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Shared Risks, Increased Profits: Is Integrated Project Delivery Right for You?

Integrated Project Delivery offers design and construction team players incentives for sharing risk on projects. Here’s how.

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Would you be willing to open your books to others working on a mid-rise cold-formed steel (CFS) project in exchange for greater profit potential?

If you would, then you’re a prime candidate for an Integrated Project Delivery (IPD) contract.

What is IPD?

In simple terms, IPD is a project delivery method that involves collaboration and risk-sharing among design and construction team players. IPD sets up multi-party agreements. The owner, architect, general contractor, and certain subcontractors deemed critical to success form a contractual alliance. The goal is to share information and work cooperatively for the best interests of the project. Compensation is tied to the overall performance of the team, rather than each individual party.

Integrated Project Delivery: A Guide,” a publication from The American Institute of Architects (AIA), explains that IPD integrates people, systems, business structures, and practices. The process “collaboratively harnesses the talents and insights of all participants to optimize project results.”

Traditional project delivery forces players to work in silos. The architect hands a design to an engineer, who certifies the stability and integrity of the structure. Then, the general contractor hires subcontractors and builds the structure. Each player works largely independently, focused on his or her own project scope.

In contrast, IPD promotes opportunities to collaborate — and incentivizes them. According to the AIA’s guide, the IPD delivery process can maximize efficiency in all phases of a building’s design and construction. Some believe IPD can eliminate 30 percent of the wasted time on a job site.

The reality of shared risk

We don’t want to come across as one-sided. IPD participants share rewards, but also share risk.

“The construction team might well bear the risk of design error and the design team could be at risk for construction errors,” states the AIA in its integrated project delivery guide.

Participants in IPD can certainly negotiate the degree of risk sharing. They can line up insurance products, write clauses into the contract respecting their work, and run the project as a separate limited liability company.

However, the AIA notes that IPD has the risk features of a joint venture. Despite contract language and legal structuring, IPD participants “may be liable to third parties for the failings of their joint venture partners.”

So ask yourself, how strong are the relationships? ConstructionDive notes that panelists on a recent seminar at the Construction Management Association of America’s National Conference & Trade Show said that while IPD can increase collaboration and improve timetables, “it also has the potential to force working relationships and blur the lines of responsibility.”

“The individuals involved must be able to set aside bad habits and support the new team approach,” says Constructor Magazine, a publication of the Associated General Contractors of America.

Thus, shared risk implies that IPD participants trust one another implicitly. “There’s a trust factor the owner especially has to have,” said a wall contractor quoted by AWCI’s Construction Dimensions.

What is IPD like in practice?

One example of IPD includes a building owner, general contractor, design team, and a few subcontractors working together. Under IPD contract, they collaborated during design to find ways to work more efficiently. They also met regularly during construction, wherein lots of money-saving ideas flowed.

One day, the general contractor, MEP trades, and wall subcontractor discussed some workflow issues. In an AWCI Construction Dimensions article, the sheet metal subcontractor asked if the wall contractor could streamline his material supplies on site.

“What would the savings be?” the general contractor asked.

“Forty thousand dollars in reduced labor costs.”

The wall contractor agreed to have material shipped in just-in-time fashion. It would cost an extra $10,000 to facilitate more frequent deliveries, but the IPD team would gain — and share — $30,000 in extra profits ($40,000 minus the $10,000 in supply yard up-charges).

The HVAC subcontractor then had a breakthrough thought. If the wall contractor could live with just-in-time material supply, so could he. With only a modest up-charge, he could save $20,000 in labor charges by stocking less sheet metal on site.

This is the kind of IPD dynamic that makes perfect sense. And in this case, the team members shared significant savings, while the owner got his building at eight percent below budget.

How does IPD related to CFS?

IPD contracts can benefit various players in the CFS industry by leveraging the knowledge of CFS wall contractors and CFS fabricators involved in the project. For example:

  • CFS wall contractors can help architects and engineers visualize various design options and value engineering propositions.
  • Collaboration can help identify opportunities to panelize and prefabricate CFS wall and flooring systems, which can save time, cut costs, and improve quality control.
  • Collaboration can help optimize CFS framing layouts and delivery schedules.

Logically, IPD encourages using the latest collaborative innovations, such as Building Information Modeling (BIM), so that stakeholders can improve their communication and get better field results.

What lies ahead for IPD?

Many see the traditional design-bid-build method of project delivery as outdated. Today, more owners want their buildings erected faster and at lower cost, so there is pressure on architecture, engineering, and construction professionals to find better delivery options.

The future of design and construction of mid-rise CFS-framed structures will likely respond to the forces driving change — the need to reduce waste, work more efficiently, use advances in technology, and form contractual arrangements that foster value through collaboration.

If you need help with or have questions about an upcoming project, request complimentary project assistance from the experts at BuildSteel.

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