The built environment is incredibly important, whether we are talking about clean water, the quality of schools or buildings that inspire us. There is a cost to designing and constructing, a cost to maintenance and the value that good design provides. For almost any significant building, the value it brings far outweighs the other two costs. That’s because good design brings great value. This is the main goal of Integrated Project Delivery (IPD)—to bring great value to high performance buildings that meet the needs and expectations of sponsors, stakeholders and users.
For more than 40 years, we’ve known what’s wrong with the built environment industry; it is fragmented, adversarial and inefficient. It uses the wrong business models and does not use technologies well. Surprisingly, we have had the prescriptions to fix these issues for a long time, too. So why haven’t we done it?
There are several fundamental issues at play. One issue is how we execute work. In IPD, design is not organized around deliverables, but is a flow of decisions that releases possibilities and the work of others. Design is not a separate, sequential activity. In IPD, we condense the project into three phases: Validation where we determine if the project is feasible, followed by planning—which is all the intellectual activity that happens before work can be executed—and implementation. The flow of design should provide the right information, at the right time, throughout all phases to allow the design intent to be efficiently implemented.
Another issue is the structure of a project. Structure is nearly invisible. The French have a saying that fish are the last to discover water. So, too, we do not see the structures that surround us, but how we finance and organize projects significantly affects outcomes. For example, if capital expenditures are split from operational expenditures it will be difficult to use capital funds to reduce operational costs. This Capex/Opex structure reduces the quality of what we build.
Another example is accountability in traditional project delivery. Read almost any standard construction contract—the AIA A-201 general conditions will do—and ask who is responsible for the project being successful? Each party is responsible for his or her individual task, but no one is responsible for the project. If you were the CEO of any major organization, wouldn’t you want to know who is responsible for the success of your 300 million-dollar pet project? In IPD, we change the governance structure by creating a group that is jointly responsible for the project, not individual success.
Another example is the volume incentive created when we embed profit in each unit sold—the standard method of estimating and billing. To make more profit, you need to sell more units. This incentivizes inefficiency and reduces willingness to invest in research or productivity improving technologies.
What we actually need is a margin incentive where reducing cost improves margin. In IPD, we create a margin incentive by separating profit from cost. Each risk/reward participant has a percentage interest in a fixed profit pool. Reducing costs improves margin, and through shared savings, can increase total profit as well. In addition, individual profit is a percentage of a profit pool, the parties waive most claims against each other and change orders are quite limited. In effect, this tells the team that if they don’t solve a problem, they are going to make less profit. Structural changes, like these, create the proper incentives and force the parties to work together. Although I have discussed structure strictly in monetary terms, we also measure team performance on other criteria, as well. We have about 15 different risk reward models because we tailor them to the jointly agreed goals.
You can see the structural changes affecting how trades integrate into the project. Once they understand that their profit can be reduced if there are design errors, they start looking for the problem before it happens, because it is infinitely less expensive to solve a problem during design than discovering it in the field.
Have there been successful projects using traditional structures? Yes, but it takes effort, energy and skill to overcome a flawed structure. And if there are significant problems, everyone retreats to traditional, adversarial positions. One of the advantages of getting structure right is that it is resilient and reliable. If something goes wrong, there is no advantage in pointing fingers. The team has to pull together and solve the problem.
Fundamentally, structure is like gravity; you can fight against it, you can push up through it, but eventually it pulls you down. If you get the structure wrong, you will eventually have lower performance. Why not have structure pull you in the right direction?
We’ve developed approximately 125 pure IPD projects across North America, with a fair amount of work going on right now in Canada and a few international projects in Ireland, Norway and Israel. We’re seeing a major uptick with large, brand name companies doing IPD. This is important not because of their size and stature, but because they are serial builders who can stick with it. Their success will encourage others to follow suit.
According to different studies, the level of waste in design and construction is 50 percent, and when we talk about Lean design, there’s a tendency to focus on eliminating waste. However, you can eliminate waste and end up with an ugly box. We need to focus on eliminating waste because waste has no value and by removing it, we allow designers to create greater value in something else. Value is the true priority.
Value comes from integration and collaboration. You can accept that because you believe it, which I do at an emotional level, or you can accept it because there’s data. There are great research studies done by Penn State, the University of Minnesota and the Lean Construction Institute documenting the advantages of integration and collaboration.
I’m very excited about working with public agencies because I think it’s very important to deliver infrastructure better. It is vital to seize opportunities where we can truly change the industry. It does work better.
IPD is an opportunity for designers. When I first started practice, Design Build was a brand-new concept and was hailed as the return of the master builder, with architects in the lead. But designers shied away from responsibility for cost and schedule, and builders did not. As a result, Design Build is almost always led by builders. IPD is an opportunity for designers to regain a seat at the table—but they need to pull up their chairs, not stand in the wings.
Howard Ashcraft is a partner with Hanson Bridgett LLP. A skilled litigator, Howard has tremendous experience in the construction industry and is actively involved in developing new approaches to construction project delivery.
Excerpted from DesignIntelligence Quarterly. You can read the latest Quarterly here.