The recent downturn in the economy has severely impacted the construction industry and required it to examine the way it does business. One of the newest and most powerful tools to emerge is the Integrated Project Delivery system (“IPD”), which helps contractors and allied professionals reduce costs, eliminate waste and unnecessary expenses, and improve productivity. It creates a highly collaborative project team that includes the owner, architect and contractor, and potentially other entities in the process.

“At the core of an integrated project are collaborative, integrated and productive teams composed of key project participants,” says Dan A. Haynes, citing from the American Institute of Architects (“AIA”) IPD Guide. Attorney Haynes is a construction and municipal partner in the Construction practice of Pepe & Hazard LLP in Boston and Hartford, Conn. Haynes again quoted from the AIA’s Guide which states that, “These teams are guided by principles of trust, transparency in their processes, collaboration and open information sharing. Their success is tied to project size, shared risk and reward, value-based decision-making, and utilization of full technological capabilities and support.”

He points out that IPD has required some traditional concepts and assumptions to be re-thought, including coming up with new definitions of legal responsibilities and roles. Some of the characteristics and principles underlying IPD include:

Project team members pulling together out of mutual respect and trust.

Project team members are involved early in the process.

Specific goals and objectives for various project team members are established early in the process.

Collaboration and exchange of information by all project participants is encouraged.

Advanced technologies such as Building Information Modeling (“BIM”) is used to enhance productivity.

Cost Containment

“Our experience working with clients using IPD is that that this new type of delivery system can substantially improve delivery times and reduce project costs,” he says. He points to one such success story: Sutter Health in North California which built an $88 million medical office building using an IPD delivery system, combined with BIM technology. The project came in six months early and saved over $9 million savings in costs.

The differences between the IPD approach and traditional delivery systems such as design-bid-build are significant. They require a re-assessment and careful consideration by all parties.

“IPD has proven particularly successful for projects in the private area, but due to public mandated bidding requirements, this new delivery system may not be feasible in all public sectors,” points out Haynes. “The implementation of the IPD process has raised a number of issues which are being addressed at the present time. One of the most significant is the re-allocation of risk among the parties as relationships are redefined. As more collaborative and trusting relationships are developed, traditional risk and reward models under design-bid-build scenarios simply do not work.”

As one example, he points to the relationship between contractors and major subcontractors: “As contractors and major subcontractors become more involved with extensive preconstruction efforts, the distinction between designers and constructors becomes more blurred. This blurring can raise potential issues with respect to non-design professionals assuming unnecessary levels of design responsibility, or violating local professional services and licensing requirements,” he says.

Legal Ramifications

In addition, he points out that the limitations of liability or “no suit” clauses which appear on some IPD projects can also impact the bonding and insurance market. “These may well need to change. As the risk allocation is redefined, the insurance market will need to step forward to examine what type of products will be needed,” he says.

To accommodate IPD projects, new contract forms will be required to capture the parties’ agreement and properly allocate risk, according to Haynes. “While IPD was conceived a number of years ago, it is only as recent as 2007 that contract models have been developed to address the needs,” he points out. “Experience with the IPD delivery system in England and Australia has demonstrated the value of alliance agreements to bring parties together to share risks and rewards. Other options include relational contracts or the formation of special purpose entities (SPEs) for performance of the project.”

Members of the industry have already begun adapting to these contract changes. In September 2007, the ConsensusDOCS organization issued its ConsensusDOCS 300 – Standard Form of Tri-party Agreement for Collaborative Project Delivery — a type of relational agreement to be executed by the owner, designer and contractor for the IPD process.

Then, in November 2007, the AIA issued “Integrated Project Delivery: A Guide.” In May 2008, the AIA rolled out a series of transitional IPD documents, namely the A295, B195 and A195 agreements. Similar to existing AIA documents, A295 is a three-party set of general conditions with the A195 being an owner-contractor agreement and the B195 being the owner-architect agreement. New terminology was introduced in these documents including a new definition of phases whereby conceptualization, criteria design phase, detail design phase, implementation documents phase, and construction phase have replaced prior phasing designations.

Big Change

In 2008, the AIA issued its document C195 – Standard Form Single Purpose Entity Agreement for IPD. This is a more radical departure from the earlier IPD documents and establishes a limited liability company whereby an owner, architect, construction manager and perhaps other entities, become members. In turn, this company then contracts separately with the designer and construction manager for the design and construction of the project. The specific goals and shared cost-savings which are established in the C195 are similar in many respects to the ConsensusDOCS 300.

Haynes sees these changes as growing acceptance of the IPD process.

“With the emergence of new boilerplate contract models, we expect that more parties may be willing to utilize this new type of project delivery process. Complemented by the incorporation of building information modeling and other technology advances, integrated project delivery may very well be the future of the construction industry. However, success may be in large part determined by the ability of all the players in the process — owners, contractors, and designers — to embrace the significant changes embodied in this approach, re-define traditional relationships and allocations of risk, and commit to this more collaborative and trusting process.”