
other strategies to ensure your project’s success, visit KLMK Group at
www.klmkgroup.com.
Key Discussion Areas Throughout the Year
It has been an interesting year in the evolution of a revolutionary
way of delivering healthcare capital facilities projects – Integrated
Project Delivery (IPD). When we began our series of
discussions earlier this year, we described the need in the
marketplace for a new method of delivery for healthcare projects,
as the traditional approach was becoming outdated. We stated
that when expectations of healthcare owners are elevated the
market must adapt to deliver desired outcomes. During the year,
our discussion focused on the following critical elements in the
IPD process:
New Approach: In today’s healthcare environment, it has
become crucial for owners to be creative and open-minded to
meet the demands of patients, physicians, workers, financial
institutions and government agencies. If a capital expansion
project is the solution to a critical need, then we strongly
suggested that owners explore a more integrated and
collaborative approach to delivering the project. We described
in detail the time that should be invested in the initial launch
phase of a project in order to adequately analyze the opportunity
to utilize an IPD approach on a healthcare capital project.
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Why IPD?: To answer the question, “Why should I
choose Integrated Project Delivery for my project?” we suggested
that you must first determine if IPD is a good fit for your
organizational culture and then develop your value proposition. If
you go through a self examination and find that IPD seems to
align with your organization, you should next determine your
value proposition (what you are trying to achieve strategically by
your project) and then measure IPD’s ability to enable you to
meet it. We still believe if lowest cost is the primary driver
that determines value, then IPD is not the answer for
your organization.
Team Selection:
IPD is a relational based
concept and the selection
of the project team should
be based on that concept.
This type of team selection
requires a significant
investment of time from both the Selection Committee and the
candidate teams. Typically, this process requires more time than
the traditional “transaction based” approach requires. The
selection of the team and the process through which it is chosen
is one of the most important processes an Owner and
prospective firm will undertake on an IPD project and it will have
lasting impact either in a negative or positive way. Spending time
and money, during this process, will be a worthwhile investment
if your approach is rooted in the correct motives.
Education: A clear understanding of the pros and cons of
going forward with the IPD concept is crucial to the success of
the project. Take the time to educate yourself on the process of
selecting the team, the contracting method and the ultimate goal
of using an alternative delivery model. If you or your client is
solely focused on fees, then this is a sign that you or they may not
be ready to move forward with IPD.
Contracting: The major premise of IPD is to deliver a
capital facility project in the most efficient manner where hand
offs, finger pointing, and backstabbing is eliminated. In order to
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Rendering by: HDR
accomplish these objectives, all parties must be willing to act in
the best interest of the project, striving for the greater good.
Only by having faith in the process and trusting the team will
ensure that an IPD integrated form of agreement (IFOA) truly
delivers the desired end result - an equitable contract that is fair
and has value for all involved.
Insurance: The IPD team must develop an insurance
strategy that works in favor of the project while recognizing the
inherent risks shared by all parties. In addition, there must be an
equitable distribution of the all risks and rewards. Next, the
contractual vehicle that embodies these tenets and creates
performance incentives for the IPD team is created. This
equitably drafted contract coupled with the appropriate risk and
associated insurance strategy, should protect each team member
and help break down the barriers that have been created from
decades of “risk shifting”.
Follow Up From Case Studies (Where Are They Now?)
In the May 2010 edition of Capital Project Solutions, we provided an
IPD Case Study for the expansion and relocation of the
emergency department at Hurley Medical Center (HMC) in
Flint, Michigan. Currently, construction of the facility is
progressing nicely with the building enclosure completed. There
has not been a single change order request or claim from MEP
subcontractors and according to Granger Construction
(Construction Manager and member of the Core Team), “this is
truly a different way of delivering a healthcare project in a
positive way.” The IPD team at HMC was extremely flexible and
able to provide accurate cost information during the design
phase, assisting the owner in maximizing value early. Early buy-
out also allowed the owner to take advantage of market-driven
savings.
In the September 2010 edition of Capital Project Solutions, we
provided a case study on the Replacement Hospital Project for
Owensboro Medical Health System (OMHS) in
Owensboro, Kentucky. An important key takeaway learned at
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Rendering by: HGA Architects & Engineers
OMHS was the importance of defining the incentive plan as early
as possible in the project. Ideally, the incentive plan should be
developed as part of the contract negotiations. The OMHS
incentive plan was not finalized until approximately eight (8)
months after the signing of the contract. This limited the
opportunity to incentivize the entire team. Since it was
developed so late in the process, the plan primarily focused on
the construction completion date and the ability to provide
additional scope, requested by the owner, without impacting the
GMP. By delaying development, the team missed the opportunity
to tie the design team’s deliverables to the incentive plan, as
construction designs (CD’s) were almost 70% complete at the
time. As a result, the plan became more dependent on one team
member (construction manager) rather than the entire IPD team.
The challenge since the GMP was completed (in August), has
been to stay within GMP budgets, considering the design was only
about 70% complete. To date, the IPD team has been able to
identify budget issues as a team and track and manage the
process, so that when the design is 100% complete, all of the
budget risks will have been identified. The team is proactively
running a list of cost issues and, if drawings were printed today,
they are confident they could identify the cost impacts before any
official cost estimate was completed. Knowing that all of these
costs will be captured within the funds set aside (IPD Design
Contingency) for this purpose allows the owner to make other
informed decisions about the project.
The IPD team at OMHS has also been successful in managing the
schedule. Prior to GMP, the owner requested a change in the
floor stacking to accommodate a new program that they want to
implement. Normally, this would have been devastating to the
project schedule, however, the team was able to manage and
maintain the current schedule while absorbing an eight (8) week
design delay. The established collaborative relationship of the
IPD team enabled the owner’s desire to be realized with no
impact to the overall schedule.
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Additional Things We Have Learned…
Now that we are under construction with several IPD projects,
we are seeing how IPD projects are playing out and can share
some lessons learned:
Education of both the owner and industry
participants remains a high priority for anyone
contemplating an IPD approach. The key differences
between IPD and more traditional approaches need to be
understood as quickly as possible by all parties involved. Such
differences can include some or all of the following: form of
agreement, timing of selections, approach to risk sharing (and risk
management), timing of when decisions need to be made and the
processes for selecting trade contractors. Participants must
agree on how to answer the following question – “How do I still
know I am getting the best value if I’m not bidding things out?”
Education surrounding the following issues is also critical: team
compensation, incentive plans, management by a core group, safe
harbor provisions, and continuous estimating. There are specific
differences in how the team does business and how the project is
developed. Those differences should be clearly articulated and
discussed as early as possible.
Building Information Modeling (BIM) and Offsite
Fabrication – One of the primary benefits we have observed in
utilizing BIM is the ability to identify design problems and
coordination issues with the plans prior to installation of the
materials. One direct result is that this allows for the majority of
the piping and duct runs (vertical and horizontal) to be
prefabricated thus significantly reducing the installation time. This
also has a positive impact on jobsite safety as it moves personnel
away from the site and reduces opportunities for accidents.
Bringing the major subs on board early has also enhanced
the benefits derived from utilizing BIM. The IPD team is able to
build the BIM model simultaneously with the development of
CD’s. By working in this manner, the team has been able to
resolve issues and develop design solutions that are directly
coordinated with the architects/engineers and are incorporated
Capital Project Solutions – November 2010
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into the final CD’s which limits coordination issues as the building
is constructed.
Negotiation of integrated agreements and development
of risk solutions is a very time consuming process. Because this is
still a relatively new way of contracting and defining risk, this
process should be started as early as possible. A qualified team of
advisors (attorneys, bond counsel and insurance agents) that
have experience in IPD and believe in its benefits should be
consulted. Keep in mind that seeking counsel from advisors who
are closed minded about this form of delivery will only lengthen
this step and success is not guaranteed.
What We See in the Future…
We remain very excited about the possibilities and advantages
that an IPD model can bring a healthcare owner. At the end of
the day, most healthcare owners want a more collaborative
approach to the delivery of their healthcare projects, although
not all are willing to invest the time and energy necessary to
adopt a true IPD approach. IPD will continue to evolve as the
industry becomes more educated and familiar with this model of
delivery. Improvements in the economic climate will also affect
IPD’s development and acceptance. We believe IPD, or at least
elements of IPD, is here to stay and that the next ten years will
continue to produce advances in the delivery of healthcare capital
projects.
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