• Integrated Project Delivery—The Future
  • July 16, 2013 | Author: Derek A. Brindle
  • Law Firm: Singleton Urquhart LLP - Vancouver Office
  • Five years ago the American Institute of Architects introduced a suite of Integrated Project Delivery (IPD) standard form agreements. They were developed in response to problems that continue to plague the construction industry—productivity declines, significant cost overruns, schedule delays, and construction claims. These phenomena are not unique to the United States nor to large construction projects; they can also occur in house construction and home renovation projects.

    What is the source of the problem? Part of the answer lies in typical construction project structures that contain a series of separate contracts and a silo approach to design and construction responsibilities. Each project participant—including the owner, architect, design consultants, contractors, trades, and suppliers—generally seeks to optimize financial returns with a minimum of risk by narrowly defining its spheres of responsibility in its particular contract.

    For example, through a separate contract with an owner, a designer disclaims responsibility for construction and, in turn, through its contract with the owner, the contractor disclaims responsibility for design. An inherent tension is brought to a project as each party seeks to segregate its responsibilities at the expense of collaboration, creativity, a shared financial risk, and reward for the overall project outcome. This dynamic can tend to undermine the owner's core objective of obtaining a project’s completion on time and on budget.

    The AIA C191 (2009) IPD Standard Form Multi-Party Agreements for Integrated Project Delivery seeks to address these problems and its causes. Interestingly, it has no existing counterpart in the standard form contracts issued by the Canadian Construction Documents Committee and Canadian Construction Association.

    In IPD agreements, the contract structure ties together the design and construction stages of a project in such a way that the owner, designer, contractors, and trades engage early in a collaborative process in which compensation is linked to the achievement of defined overall project outcomes. They provide for a sharing of risks and rewards through reciprocal limitations on liability exposure, collaborative decision-making, financial transparency among key participants, and open communication in jointly establishing project target costs. The IPD contractual framework reduces the inherently adversarial contract structures found in more traditional construction arrangements.

    AIA C191 establishes a Project Executive Team (PET) that is responsible for overall project management and planning. Its members include the owner, architect, consultants, contractors, trades, and others. The PET assigns responsibilities to a Project Management Team (PMT) which encourages collaborative design development involving key members of the team and is responsible for day-to-day project management and the execution of decisions by the PET.

    A Target Cost is established by collaborative decision-making prior to the completion of the design criteria phase of a project. A Target Cost Breakdown is settled upon through the development of a risk matrix which identifies the principal risks of planning, designing, and constructing the project. It can only be amended by unanimous agreement or by owner-initiated changes, force majeure, and quantity and cost variations in allowances. Compensation is earned by project participants through goal achievement compensation arrangements having regard to the Target Cost.

    Since shared compensation opportunities and payment incentives are based on overall project outcomes for the owner, participants have a strong incentive to pursue increased efficiencies, enhanced communication, collaborative problem-solving, and risk sharing. Not only are design/construction conflicts reduced but the shared performance-based financial reward structure eliminates the utility in the blaming of particular project participants for errors, omissions, increased costs, and completion delays.

    In spreading out project risks, IPD agreements generally provide for mutual indemnities between the parties, including indemnities for third-party claims. Liability waivers between project participants are reciprocal. A robust dispute-resolution process is also incorporated in AIA C191, which establishes protocols for the early settlement of project disputes. Dispute resolution proceeds in phases, the majority of which involve collaborative problem-solving. Dispute resolution involves the PMT, the PET, and a Dispute Resolution Committee which is comprised of representatives of each party and a Project Neutral. If attempts to resolve disputes by these groups should fail, the parties will then proceed to mediation and, ultimately, to arbitration.

    In Canada, to mitigate the effects of the typical silo approach in traditional construction contract practices, the industry turns to alliance agreements, partnering agreements, and heavily modified standard form agreements, developed through project-specific initiatives by experienced architects, contractors, owners, lawyers, and specialized consultants. As yet, however, there is no generally accepted standard form IPD contract which has been developed and broadly implemented in Canada.

    With the advent of Building Information Management Systems technologies for design integration and information sharing, and a resort to construction management procedures, increasingly sophisticated owners, designers and constructors are remodelling their contracts to address the cost and time risks inherent in traditional construction contracting.

    In our view, IPD contract models will likely gain increasing acceptance in Canada as owners and participants become more familiar with their advantages. The traditional segregation of construction and design contract risk/responsibility will yield to a more collaborative contracting landscape in which all project participants, owners, and consumers of Canadian construction services will be the beneficiaries.