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Key Elements of a Public Integrated Project Delivery Program
March 15, 2010
Stakeholders in the construction industry are interested in extending the benefits of Integrated Project Delivery (IPD) to the public sector. James L. Salmon, of Counsel with Beatty Bangle Strama, p.c. of Austin and President of Collaborative Construction Resources, LLC has been named to an IPD Initiative Committee formed by the Institute for Leadership in Capital Projects. The IPD Initiative Committee has been tasked with investigating options for obtaining approval of IPD as a delivery model under Texas law. It is believed that private IPD processes can be adapted for use by public entities if approved by the Texas Legislature.
In the private sector Integrated Teams are formed early in the planning phase and, at a minimum, include the owner, contractor and the Architect of Record. There is no reason public entities cannot adopt and deploy effective IPD processes if the Texas Legislature will approve the use of these innovative new business tools. Private IPD Owners are utilizing IPD to increase the efficiency with which planning, design, construction and maintenance services are delivered and taxpayers deserve access to those innovative tools which are reducing project costs and work schedules by 15 to 25 percent or more.
In an IPD environment Integrated Teams craft, negotiate and implement Integrated Agreements – including Protocols related to Incentive and Risk Allocation, Alternative Dispute Resolution and Lean Business Processes – all of which increase efficiency and productivity in the planning, design, construction, operations and maintenance of facilities and infrastructure. Integrated Agreements detail collaborative principles pursuant to which Integrated Projects are completed. The scope of work required of each Integrated Team member or later joining specialty designers, subcontractors or consultants (Specialists) – and base compensation for their work – are set forth initially in a Target Cost Estimate (TCE) which evolves into a Guaranteed Maximum Price (GMP) which is, in turn, incorporated into the Integrated Agreement by Amendment.
Key features of an IPD model are listed below. The elements detailed below are flexible enough to meet the needs of public entities, throughout the State of Texas, and the Texas Legislature is strongly encouraged to adopt enabling legislation that will allow the State of Texas and agencies within the State, to take advantage of the reduced costs, increased efficiency and long term energy savings available through the use of IPD as a method for delivering facilities and infrastructure.
Key Elements of an IPD Program
- Private IPD owners have the luxury of hand picking Integrated Teams. Public IPD owners, bound by restrictive regulatory and statutory procurement rules, are generally not allowed to form Integrated Teams and can only achieve IPD if authorized by statute.
The first task in an IPD environment is to develop criteria reflecting the business purpose of the contemplated facility or infrastructure and a Target Cost Estimate. An Architect of Record can assist an owner in identifying criteria and a TCE if an Integrated Team has not yet been formed. Private owners can select the Architect of Record on merit while public owners must utilize a statutorily authorized qualification based selection process. During this phase the IPD Owner and the Architect of Record – or the Integrated Team if already formed – creates criteria detailing the business purpose of the facility / infrastructure and formulates a TCE. Those criteria and the TCE will guide the Integrated Team as ideas are translated into action.
- If the IPD Owner wishes to receive competitive bids from Integrated Teams it must issue a Request for Qualifications (RFQ) and a Request for Proposals from Integrated Teams. Private IPD Owners who have pre-selected Integrated Teams often skip this step. Public IPD Owners will be required to issue RFQs and RFPs and to consider proposals from competing Integrated Teams. Public selection committees can short list Integrated Teams that meet the RFQ and submit competitive responses to the RFP. Where criteria are not yet well defined qualifications will drive selection while selection for Integrated Projects with well defined criteria will be based on best values calculated by a weighted combination of qualifications and price. An Integrated Team’s proposal should include a break down of Integrated Team members’ base fees, general conditions – if such conditions are in addition to and not in conflict with the required form of Integrated Agreement – a description of the scope of work for which each Integrated Team member will be responsible, contingencies and, if appropriate a TCE / GMP based on best practices. Base fees should be calculated by reference to the amount of risk each Integrated Team member is willing to bear in exchange for a percentage share of the amount by which the Integrated Team beats the GMP (a.k.a. “risk fee”) after it is locked in by amendment. In exchange for access to the short-listed firms’ work product, value engineering ideas and unique design solutions – all of which require extensive preparation and include confidential and proprietary information – IPD Owners must be prepared to compensate non-selected firms for access to such information through a reasonable stipend.
The Integrated Team can provide pre-construction services to the IPD Owner during the planning and design phase, similar to a CM at Risk, prior to reaching an agreement on a GMP. It may be appropriate at this stage – or even earlier – to negotiate a Master Non-Disclosure Agreement and / or Confidentiality Agreement among the parties to protect the intellectual property, trade secrets and other confidential information being shared among the Integrated Team members.
- Once criteria and TCE are mature – usually at the schematic design stage under the traditional design-bid-build delivery model – the Integrated Team can develop and negotiate a GMP proposal with the IPD Owner. If agreement is reached on GMP that number is incorporated into the Integrated Agreement by amendment. If agreement cannot be reached on a GMP the IPD Agreement may be terminated and the IPD Owner can abandon the project or invite other Integrated Teams to negotiate an agreed GMP. Any IPD Owner that engages a new Integrated Team must avoid breaching the NDA / CA signed with former Integrated Team members. Alternatively, the initial Integrated Team – or even certain members thereof – may choose to waive their “risk fee” and execute an amendment to the Integrated Agreement to perform services on an alternate pricing basis. Finally, the IPD Owner may select a different delivery model all together if GMP negotiations fail.
The agreed GMP takes into account the costs and fees of all Integrated Team members as well as the costs and fees of specialty designers, subcontractors and consultants (Specialists) that have not yet joined the Integrated Team. Once an agreement is reached on GMP the Integrated Team can move forward with the project, inviting bids / proposals from Specialists as necessary. Specialists who join the Integrated Team must agree to be bound by the general conditions of the Integrated Agreement, though fee agreements, costs and other special arrangements can be separately negotiated between Specialists and existing Integrated Team members, provided the Specialists agree to be bound by the general conditions of the Integrated Agreement. In the public sector all Specialists submitting bids must be pre-qualified by the State, and / or the contracting authority and the Integrated Team.
- Award of contacts to Specialists can be based on merit, value and team chemistry – preferred criteria in the private sector – or the lowest responsive bid in the public sector (responsibility having already been determined in the pre-qualification process). This protects the Specialists from bid shopping. If bids from competing Specialists exceed the estimate of the Integrated Team member seeking services / products for a specific scope of work, or the overall GMP is exceeded when the cost of the Specialists bids are added, the Integrated Team has two options. The Integrated Team can utilize contingency funds to cover the overage of the Specialist(s) bid(s), or revise the scope of work and rebid. Upon rebid the Architect of Record must confirm the revised scope of work continues to meet the IPD Owner’s original criteria. At this stage the Integrated Team must also secure all necessary payment and performance bonds for all work.
Members of the Integrated Team – usually the Constructor or Subcontractors that have already won work on the project – can self perform any portion of work, provided the performing Integrated Team member has demonstrated its qualifications to perform the work and, on a public project, the designated Integrated Team member submits a separate bid to the IPD Owner to perform the scope of work for the price required in its GMP prior to accepting sealed bids from others. Such bids shall be opened by the IPD Owner in public. Such work shall be provided to an existing member of the Integrated Team only if no competing bid is received from a qualified Specialist for a number that is less than the established GMP line item number for such work. Further, no contingency funds can be used by an original Integrated Team member on such self-performed work.
- Progress payments during construction are based on actual costs, up to the GMP, and all the Integrated Teams’ project accounting is open to the IPD Owner for review. In addition, prompt payment, lien options and other contractual protections, including alternative dispute resolution processes, incorporated in the Integrated Agreement shall apply to the all Specialists.
If the project exceeds the GMP price, the IPD Owner’s costs shall be capped in accordance with the Integrated Team’s Incentive and Risk Allocation Protocol. If the project is completed with contingency dollars remaining in the project fund, the Integrated Team shall share those savings in accordance with the Incentive and Risk Allocation Protocol. Other incentive and risk sharing mechanisms can be incorporated to align the interests of the Integrated Team.