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INTEGRATED PROJECT DELIVERY AN EXAMPLE OF RELATIONAL CONTRACTING

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Title: INTEGRATED PROJECT DELIVERY AN EXAMPLE OF RELATIONAL CONTRACTING


1
INTEGRATED PROJECT DELIVERY AN EXAMPLE OF
RELATIONAL CONTRACTING
2
Two types of contracts
  • transactional where exchanges are made for goods
    and services
  • relational contracts where the relationship
    takes on the properties of a minisociety with a
    vast array of norms beyond those centered on the
    exchange and its immediate processes

3
WE IDENTIFIED FOUR MAJOR INTRENSIC PROBLEMS WITH
THE TRADITIONAL CONTRACTUAL APPROACH (based on
transactional contracts)
4
Problem 1
  • Good ideas are held back

5
Problem 2
  • Transactional Contracting limits cooperation and
    innovation

6
Problem 3
  • Inability to fully coordinate the project

7
Problem 4
  • The Pressure for local optimization

8
APPROACHING THE SOLUTION
  • Could we organize ourselves to function as a
    single company with unified goals and objectives?
    Could independent design firms and construction
    companies actually find a way to integrate
    project delivery? To use the earlier analogy,
    was there a way to take all of these rubber balls
    and connect each to the other so that they could
    all move in the same direction. A new set of
    questions suggested the new approach

9
Everyone please shut your eyes and dream with me
10
A new process which we called Integrated Project
Delivery (IPD) was taking shape.
11
IPD
  • A project delivery method in which the interests
    of the primary team members are aligned in such a
    way that the members can be integrated for
    optimal project performance.

12
SHAPING THE TEAM
  • We first incorporated a company called integrated
    project delivery as a sub S. Corporation
  • Think of a joint venture established to deliver
    design build projects using integrated project
    delivery
  • Or, we have team member led IPD project

13
Two Principles govern our Team relationship
  • With an IPD project, whether joint venture or
    team member led , all PTMs are responsible for
    all provisions of the prime contract with the
    Client.
  • Primary Team Members share the risk and profit
    for total project performance.

14
The Prime Contract
  • A single contract binds the IPD team to the
    client. The prime contract may be any one of a
    number of standard forms that are available and
    spells out the commercial terms and defines the
    scope, schedule and cost of the project. One
    entity signs the prime contract. (Team Member or
    JV)

15
The Team Member Agreement
  • Each Primary Team Member (PTM), including the one
    who holds the prime contract, then enters into a
    single partnering agreement with the other
    PTM's

16
Key Partnering Agreement provisions
  • The PTMs each agree to be bound together
    accepting full responsibility for all of the
    terms and conditions of the prime contract,
    sharing together in the cost and profit in
    accordance with a pre-established formula. Each
    member is reimbursed for all verifiable direct
    costs that he incurs. Profit is calculated at the
    project level at the end of the project and
    divided based on the formula.
  • Each of the PTMs provides a certificate of
    insurance in the form and amounts as indicated in
    the prime contract.
  • Each PTM agrees to open their books pertaining to
    this project to the other PTMs and to the Client.

17
Key Lean Principle Employed
  • local optimization leads to sub-optimal project
    performance

18
Mountain Climbers
  • If one PTM makes a mistake each PTM will pay for
    it
  • Cost reductions anywhere are shared among those
    in the Partnering Agreement and with the Client
  • An overrun on the project will reduce the gross
    profit available for distribution

19
Executive commitment
20
Team Positions established
21
Unity at the job site
22
Team pay distribution
23
The impact of IPD On the design process
  • Team members bring forward best ideas early
  • Value engineering takes place at the beginning of
    the project
  • Effective solutions can be devised when there is
    no concern over which entity will pay for them
  • Lean design now possible

24
Dispute resolution
  • Dispute resolution is handled by discussion and
    agreement between the PTMs.
  • Instead of looking to the contract to settle
    disputes as in transactional contracting we can
    invoke the power of the relationships

25
GOVERNING THE RELATIONSHIP
26
EXAMPLES OF SUCCESS
  • We have completed four successful IPD projects
    and have been awarded a five-year continuing
    services contract for design build work for
    Orlando Utilities Commission, an enthusiastic
    Client from a prior IPD project.

27
The Last Planner
28
Shared Manpower
  • Electrical made use of manpower from other trades
    to pull wire

29
Problem Resolution
  • Second roof hatch added when first was partially
    masked by large conduit

30
Handling Major Changes to the Work
  • Cooling tower manufacturer changed at last moment

31
Work Across Traditional Boundaries
  • VFD best bought by electrical contractor

32
Recovering From Oversights
  • Elevation detail missing from drawing

33
Avoiding Redundant Effort and Expense
  • Core drilling
  • Vertical chases
  • Concrete placement
  • Fire protection (safeing)
  • Clean up
  • Excavation

34
Enhancements to Job Site Safety
  • Uniform compliance to all safety requirements
  • Cost shared by team

35
Spending More to Save More
  • Engineer prepares drawings at mechanicals office
  • There were produced as shop drawings

36
Sharing Rental Equipment
  • No need to track who used equipment or for how
    long

37
Early Fundamental Design Decisions Support
Construction
  • Elevation of top of footers determined by team

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GC Goes the Extra Mile
  • Backfill done in two steps to help electrical
    installation

41
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43
Cooperation across trades
  • Pipe support points pre fabricated by steel
    fabricator

44
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45
Function Over Form in Design
  • Column spacing determined by mechanical
    contractor

46
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48
Coordinate Design With Schedule
  • Column cross sections selected to meet mill
    schedule

49
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52
PROBLEMS ENCOUNTERED
  • Many problems have been encountered and solved
    but there have been a few worth noting

53
PROBLEMS ENCOUNTERED
  • The Uncommitted Member

54
PROBLEMS ENCOUNTERED
  • Old Habits Die Hard

55
CONTINUING CONCERNS - AREAS FOR DEVELOPMENT
  • Setting the price
  • Managing Risk
  • Standardizing Direct Cost Definition

56
Setting the price
  • With IPD, the value engineering process is so
    strong and effective that by the time we reach
    the design-development stage everyones best
    ideas are incorporated. The budget produced at
    that time, therefore, reflects all of the Teams
    creativity and experience

57
Managing Risk
  • a joint risk assessment committee could review
    the project monthly focusing on such areas as the
    team's performance, any indications of a team
    member problem, change orders and claims
    initiatives, payment history of the Client and
    any trends that may need correcting

58
Standardizing Direct Cost Definition
59
WORKING WITH NON IPD MEMBERS, EXPANDING THE TEAM
60
REFLECTION ON THEORY (Greg Howell)
  • This note proceeds by first considering two types
    of cost that arise in the course of doing work in
    an organization. This is followed by a discussion
    of the way managing these types of cost shape
    organizations and contracts. IPD is located in
    the resulting framework and suggestions offered.

61
Types of costs
  • Production cost - The cost expended producing
    goods and services
  • Transactional costs the cost of doing the
    deal, associated with the movement of those
    goods and services across organizational or
    market boundaries

62
Types of contracts
  • transactional where exchanges are made for goods
    and services
  • relational contracts where the relationship
    takes on the properties of a minisociety with a
    vast array of norms beyond those centered on the
    exchange and its immediate processes

63
IPD Contract and Organization
  • IPD employs both transactional and relational
    contracts. Externally, they enter a classic
    transactional contract with the client and some
    suppliers. Internally, members are bound by a
    relational contract described in the pact they
    all sign. The pact minimizes transactional cost
    by binding the parties together in a partnership
    for the duration of the project. Records are not
    kept to allocate costs or determine blame. They
    have yet to have a dispute internally or with a
    client.

64
CONCLUSION
  • IPD is a Relational Contracting approach that
    aligns project objectives with the interests of
    key participants. It creates an organization able
    to apply the principles and practices of the Lean
    Project Delivery System.

65
CREDITS
  • This article has benefited greatly from the input
    of Greg Howell and Glenn Ballard of the Lean
    Construction Institute.

66
REFERENCES
  •  Gunnarson, Sven, and Levitt, Raymond, E., 1982,
    Is a building a hierarchy or a market?,
    Proceedings of the 7th Internet Congress,
    Copenhagen, 1982.
  • Macneil, Ian, R., 1974, The many futures of
    contract 47 Southern California Law Review 691,
    738(1974). (Also see The New Social Contract an
    inquiry into modern contractual relations, Yale
    University, 1980.)
  • Ouchi, William, G., 1980, Markets,
    Bureaucracies, and Clans. Administrative Law
    Quarterly. Vol. 25, March 1980. (Also available
    on JSTOR.)
  • Williamson, Oliver E., 1979, Transaction Cost
    Economics The Governance of Contractual
    Relations. Journal of Law and Economics,
    22233-261, 1979
  • 1 CEO, Westbrook Air Conditioning Plumbing,
    Box

67
END
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