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Integrated Project Delivery Ob t l and Obstacles d Solutions S l ti

Jeff Appelbaum - Thompson Hine LLP Tony Moag - Whiting-Turner Contracting Co. Carl Munkel - Gresham, Smith and Partners Greg Weigle - KLMK Group, LLC


Integrated Project Delivery is Evolving Obstacles and Solutions •

Reality of IPD implementation

Hypothetical building project

Focus on solutions to common obstacles

Perspective of non-design IPD team members   

Program Management / Owner’s Representative Owner / Project Counsel Construction Manager

© 2009 X.L. America, Inc.

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“Ok, define it for me one more time” “Integrated Integrated Project Delivery (IPD) 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, owner reduce waste, waste and maximize efficiency through all phases of design, fabrication, and construction.” Integrated Project Delivery: A Guide AIA California Council 2007

© 2009 X.L. America, Inc.

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“…please p explain” p •

Project delivery approach that integrates people, systems, business structures and practices (Relational)

Creates a larger talent pool during critical coordination stage of a project and harnesses insights of all participants p p ((Collaborative))

Reduces waste and optimizes efficiency through all phases h off d design, i ffabrication, b i ti construction t ti and d occupancy (Lean)

© 2009 X.L. America, Inc.

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“…so how does it benefit my yp projects? j •

Rapid translation of business objectives into design

Decisions occur earlier in design process

Constructability and logistics integrated in design

Process change = tangible savings (value)

Reduction of design rework

Relationships and Commitments aligned

Quality

Speed

© 2009 X.L. America, Inc.

Sustainability

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“…but isn’t that hard to do?” Barriers to IPD created by Traditional Project Delivery •

One project approach

Adversarial relationships

Risk adverse - “Lawyered up”

F Fragmented t d responsibilities ibiliti

First cost driven

Linear engagement of expertise

© 2009 X.L. America, Inc.

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IPD Guiding g Principles p •

Mutual Respect

M t lB Mutual Benefit fit

Early Goal Definition

Enhanced Communication

Clearly Defined Open Standards

Appropriate Technology

High Performance

Leadership p © 2009 X.L. America, Inc.

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Case Study y •

Utopia Hospital Integrated Project Delivery (IPD) Facts: •

$415 million Project Cost

$275 million Construction Cost

412 Beds, greenfield project, Midwestern US

4 Party Contract (Owner, Architect, Construction Manager, g Prime Mechanical Engineer) g )

BIM utilized

© 2009 X.L. America, Inc.

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A/E DESIGN FIRM’S PERSPECTIVE

Carl Munkel Director of Risk Management Gresham, Smith and Partners


Design g Professional’s Perspective p IPD Obstacles: 1.

Cli t’ kknowledge Client’s l d off IPD process

2.

Client’s decision making process

3.

Redesign costs

4.

Risk aversion restricts innovation and collaboration

5.

Open communications influenced by relationships

© 2009 X.L. America, Inc.

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Obstacle: Client’s knowledge g of IPD process p IPD Solution: •

R Requires i client li t kknowledgeable l d bl about b t IPD

Education of the team

Embrace risk and manage through IPD team

A/E and Contractor engaged throughout entire project

IPD Agreement reflects collaborative effort

© 2009 X.L. America, Inc.

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Obstacle: Client’s decision making g process p IPD Solution: •

IPD process expedites the decision making process

Team educates client on impacts off decisions

Client commits to timely and complete decisions

Track record for commitments – constraint log

Client embraces risk to engage necessary expertise early in design process

© 2009 X.L. America, Inc.

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Obstacle: Redesign g costs •

IPD Solution: • Design g decisions based on “best for p project” j basis •

Key decisions finalized during Detailed Design phase • Collaborative effort p provides jjust-in-time expertise p • Construction tolerances for trades integrated

BIM tool • Improves visual understanding • Reduced labor costs for changes • Speeds response time • Enables clash detection – multiple trade solutions

© 2009 X.L. America, Inc.

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Obstacle: Risk aversion restricts innovation and collaboration •

IPD Solution: •

I t Integrated t d Form F off Agreement A t – project j t vs firm fi focus f

Insurance solutions

Combined design and construction contingency – incentive

Gain / Share approach to savings

Team focused dispute resolution

© 2009 X.L. America, Inc.

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Obstacle: Open communications influenced by y relationships p •

IPD Solution: •

I t Integrated t d Form F off Agreement A t breaks b k barriers b i •

Collaborative obligations

Backed by Leadership and Core Teams

Right g DNA

Check ego and “can’t do” at the door

Accountability to IPD Team

Project focus vs. firm focus

© 2009 X.L. America, Inc.

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A/E Design g Firm’s Closing g Comments •

Not for the faint of heart - past initiative basis •

Ed Education ti iis crucial: i l iinternal t l and d external t l

Shared savings?

Right team trumps right project •

People skills: foundation for success

Technology is a crucial tool

Tailor insurance options

IPD: crawl….walk….run

© 2009 X.L. America, Inc.

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PROGRAM MANAGER / OWNER’S REPRESENTATIVE PERSPECTIVE

Gregory W. Weigle, PE, FACHE KLMK Group, LLC


Program Manager Perspective

Guidelines

Integrated Project Delivery Contract

Keys To Success

Challenges

Case Study

Summary

© 2009 X.L. America, Inc.

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What is Integrated g Project j Delivery? y •

Key Question You Must Answer: Are You Willing to Trust your CM CM, AE and/or PM?

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Guidelines for Integrated g Project j Delivery y Team •

Team Behavior and Attitude

Team Approach to Problem Solving

Team Creativity

Team Approach to Patient/Staff/Team Safety

Team Approach to Schedule

Team Approach to Budget

© 2009 X.L. America, Inc.

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Integrated g Project j Delivery y Contract •

Integrated Form of Agreement (IFOA) is signed by all major stakeholders – Owner, Owner Project Manager Manager, Architect and Construction Manager

Contract combines all contingencies into one IPD Team performance contingency

Contract eliminates traditional “negligence” standard

Contract allows core g group p to adopt p an incentive sharing g plan based upon performance goals

© 2009 X.L. America, Inc.

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Keys y To Success •

A knowledgeable, trustworthy, and decisive owner

A team with relevant experience and chemistry assembled early in the planning process

Contracts that encourage and reward organizations for behaving g like a team

Trust of and trust by all team members

Culture of process improvement, buy-in from the top

© 2009 X.L. America, Inc.

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What Are The Major j Challenges? g •

IFOA contracting – Has not been challenged in courts yet!

Bringing the insurance industry on board with IPD (team insurance product vs vs. Individual entity product)

Speed at which design and construction industry adopts Lean and BIM tools as standards of practice

Education - promote widespread understanding of the value proposition of IPD – considerable MISINFORMATION!

© 2009 X.L. America, Inc.

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IPD Summary Program Manager Role •

Educate client on all delivery methods, pro’s and con’s

Assess client’s readiness for IPD •

Existing organizational structures (and policies)

Capacity and appetite for risk

Effect qualification of IPD candidates for Owner’s consideration id ti

Effect fair and effective evaluation of candidates

Provide proper advice and guidance to Owner

Effect team performance

© 2009 X.L. America, Inc.

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Case Study y Utopia Hospital Integrated Project Delivery (IPD) •

Project Facts: •

Feasibility phase agreement along traditional lines to start •

Must have draft IPD agreement g as basis

Must have Project Control Estimate

Formalized IPD agreement followed

© 2009 X.L. America, Inc.

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Case Study y •

IPD Team Selection Process •

Provided list of designers and construction managers that Utopia was targeting; firms were instructed to select partner from list or submit qualifications for another firm

Site visit of current imaging department and brief di discussion i with ith h hospital it l personnell

Received responses p to request q for integrated g teams (RFIT) and shortlisted to three IPD teams

© 2009 X.L. America, Inc.

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Case Study y •

RFIT Process at “Utopia” • Each of the three IPD teams facilitated a half day workshop – objective was for IPD team to gain more understanding of the program and hospital’s overall goals t allow to ll IPD tteam to t develop d l d detailed t il d work k plan l – agenda d was left to IPD teams • E Each h IPD tteam presented t d th their i d detailed t il d work k plan l and d ffee structure to the selection committee during a half day presentation • Each IPD shortlisted team was reimbursed up to $50k for expenses © 2009 X.L. America, Inc.

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Case Study y •

Major Issues in Integrated Project Delivery (IPD) at Utopia: •

Insurance Solution

Limits of Liability

Indemnification

Contingency

Dispute Resolution

© 2009 X.L. America, Inc.

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Case Study y •

Insurance Solution •

Owner hired an insurance consultant

Need a spirit of cooperation among team members

Specific project policy: Focus on overall program vs individual firms insurance • Waive 1stt party claims

Owner OCIP for general liability/ workman’s comp • Saves money on the sub-contractors costs

© 2009 X.L. America, Inc.

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Case Study y •

Limits of Liability & Indemnification •

Owner waives liability above policy and contingencies

Owner may acquire additional insurance

Covers 3rd p party y claims

© 2009 X.L. America, Inc.

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Case Study y •

Professional Liability •

$15 million project specific policy

Owner may acquire additional insurance

Owner pays half of policy, parties split balance

Shared escrow established for deductible $200,000 per claim

All parties waive claims against each other

© 2009 X.L. America, Inc.

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Case Study y •

Contingency •

10% off construction t ti cost, t tied ti d to t incentive i ti pool, l shared equally

Owner may use share at Design, Buyout, Shell completion, Building enclosure, and Major Systems start-up

Owner has a separate 5% contingency for scope creep

© 2009 X.L. America, Inc.

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Case Study y •

Dispute Resolution •

Stepped Approach

Handled by Core Group (IPD Project Managers)

Senior Management Group is next appeal (IPD Exec’s)

Owner has final say. Non-binding mediation an option

Last resort is legal: Stopping work or payment prohibited

© 2009 X.L. America, Inc.

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Program Manager / Owner’s Representative Closing Comments •

Project delivery is evolving – the way projects are being d li delivered d is i changing h i and d th the iindustry d t iis llearning i as it goes

Collaboration will be one of the key ways projects are delivered in the future – IPD

Technology will play greater role in collaboration among team members – BIM

A VERY exciting time to be involved in projects!

© 2009 X.L. America, Inc.

Page 34 16-Nov-09


Owner / Project Counsel P Perspective ti

Jeffrey R. Appelbaum Thompson Hine LLP


Critical Issues and Obstacles in IPD Fundamental Questions for IPD •

Will th theoretical ti l risk/reward i k/ d fformula l actually work for the Owner in practice?! •

Will IPD members overcome y years of “traditional risk allocation behavior” or fall back to traditional roles? Is there sufficient data to prove this model?

Does the Owner overpay for IPD project? • •

Does early involvement of “select players” p bidding/pricing? gp g eliminate competitive Is the Owner asked to fund too large a contingency and absorb too much risk normally transferred to designers/contractors?

© 2009 X.L. America, Inc.

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Critical Issues and Obstacles in IPD Fundamental Questions for IPD (cont’d) • Will IPD Team Members take appropriate risk in exchange for collaboration and a share of rewards? • •

What is the appropriate sharing model for funding of IPD Team contingencies? How much upside is the Owner willing to share? Is the Owner willing to pay bonuses and other incentives in excess of normal predicted project cost?

Will the insurance industry provide adequate solution for IPD/BIM project, and at what cost?

© 2009 X.L. America, Inc.

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Critical Issues and Obstacles in IPD Insurance – Cornerstone of Successful IPD Project •

Problem: Lack of clear insurance solution for d i design-related l t d aspects t off IPD/BIM model d l •

Neither AIA nor ConsensusDocs provide guidance on insurance requirements to foster IPD – No collaborative solutions suggested • • •

Current professional design insurance is limited regardless of approach • • •

Consensus Docs (300) – IPD Members independently obtain insurance AIA (A195 and C195) – IPD Members independently obtain insurance CCIPs and Practice Policies suggested on a “check the box” basis

Practice Policies (A/E and Contractor Professional) Project Policies OPPI/CPPI

Hypothetical yp Hospital p Project j • • •

Professional Liability: Project Policy – $15MM for exclusive benefit of IPD Team The Owner pays $1.2MM policy premium but $600K of Team Member’s fee at risk OCIP (WC, CGL and Excess)

© 2009 X.L. America, Inc.

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Critical Issues and Obstacles in IPD Insurance Evaluation •

Typical T pical B Builder’s ilder’s Risk and WC/GL/E WC/GL/Excess cess co coverages erages (whether traditional or wrap-up) do not present difficult challenges

P f Professional i l Li Liability bilit iinsurance presents t a critical iti l challenge h ll

Insurance solution must address risk in one of two ways: (a)

(b)

Provide comprehensive coverage for an appropriate (but hi h) premium high) i th thatt can b be relied li d upon ffor a wide id range off traditional (and new) risk categories, or Provide strategic but more limited coverage (with appropriate pp p p premium savings) g ) for specified p risks. Premium savings fund project contingency to deal collaboratively with traditional (and new) risk categories not covered by insurance.

© 2009 X.L. America, Inc.

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Critical Issues and Obstacles in IPD Problem with Traditional Practice Policies •

“Standard of care determination” – Individual Indi id al cond conduct ct vs. s collaborative process

Conformance with IPD indemnities, warranties, etc.

Aggregate limits

Inadequate limits

Potential for cancelation or non-renewal non renewal

No direct access to policy by the Owner

Deductible responsibility

© 2009 X.L. America, Inc.

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Critical Issues and Obstacles in IPD PL Alternative #1: Comprehensive PL coverage through project policy •

Very expensive

High g deductible exposure p

No aggregate deductible

Adequacy of limits

C Competing ti claims l i ffor lilimited it d coverage

Availability (and expense) of excess Owner coverage through OPPI or otherwise

Coordination with Limitation of Liability and Waiver provisions

© 2009 X.L. America, Inc.

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Critical Issues and Obstacles in IPD PL Alternative #2: Strategic PL coverage through project policy •

What if . . . 1) Parties waive 1st-party p y claims ((in whole or in p part)) 2) Professional coverage limited to 3rd-party claims (possibly catastrophic component of 1st-party claim if SIR is very high) 3) Project policy – BIM design model produced by IPD approach is insured as a product – coverage is not negligence based

© 2009 X.L. America, Inc.

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Critical Issues and Obstacles in IPD Limitations of Liability •

Problem: Traditional risk allocation does not foster collaboration or the sharing of information required for IPD and BIM

Hypothetical Hospital Project: • •

CM’s liability limited to CM fee Architect’s liability limited to Project Cost – Is Architect assuming too much liability? Will there be enough insurance to protect Architect or are participants relying too heavily upon Architect’s Architect, Architect s practice policy for excess coverage (if available)? Broad form indemnification – Is this consistent with IPD?

So ut o Waiver Solution: a e o of cclaims a sa and d limitations tat o s o on 1st-pa party ty risk s fosters/forces collaboration – requires holistic approach to insurance/indemnification/waivers of claims; but risk pool must then be increased!

© 2009 X.L. America, Inc.

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Critical Issues and Obstacles in IPD Waiver of Claims (cont’d) •

Waiver of 1st-party claims – Benefit: Significantly reduces risk among IPD Members – Data suggests g up p to 50% of all p professional liability y claims eliminating – But if parties waive only to the extent not covered by insurance, is the benefit too limited?

Third Party Claims – Parties must still bear risk – IPD Members must still maintain appropriate insurance • •

The Owner should not/will not assume/pay for 3rd-party risk But see AIA (C196) [Entity Model] – provides that Company indemnify Members for their own negligence!

© 2009 X.L. America, Inc.

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Critical Issues and Obstacles in IPD Waiver of Claims (cont’d) •

Standard Industry Documents •

• •

ConsensusDocs - “Check the Box Approach” • S f Harbor Safe H b P Provisions i i (M (Managementt G Group Decisions) – No liability among IPD Members • Traditional Risk Allocation • Mutual waiver of consequential damages AIA (A195/B195) – Waiver of consequential damages AIA (C195/C196/C197) [Entity Model] – Company and Members of IPD Team waive all claims, except to extent of insurance ins rance

© 2009 X.L. America, Inc.

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Critical Issues and Obstacles in IPD Contingency •

IPD model uses contingency as risk management device and to create an incentive pool for success • •

Costs/Claims in excess of insurance are paid by contingency IPD Team Members fund “contingency” by putting profits and incentive compensation at risk - this portion of contingency is shared at end of project by participants

© 2009 X.L. America, Inc.

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Critical Issues and Obstacles in IPD Contingency (cont’d) •

Problems: How and when do you allocate contingency? Is the Owner obligating itself to fund a larger contingency to cover risks that would normally be assumed by Team Members? • • •

The Owner wants to use contingency to improve project Project needs contingency to cover unforeseen costs/claims IPD Team wants contingency to be shared by participants as incentives under collaborative model

© 2009 X.L. America, Inc.

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Critical Issues and Obstacles in IPD Contingency (cont’d) • Solutions: •

Create a Team Contingency with Contingency Reduction formula • •

As project is “bought out,” funds are made available to th O the Owner for f Owner O changes h A portion of contingency must be the profit (or portion thereof) that the IPD Team Members would customarily earn - Erosion of this contingency g y from claims p paid by y the Owner in excess of insurance reduces profits for Team Members Balance of contingency shared as bonus to IPD Team Members

ConsensusDocs approach – Express sharing of Savings and Losses based upon agreed percentages

© 2009 X.L. America, Inc.

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Critical Issues and Obstacles in IPD Dispute Resolution •

Issues: • •

• •

Immediate issue identification and prompt resolution Participation by all participants, including insurance carriers

In hospital hypothetical, a collaborative ((“stepped”) stepped ) approach is used until impasse; no clear remedy after impasse AIA (C195) – Consensus Resolution Approach then Dispute Resolution Committee ConsensusDocs – Management Group Approach then Mediation/Arbitration

© 2009 X.L. America, Inc.

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CONSTRUCTION MANAGER’S PERSPECTIVE

Anthony G. G Moag Senior Vice President The Whiting-Turner Contracting Company


IPD: Obstacles and Solutions from the CM’s Perspective p 1))

Project j team selection

2)

Choosing the right project

3)

Risk/reward equation

4)

Align contract with IPD approach

5)

Tangible value

© 2009 X.L. America, Inc.

Page 51 16-Nov-09


Obstacle # 1: Project j Team Selection 1)

Pre-Qualify the Owner a) b) c) d) e)

2)

A/E and CM Firms a) b) c) d) e)

3)

Cultural Fit Executive Level/Project Level Risk-Averse or Risk-Takers Empowering Repeat Builders

Collaborative Culture A/E: Budget Sensitive CM: Design Design-Sensitive Sensitive Empowering Strong PM’s

Key Subcontractors a) b)

Design-Assist effort Key attributes: Collaborative/Creative/Empowering/Trust

Š 2009 X.L. America, Inc.

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Obstacle # 1: Project j Team Selection (cont.) ( ) 1)

Selection Process a)) b) c) d)

2)

A/E and CM chosen concurrently y Team self-selection Qualitative/Not Fee-Based Interactive Process (Workshops/Interviews/Etc.)

Governance Structure a) b) c) d)

Leadership Team Core Team Push decisions to Core Team Beware of the “OAC Syndrome”

© 2009 X.L. America, Inc.

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Obstacle # 2: Choosing g the Right g Project j 1)

Size (Scale and/or Repetition)

2)

Industry

3)

Is Owner Ready?

4)

N New or E Existing i ti Cli Client? t?

5)

Time Consuming

Š 2009 X.L. America, Inc.

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Obstacle # 3: Risk/Reward Equation q 1)

Guarantees

2)

Fees

Make The Pie Bigger!!! 3)

Contingencies

4)

Incentives – Yes/No?

© 2009 X.L. America, Inc.

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Obstacle # 4: Align Contract with IPD Approach pp 1)

Owner defined up front vs. develop as a team

2)

GMP or Cost Plus

3)

Contingencies a)

Definition

b)

Usage

4)

Indemnity

5)

Insurances

6)

“Kill the Lawyers” – Possible?

© 2009 X.L. America, Inc.

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Obstacle # 5: Tangible g Value 1) 2)

Fewer RFIs/Better Clash Detection? Must have tangible benefits a)

Owner I. II II. III.

b)

Architect I. II.

c)

Best design g p possible/No shotgun g VE effort Less C.A. hours

CM I. II.

3)

Moves in sooner Less impact on operations Guaranteed cost reduction?

Fewer claims from subs Smaller project staff

Scalability/Repeat Work (i.e. Toyota Production)

Š 2009 X.L. America, Inc.

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Construction Manager’s g Closing g Comments 1)

Some IPD is better than no IPD

2)

Recognize difficulty of adopting IPD a)

Super-competitive industry

b)

Low margins

c)

Every project is custom

3)

What is the ideal team for IPD?

4)

Empowerment and trust are key (easy to say, difficult…)

5)

Must create measurable value for everyone (NOT warm and fuzzy…) © 2009 X.L. America, Inc.

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Integrated Project Delivery Obstacles and Solutions •

Questions

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