Industry watch – Collaborative Delivery – Case Studies Of Collaborative Delivery – What They Tell Us and Why Standard Forms of Agreement May not be Right For You.

Over the last two weeks we have been exploring collaborative agreements.

Two weeks ago, I gave you a brief overview of the difference between the AIA’s two collaborative delivery contract models. Last week, I shared some of the most pivotal clauses that shift the relationship of the parties from adversaries to collaborators.

This week, I want to share some of the case studies I have read from projects that used some form of collaborative agreements and share some of the anecdotal comments I have received from friends and colleagues that have worked under one of these models.

Case Studies

First, let’s look at the types of projects included in the case studies.

The case studies I reviewed were compiled by the School of Architecture at the University of Minnesota in 2012. These case studies incorporated previous case studies published by the AIA in 2010.

I reviewed information from both of these publications for my study.

There were 12 case studies overall. Seven of the 12 were either Hospitals or Medical Buildings. Of the remaining 5 projects one was a federal building and another was a school. This left just three projects from the private sector. Those three projects were the focus of my review.

AutoDesk Division Headquarters

The first project comes from us from AutoDesk, publishers of the AutoCAD suite of computer aided drafting software. Autodesk decided to use an IPD agreement coupled with Building Information Modeling, “to highlight … its own technology”.

The project was described as a 55,000 square foot, three-story interior tenant improvement inside a new speculative office building. The program for the space included offices, conference rooms, training facilities, a café, and a 5,000 square foot customer briefing center. The project had an interior LEED target of Platinum.

The project was completed in 8 months and cost $13.5M ($244/SF).

The way that Autodesk implemented the IPD agreement was as follows:

1. Team Selection

The team was selected early and the form of agreement was pre-determined. The RFP defined the scope, the budget, and their sustainability goals.

2. Contract

The contract was executed by; the Owner, the Architect, the Contractor, and three major trade contractors (mechanical, electrical, and carpentry)

3. Compensation

The profit for all parties were put at risk. Each signatory had certain goals that needed to met in order to receive their profit.

4.  Incentive

A baseline for profit was established. The profit could swing 20% up or down depending on the collective performance of the goals.

5. Waivers

All of the parties waived all claims against each other except for fraud, willful misconduct, or gross negligence.

6.  Management

Management of the project was very complex. The team created three layers of management within themselves. There was a Project Implementation Team which was a group of individuals from all signatories responsible for the day to day management of the project. Second was a Project Management Team which acted as decision making body throughout the project and third was a Senior Management Team with executive and senior staff from all signatories that resolved issues that Project Management Team could not. A fourth level of oversight came from another Architect who’s sole responsibility was as overseer of the quality of the work. This fourth level of review was critical because quality was one of the goals the team had to meet in order to qualify for incentives.

Lessons Learned and Takeaways

Phil Bernstein, Autodesk’s Vice President for Industry Strategy and Relations, stated, “the first step should be a scoping exercise taken to the level of conceptual design” This statement is probably a of reflection of the 30% in Owner initiated changes that were reported from the project. These were programmatic and aesthetic changes that were not contemplated at the start of the project.

Bernstein went on to state that he would, “eliminate the contingency…because of the financial incentives, [the IPD team] will want to treat every change as a scope change and not an item to be subtracted from the contingency. By [eliminating contingency] you create some sense of discomfort, and that discomfort is the team’s obligation to design to the target cost.”

Spaw Glass Austin Regional Office

The next project comes from Austin Texas. I don’t really like this one as a case study because it’s really a poor example of an IPD project, but given the low number of private sector examples, I will share it regardless.

It was a new construction project for a 15,000SF office. The Owner SpawGlass Companies decided to use an IPD contract model based on the recommendation of a local construction attorney and because they felt that using this form of agreement would place them at the cutting edge of the industry.

They decided to use ConsensusDOCS 300 as their standard form of agreement.

The project cost $2.8M and took 18 months to design and build.

Unlike other case studies, in this project the Owner also acted as the GC, so from that standpoint, this is a little more imperfect as a case study.

1. Team Selection

Team selection. Although an RFP was run (prior to deciding to go with IPD), the final award decisions were made based on the experience and relationships the Owner had with specific Companies.

2. Contract

The contract used was ConsensusDOCS 300.  It was executed by SpawGlass and their Architect.

3. Compensation

There appears to have been some kind of incentive but it was not clearly described in the case study. The project seems to have followed more of a Guaranteed Maximum Price (GMP) Contract model.

4.  Incentive

The Owner did establish a Project Target Cost Estimate (PTCE) (as per ConsensusDoc 300), but it was not established until the design was developed enough for cost estimating. Again, this is more like a GMP than IPD pricing framework.

5. Waivers

The parties did agree to liability waivers against each other and adopted ConsensusDoc’s standard Dispute Resolution clause to address conflicts.

6.  Management

Because the Owner and GC were the same Company, the management structure was quite simple. The GC and the Architect met weekly with frequent meetings with the internal Real Estate Stakeholder from SpawGlass. A Board of Directors from SpawGlass held responsibility for approving the final cost.

Lessons Learned and Takeaways

The Project Manager for SpawGlass stated, “it forces you to go over ever little nook and cranny of what you are looking at to a certain degree and figure things out together.” Another comment the team had was ,”Though the degree of interaction was intense, team members agreed that traditional roles remained unchanged compared to teams in conventional delivery methods.”

I suspect that this second comment is reflective of the imperfect nature of the engagement model and the fact that at the end, this was run more like a GMP contract.

Lawrence & Schiller Interior Office Remodel

The third project we have as a case study is a modest 7,000 square foot interior office remodel from Sioux Falls, South Dakota. The recommendation to use IPD as a delivery model came from the interior designer Canfield Business Interiors (CBI).

For some reason CBI elected to form an LLC which was solely owned by the Owner of CBI. The LLC which was named Innovative Solution Group (ISG) included; CBI, the Architect, the General Contractor, an Electrical Contractor, and a Mechanical Contractor. The literature is unclear as to why the LLC was formed. At first glance, it might seem that this was structured as an SPE, but since the LLC was solely owned by Larry Canfield and Lawrence Schiller (the Owner of the property) was not included in the LLC, it clearly is not.

The contract that was executed was between the property Owner (Lawrence Schiller) and Innovative Solution Group LLC.

Further the contract for this work was not done using any of the standard IPD contract templates. Instead, the parties created a series of phased contracts and locked the project down with a Guaranteed Maximum Price (GMP) once the drawings achieved 75% complete. The remodeling work was completed under the GMP pricing model.

1. Team Selection

Team selection was made by the interior design firm and was the result of a group of companies that had years of experience working together. The Owner did not run a competitive bid and was not involved in selection.

2. Contract

The Contract was a combination of the LLC which documented the incentives between the collaborating providers and a series of traditional contracts between the LLC and the Owner that were executed at three phases of work as follows:

Phase 1 (Feasibility Study)
Phase 2 (Design Development)
Phase 3 (Construction)

3. Compensation

The incentives between the collaborating providers was not made available for the case study.

4.  Incentive

The Owner did not have an established budget, but the use of a feasibility study phase of work which included input from the trades helped to refine the Owner’s goals for the project and realized valuable input which saved cost.

5. Waivers

The Owner’s contract did not include liability waivers, but given that the collaborating providers were all parties to a single LLC, it is likely that the parties waived their rights among themselves.

6.  Management

Because the Owner was contracted directly with ISG LLC decision making from the Owner’s perspective functioned the same as traditional projects. However, the inner workings of ISG LLC was described as a collaborative team decision making process.

Lessons Learned and Takeaways

There were few documented quotes from the team from Lawrence Schiller, but one Interior Designers from Canfield was quoted to say, “there is no scale limitation [to the size of project appropriate for IPD using this model]” a statement, I would agree with given the approach used.

For me, the biggest takeaway from this case study is that a collaborative delivery can be achieved without having to resort to using an IPD contract.

Anecdotal feedback

As I have explored this model and spoken with several colleagues who have been through this process, I have heard several forms of feedback.

One colleague that worked under an SPE agreement stated, “You forget that you work for another company and begin assimilating to the culture of the SPE. Problem solving is a collaborative event and everyone pulls together.”

Another fellow procurement professional who worked on negotiating an IPD project said that he saved a ton of money by having the trades involved early in the process.

He also commented, “the biggest problem is finding trade contractors willing to work at cost until the end of the project.” and “it takes 6 months to implement”

A Contractor friend that has done several IPD projects stated, “this is the way all projects will be done in the future.”

Closing

So in the context of this blog and the work we typically discuss, the big question is, “Should we adopt IPD or SPE models for our projects?”

In short, I say No!

The concept of Collaborative Delivery is absolutely something we all should strive for, but there are a number of factors that make using IPD or SPE too complex for the average project.

Sourcing

Starting with the fact that sourcing suppliers is not straightforward.

Most of the case studies relied on prior relationships to select the team. There were no good examples of sourced teams and the anecdotal feedback suggests that there are few Suppliers that would be willing to work under this model.

Waivers

Next we can cite the liability waivers.

Most legal teams would be unwilling to agree to the waivers that these contracts require and I can’t see myself recommending to an Owner that they should waive their rights.

Incentives

The incentive plan seems underdeveloped and lacking in maturity

One of the most enthusiastic promoters of the model (AutoDesk) stated, “because of the financial incentives, [the IPD team] will want to treat every change as a scope change” suggesting that rather than reducing changes, the incentives increase them. Other teams reverted to GMP models because making changes was too complex.

Finding Another Way

As we saw from some of the case studies, you don’t need to use an IPD or SPE contract to achieve collaboration.

Next week, I will share with you my approach for achieving the goals of collaboration using more conventional contracting models.

What about you? Do you think an IPD or SPE model could work for your projects? Are there any other reasons why you could not adopt this model? Tell me your stories.

Thanks for reading.  If you enjoyed this content, please feel free to browse my previous articles and please like, share, comment, and subscribe.  This helps promote my content and is greatly appreciated.

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