The benefits and risks of integrated project delivery

Collaborative approach to construction has been gaining popularity

Imagine your design team working seamlessly with your construction team through the design and construction phases of your project. Imagine minimizing or eliminating changes to the project budget and schedule. Imagine no finger-pointing among the design and construction teams when problems arise. Instead, imagine everyone working collaboratively to address problems quickly and efficiently while the project remains on track. This is not a dream; it’s a growing reality.

An increasing number of private construction projects throughout the country are utilizing collaborative project delivery methods like integrated project delivery, or IPD. This method’s team-based approach represents a significant change from the traditional design-bid-build approach – which unavoidably places the participants in an adversarial relationship – in both the legal relationships and risk allocation between and among project participants.

As a result, owners and developers should understand IPD and its benefits, how it differs from traditional project delivery and its potential risks.

IPD refers to a project delivery method based on a collaborative, cooperative, team-based approach. However, the specific collaborative process can vary greatly. IPD brings the owner, design professional and contractors together at the earliest stage of project conceptualization to form a project team. The team members exchange data and information during the design process and work together to identify conflicts, plan costs, and establish the project schedule.

Typically, IPD aligns participants’ financial interests by linking compensation to the project’s overall success. Certain forms of IPD require the parties to waive liability between the key IPD team members in order to contractually eliminate the finger-pointing that can occur when problems arise. This also keeps the team’s focus on the project’s budget, quality and completion.

The teamwork mentality and aligned financial interests allow team members to jointly make informed decisions early in the project, when the most value can be created. Overall, IPD seeks to reduce waste, increase efficiency, and maximize value to the owner by identifying problems early and minimizing the need for costly changes during construction.

In the traditional design-bid-build model, the roles, responsibilities, risks and rewards for each project participant are separate. Architects handle design and contractors handle construction, for example. In this scenario, the participants focus almost exclusively on their role in the project without considering the impact to the entire construction process. If problems arise, each participant will move quickly to distance themselves from liability by blaming another party in an attempt to protect their own financial interests.

IPD, by contrast, requires the owner to retain all key project participants at the time of the project’s initial conception based on quality-based selection (QBS) and to form a team to work together from conception through substantial completion.

Unlike traditional project delivery, IPD incentivizes teamwork by linking compensation to the achievement of project goals and milestones. If the project is completed on time and under budget, the entire team shares in the project saving. Similarly, if the project meets or exceeds certain milestones defined in the contract documents, the entire team may earn additional compensation. By aligning their financial interests, the parties are incentivized to keep the aggregate project cost as low as possible.

While IPD presents many benefits, owners and developers should understand its risks and legal concerns.

IPD principles expand the traditional contractual roles in design-bid-build, design-build and construction management methods of project delivery. For this reason, IPD requires a restructuring of the parties’ contractual relationships, which can come in multiple forms and carry different levels of risk and reward depending on the project.

IPD agreements may also present unique legal concerns that need to be addressed prior to the project beginning. These include identifying roles and responsibilities, assuming expanded liability exposure and developing financial incentives and dispute resolution procedures, among other legal concerns.

Ultimately, as IPD gains traction in the industry, owners and developers should understand that the fundamental differences between IPD and traditional methods of project delivery result in benefits and risks specific to IPD.

Although there are various ways to structure legal relationships between project participants, the underlying agreements must be carefully drafted and take these benefits and risks into account. Standard form contracts published by the American Institute of Architects and ConsensusDocs may be used as a starting point, but should be tailored to each project’s goals and expectations. A seasoned lawyer can also help owners and contractors navigate IPD’s risks and rewards.

Ronald D. Ciotti, a partner in Hinckley Allen’s Construction & Public Contracts practice based in Concord, NH, and Boston, is vice chair of the Associated General Contractors of America’s Contract Documents Forum and 2017 president of the AGC of NH.

Categories: Real Estate