A novel approach

The primary delivery methods for new construction projects in the U.S. have been design-bid-build, design-build and construction manager at risk. But these methods may not always be the best choice for a project.

Design-bid-build

Design-bid-build is the traditional and most commonly used construction delivery method, accounting for about 60 percent of new construction projects. In these cases, a building owner retains an architect who, in turn, retains subconsultants and engineers to perform the design work to meet the owner's program needs and budget. After the design documents are prepared and completed, the project is put out for bid or the owner considers proposals from contractors based on the design documents. The owner then selects a contractor to construct the building.

Per this traditional approach, the owner contracts separately with the architect and contractor. The architect and contractor have distinct and separate roles and responsibilities. When construction problems arise, there frequently is a dispute that follows this pattern: The contractor believes the problem is a result of inadequate or defective design, and the designer may be critical of the contractor's workmanship, claim the contractor has not complied with requirements in the plans and specifications, or consider the problem to be a function of the "means and methods" chosen by the contractor.

The construction contract with the general contractor for a design-bid-build job could be a stipulated, lump sum contract or a cost-plus contract with a guaranteed maximum price.

Design-build

Design-build construction delivery seeks to eliminate the inherent conflict between designer and contractor in design-bid-build delivery by having the owner contract with one firm, typically a firm that has the responsibility to design and build the project. The design-build contractor may have the requisite in-house capacity to perform the design functions or may retain outside design professionals who contract with the design-build contractor. In addition to giving the owner a single source to hold accountable for the project, design-build delivery historically has been seen as a faster delivery process than design-bid-build. About 15 percent of new construction projects use the design-build approach.

Construction manager at risk

A third approach to construction delivery uses a construction manager who works with the owner in the project's development and design phases. A construction manager at risk serves much like a traditional general contractor during the construction phase and assumes the responsibility and risk for project completion. It is estimated about 25 percent of new U.S. construction projects use the construction manager at risk approach.

Integrated project delivery

About seven years ago, a new method of project delivery known as integrated project delivery (IPD) began to be discussed in the construction industry and used for some new construction projects in the U.S. IPD has been touted by its promoters as an industry-changing method of construction delivery that reduces costs, cuts waste, increases efficiency, promotes innovation and eliminates costly disputes between primary construction participants.

Although there undoubtedly has been far more hype from IPD promoters than actual construction projects that successfully have used IPD (less than 1 percent of projects), all construction industry participants should have some familiarity with the IPD process.

IPD uses a collaborative approach involving the owner, designer and contractor to design and construct a project. At its core, IPD is intended to integrate the knowledge, ideas, experience and expertise of the principal designer with the principal contractor and have them work with the building owner from project inception to conclusion to obtain a building that meets project goals.

The IPD process directly involves the owner, principal designer, prime contractor, and some major subcontractors and design consultants. The idea is to have the principal designers and contractors whose work will most affect the project collaborate with each other for the benefit of the project. IPD requires a relatively sophisticated owner whose representatives are actively engaged in the IPD process.

Instead of the linear contractual relationships used in design-bid-build, design-build and construction manager at risk construction delivery, IPD uses a collaborative management team, composed of representatives of the owner, designer and contractor, whose mission is to attain a successful project, which is defined as meeting the goals that were collectively agreed upon during the project's early phases. The overall goal of IPD is to maximize collaboration and promote teamwork to facilitate the project's success.

Instead of each participant looking out for his or her own interests, the IPD concept aligns participants so whether the job is financially successful for them individually is a function of whether the project was successful with meeting the established project goals.

IPD job characteristics

The construction industry has yet to agree upon a clear or standard IPD definition, but IPD jobs have several key common characteristics, which follow:

• Early involvement of key parties. Starting at the earliest, pre-design stage, key parties are identified and brought together. The key parties are those who are expected to have the most effect on the project. In addition to the owner, designer and general contractor, mechanical, electrical and plumbing contractors may be key parties because their work strongly affects design and meeting project goals. Depending on the project, other potential participants could be the steel erector, curtain wall contractor and major equipment vendors.
• Multiparty agreement. There is one agreement entered into by the owner, architect and general contractor and perhaps other parties who have a large or primary role in the project. Negotiating the multiparty agreement is the parties' first collaborative activity. It is likely to be a difficult, time-consuming process. The owner may pay the other participants for the time expended in the negotiation process. The negotiation of the agreement is an integral part of the IPD process and not a precursor to the process because building trust, cementing relationships, communicating frankly, airing individual views, sharing ideas, jointly setting goals and deciding upon financial remuneration are critical IPD components. When the IPD agreement is negotiated, the building's design and how it will be constructed are unknown. The design is developed to the budget. The IPD participants may decide to establish a single-purpose legal entity to deliver the project. The parties' focus when negotiating an IPD contract should first be on striking the deal among the parties rather than contract terms.
• Establishment of common goals. Early in the IPD process, the key parties jointly develop the project's goals, commonly referred to as "targets," and the metrics that will be used to determine whether the targets have been met. The targets usually are related to cost, schedule and quality but could be expanded to include other topics important to the owner. The jointly developed targets and their incorporation into the multiparty agreement bind and align the parties to common goals and serve as the basis for compensation beyond reimbursement of costs.
• Enhanced communication. Early, regular and continuous communication among the parties is a critical IPD component so a true team approach and sharing of knowledge and ideas is achieved. Communication between designers and constructors should foster cost savings and finding cost-effective and innovative solutions to problems. To facilitate communication, team members are to work in physical proximity to each other. Physical proximity is intended to increase the quantity and quality of interaction among team members and build relationships.
• Joint project management. IPD projects are jointly managed by the designated management team consisting of representatives of the owner, designer and contractor and possibly others as set forth in the multiparty agreement. The project management team's mission is to manage the project to meet the jointly agreed project objectives. Each member of the project management team should have the authority to bind its respective entity and each party must be able to rely on the other.
• Shared risk and reward. The parties to an IPD agreement agree to share the risks and rewards based on the project's outcome. If the project's targets are met, all gain a financial benefit, and if the project goes poorly, all suffer financial consequences. Importantly, a prototypical IPD agreement will include a jointly executed waiver and liability release of claims against the other parties in the agreement.

Compensation

Compensation paid to IPD team members is negotiated early in project development and set forth in the multi-party agreement. Compensation is structured to promote the goals of maximizing collaboration and encouraging and rewarding behavior that increases project value. This is attained by having the parties similarly aligned to achieve the same project objectives.

The compensation scheme for an IPD project is somewhat similar to a cost-plus contract without a guaranteed maximum price. For a typical IPD project, the owner is responsible for paying costs, without profit, including direct project overhead and reimbursement for time expended in the project's early, pre-design phases. Depending on what the parties have negotiated, corporate overhead and profit the IPD participants hope to realize is shared and at risk.

Once a target cost for the project is set and validated, the parties agree to what often is referred to as the incentive compensation layer, which is similar to a bonus pool. The incentive compensation layer must be large enough to cause all participants to work toward the common project objectives and adequate to cover cost overruns. The parties' access to the bonus pool is at risk depending upon the job's outcome.

If all project goals are satisfied, the incentive pool may be enlarged and the entire incentive compensation layer is divided among IPD participants based on the allocation in the multiparty IPD agreement. However, if the project suffers from cost overruns, the pool may be completely eroded.

If actual project costs exceed the target cost, the owner continues to pay the costs to the parties incurring those costs, including overhead, but the incentive compensation layer is reduced. Just as completing the project within budget will affect distribution from the incentive compensation layer, if meeting a certain completion date or achieving a certain building sustainability rating were established project goals, the parties' compensation will be increased or reduced depending on the achieved results.

Apart from cost reimbursement, compensation for an IPD project is not a function of individual performance but rather depends on the project's outcome. Based on this structure, each party has an incentive to make the project successful.

In addition to the incentive compensation layer, funds need to be allocated to a contingency account to respond to unpredictable events, unexpected problems and mistakes that may occur. If there are no mistakes and the contingency fund is not fully expended, all parties could share in distribution of the remaining assets in the contingency account.

Building information modeling

IPD is closely associated with and commonly uses building information modeling (BIM) because BIM provides an ideal electronic platform for parties to communicate in real time, collaborate and be innovative in a project's design and construction. BIM is a digital database that integrates the work of all team members and generates multidimensional models, plans and reports. BIM is ideally suited for IPD compared with a traditional approach where the architect prepares design documents, the contractor reviews drawings, and reams of paper documents are prepared and exchanged.

Contract documents

Both ConsensusDOCS and The American Institute of Architects (AIA) have contract documents intended for IPD jobs.

ConsensusDOCS published the first standard construction contract for IPD in 2007. It is a 47-page contract, titled ConsensusDOCS 300, "Standard Form of Tri-Party Agreement for Collaborative Project Delivery."

AIA has developed two contracts: AIA Document C191-2009, "Standard Form Multiparty Agreement for Integrated Project Delivery," and AIA Document C195, "Standard Form Single Purpose Entity Agreement for Integrated Project Delivery."

In the ConsensusDOCS and AIA forms, the owner, prime design professional and contractor sign the same document and they agree to waive most of their typical rights against each other.

IPD and roofing contractors

Key subcontractors and consultants can be brought into an IPD agreement by flow-through provisions in their agreements with general contractors and/or architects or by joining agreement amendments to the IPD agreement. Roofing contractors typically are not parties to initial IPD agreements for new construction projects.

However, roofing contractors should consider using some IPD concepts in new construction and reroofing projects because both project types would benefit greatly if the communications, collaboration and approach embodied by IPD were applied to roof system design and construction.

Building owners surely would obtain better value and performance if owners, designers, general contractors, roofing contractors and roofing materials manufacturers would follow the IPD paradigm when designing and constructing roof assemblies. By collectively considering and agreeing to a roof system type that best suits an owner's needs as well as one that supports good performance and value, the incidence of roofing problems would surely be reduced.

And if all parties contractually agreed there could be no claims against each other and were similarly aligned so they all gained if the roof system met the goals set and suffered financially if the roof system did not, the expense and agony of using litigation would be off the table. The same approach with fewer parties and less complexity could be followed for reroofing projects.

During this period while IPD is in vogue, roofing contractors should consider how they might promote and use IPD concepts.

Stephen M. Phillips is a partner with Atlanta-based law firm Hendrick, Phillips, Salzman & Flatt.

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