In this video, Jim explains that integrated project delivery (IPD) has a very specific definition—it is defined by the fact that the owner, the designer or architect, and the general contractor all enter into a multiparty agreement where profit is distributed based on project outcomes.
- Some people use the term "integrated project delivery" to refer to any project delivery method that brings all the parties together working to design and construction a project. Design-Build, CM At Risk, and all the various combinations of these delivery methods are sometimes referred to as "integrated project delivery." However, there really is an actual and distinct project delivery method in construction that's called Integrated Project Delivery, or IPD, and it's really unique, because it incorporates a multiparty contract between the owner, the designer, and the contractor.
In other words, where no contractual relationship exists between the designer and the contractor in Design-Bid-Build, or even in CM At Risk, IPD's multiparty contract does create that relationship. IPD is the newest form of construction project delivery methods and the concept of that multiparty agreement is one that is probably not as familiar to most of us in the industry. The idea of the multiparty agreement is to generate a contract that properly assigns risk to the party that's best equipped to handle it while incentivizing the entire team to work together, in that integrated fashion, to complete the design and construction of the project.
Okay, now, that's a fairly broad description, and I run into quite a few projects that claim to be IPD-like, because they have integrated the parties into a team, but they're not necessarily using a true IPD multiparty contract and compensation arrangement. So, to get this description correct, I turn to the California Council of the American Institute of Architects, and they have a working task group that's defined the Integrated Project Delivery method. They define true IPD as a project delivery method that integrates people, systems, business structures, and practices into a process that collaboratively harnesses the talents and insights of all the participants to reduce waste and optimize efficiency through all phases of design, fabrication, and construction.
Okay, that's kind of a handful, let's break it down a little further. Their IPD working document states that Integrated Project Delivery methods need to include each of the five following elements. Number one, the owner, designer, and builder have to all be involved from the beginning of the design phase. Number two, control of the project has to be shared between the owner, the designer, and the builder. Number three, there has to be a multiparty agreement between these three principles.
Number four, liability has to be shared between the parties, and, then, number five, business interests have to be aligned through a shared risk reward agreement, including the financial risks and rewards, which all have to be based on overall project outcomes. There's a lot to take in here on this method and it's one of those topics that could easily take up its own class. So, what I want to do here is I want to focus on that last element related to financial gain being tied to project outcomes, because I think that's one thing that really sets this method apart from all of the others.
In true IPD, the contract agreement sets up true risk reward sharing based on those project outcomes instead of being based on the contributions of a firm or an individual company. So, when I look at that statement and I break it down from my contractor's point of view, I end up rewording it to say my profit or loss depends on how well the entire project does, from inception through handoff, not on just how well I do.
That's a pretty big deal and it's very different from the risk reward incentives built into any other type of project delivery method. Another related aspect of true IPD is that the IPD team that I keep talking about can include more than just those three people, more than just the owner, the designer, and the general contractor. It might also include some of the major trade contractors in that multiparty agreement if they're identified as being a key part of the project's ability to be successful.
For example, if the majority of a project was the construction of a large precast parking structure, the precaster might be included in that multiparty agreement. Again, this is all very different from what, virtually, anyone in the construction industry is used to. It takes the right parties entering into the agreement and it's not right for every project. IPD definitely places a larger burden on the owner to really work at selecting a project team based not only on their qualifications, but on their ability to work well with all of the other team members.
The typical contract for IPD would be a cost plus incentive contract, where costs are openly tracked and shared among all of those parties, and the incentives, or the profit, is going to be awarded based on meeting overall project goals. And, again, those incentives would then be shared among all of the parties in that multiparty agreement. All of these different project delivery methods have strengths and weaknesses, and, hopefully, you've been able to get some idea, based on all of these descriptions, of where you think each one of these methods might work best.
But let's continue on and we'll take a look at some industry trends and their impacts.
- Payment and procurement methods
- The design-bid-build method
- The design-build method
- Construction manager at risk (CMAR)
- Integrated project delivery (IPD)
- Selecting a project delivery method
- Procurement laws
- Delivering the best value to the owner
- Qualifications-based selection
- Changes in the way you are paid