Ready or Not, Here Comes IPD

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Article courtesy of Professional Liability Agents Network (PLAN)

Integrated Project Delivery (IPD): the concept sounds ideal. The owner, contractor and lead design professional (and perhaps other key parties to a construction project) commit in writing to a collaborative, synchronized approach to project delivery in which all parties work together toward a common goal and share in the rewards. In the words of the AIA California Counsel, IPD is “a project delivery approach that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to reduce waste and optimize efficiency through all phases of design, fabrication and construction.”

Recent studies have cited evidence that IPD does indeed work. A report from the University of Minnesota concluded that the IPD delivery model, combined with Lean practices, provided the contractual basis for true collaboration. The report concluded that sharing risks and rewards, promoting early involvement by all key parties to the project, committing to shared goals and implementing limitations on liabilities among the team members all contributed to project success. It noted that IPD teams were “effective in making sense of the owner’s goals and translating this understanding into action, even in cases where the goals were not completely clear or there were changes over time.”

So, if IPD is so ideal and successful, why has its growth been slow and steady rather than fast and furious? Let’s take a look at some of the key factors that are impediments to IPD’s widespread application.

It’s A Whole New Ballgame

Integrated Project Delivery is not simply a new project delivery method such as design-build. It’s a whole new process that changes the way projects are conceptualized, designed and built and alters the traditional relationships, contractual and  otherwise, of the key parties to the project. Consider:

New, fuzzy roles. Traditional, design-bid-build project delivery methods emphasize distinct, clear and separate roles for all parties involved. With IPD, these traditional roles are blurred since collaboration is at the forefront in all activities. The designer and contractor help determine the client’s needs, goals and budgets. The contractor and the owner contribute ideas to the design. The  client and designer have input on the construction means and methods. All silos are taken down.

Thus, IPD projects often push participants into unfamiliar responsibilities and relationships, causing unease. For example, as a designer, it can become difficult to avoid responsibility for jobsite safety when you have participated in decision-making regarding construction means and methods.

Long, complex contracts. IPD may require a completely new contractual framework for a project. In its fully integrated form, IPD uses a single multi-party contract that covers the client, the contractor, the lead designer, subcontractors and subconsultants. This contract spells out the roles, responsibilities, relationships, duties, rights and obligations of all parties, and tends to be lengthy and complex.

The American Institute of Architects (AIA) has published two IPD standard form agreements, one (C195) being a fully integrated tri-party agreement between the client, contractor and designer, and the other (A295) being a transitional adaptation of the more traditional multiple contractual relationships between client/contractor, client/lead designer, and lead designer/subconsultants (sometimes called “IPD lite”). The Association of General Contractors of America and the Construction Owners Association of America has also developed a tri-party IPD contractual agreement (ConsensusDOCS 300) as part of their family of contracts. These are good starting points, but can require substantial revisions to fit a particular project.

Unknown compensation. To promote true collaboration, fully integrated IPD calls for the sharing of project risks and rewards. That includes entering compensation agreements that are partly if not fully based on monetary incentives tied to meeting overall project goals. Thus, the designer’s compensation (and profits) for the project are contingent upon the client, contractor and perhaps others meeting their quality, time and cost commitments.

Taking the IPD Leap

Considering the potential pitfalls of IPD, a design firm new to the process will want to tread carefully when engaging in its first such project. Address these critical issues:

Education. Make sure you and your colleagues are well versed in the ins and outs of Integrated Project Delivery. There are many variations and just as many misconceptions regarding this process. An excellent starting point is the AIA publication titled Integrated Project Delivery: A Guide, available free by download at www.aia.org/ipdg. Also look for IPD seminars and Webinars offered by your professional associations. A consultation with an attorney experienced with IPD can also be helpful for those serious about moving forward in this realm.

Client selection. Careful client selection is always an important step in avoiding trouble on a new project, but perhaps never more so than with IPD projects. You will need an owner capable and willing to truly collaborate with contractors and designers. The client must be an equal partner in the project from design conception to sign off. He or she must be prepared to be overridden by a united contractor and designer on important project decisions. Clients who pay lip service to the concept of collaboration in hopes of saving money or improving profits, but are unwilling to budge on any of their opinions, are going to make life very, very difficult. For your first IPD project it is advisable to collaborate with an owner who has successfully applied this process before.

Project selection. With an expanded role in the design and construction process, it is important that you are qualified to provide knowledgeable recommendations and advice on project design and construction, start to finish. Therefore, you should only enter into IPD arrangements involving project types with which you are very familiar. This is not the time nor place to cut your teeth on an unfamiliar project, new technology, new locale, etc.

Communication. The project should include consistent written and face-to-face communication between all of the major parties to the project. Regularly scheduled meetings should begin at the project’s conceptualization and continue to substantial project completion or beyond.

Early on, there should be a lengthy discussion of the principles of IPD, including the alignment of goals, roles and responsibilities. Procedures for calling and holding emergency meetings to handle project upsets is also important. Confidentiality agreements can be helpful in getting reluctant parties to speak openly and honestly about the project.

Contract language. While the form agreements developed by the AIA and other industry associations are good starting points, the contract governing an IPD will need to be customized to fit the particular project. In many cases, the client will have developed its own IPD contract language that it presents to the lead designer and contractor. It is imperative that this language be closely scrutinized by your attorney. Do your best to avoid widening your liabilities beyond those typically assigned to a design firm. Define your scopes of services fully and precisely.

Press for “no blame” language that, in an attempt to promote collaboration, prohibits or limits the client, contractor, designer and other parties to the project from filing claims against each other. Identify nonbinding mediation as the dispute resolution technique of choice. Clearly establish the compensation agreement for each party and define the incentive-based components in specific terms. If your regular attorney is not well versed in IPD you should likely seek the contract review services of a specialist in this area.

Liability and Insurance Breakthroughs

One of the toughest challenges faced by early adapters of Integrated Project Delivery was finding insurance companies that could provide comprehensive coverage for the project team. Because of the collaborative approach, each team member faces the prospect to taking on additional liabilities not covered by their current insurance policies. Insurance companies, in turn, are not enthusiastic about design firms taking on construction liabilities, or, alternately, project owners and contractors assuming professional liabilities for design. There are just too many questions regarding the known and unknown liabilities and how judges, juries or arbitrators might rule on claims when multi-party contract provisions include extensive waivers of rights to file claims, unusual limitations on liabilities and nontraditional scopes of work.  Even insurers willing to try to put together comprehensive coverage for an IPD team often struggled with underwriting the risk, developing appropriate policy language and pricing the coverage.

Fortunately, real progress is being made in this arena. For instance, some professional liability insurers are now putting together innovative project-specific policies that cover all major parties included in the IPD agreement as the “named insureds.” These customized project policies are tailored to the individual project, providing coverage for claims made by third parties alleging damages as a result of the acts, errors or omissions of the IPD team when rendering professional services. (IPD project policies typically do not cover claims from any of the IPD members against the others, if such claims are allowed by the multi-party contract. Any such claims likely fall to each member’s individual practice policy, or a project contingency fund is established to help rectify damages.)

Some of these new IPD project policies include protective excess indemnification in the event the IPD team sustains damages as the result of the acts, errors or omissions of consultants and subconsultants who are not signors of the IPD agreement. Some policies may also address the costs associated with rectifying a design defect identified during construction or correcting a negligent act, error or omission made by others but not identified until after substantial completion or project close-out. These types of coverage will need to be negotiated with the insurance carrier.

Project policy coverage limits typically range between $1 million and $5 million, and each IPD team member may be required to maintain similar limits of coverage in their own practice policies. Coverage usually commences at the beginning of the design phase and terminates at project completion.

Some forward-thinking carriers may also arrange for the IPD team’s general liability, casualty wrap, builders risk, property, environmental liability and other appropriate insurance coverages beyond professional liability. The endgame is to create one-stop shopping for a comprehensive package of coverages for the entire IPD team on a project-specific basis that supports collaboration.

Note, however, that these comprehensive packages are not being offered to all IPD projects. Because of the unsure nature of the risk and the lack of experience pricing such policies, insurance companies are applying strict underwriting guidelines that eliminate some projects or make coverage price-prohibitive. Insurers will look closely at the nature and size of the project (some have an upper construction value limit of $200 million or so) and the track records of the project owner, contractor and design firms. Risky project types (condos, tract residential and stadiums, for example) or bad claims histories by any of the key parties may lead to rejection. Expect that your IPD project and its participants will be closely scrutinized before any offer for project-specific coverage is made. Lengthy negotiations are the norm, so be ready to demonstrate that the project is an acceptable risk.

More to Be Done

Obviously, there is still work to be done to make Integrated Project Delivery a standard practice in the design and construction industry. But ready or not, the IPD trend is growing, spurred partly by innovations like Building Information Modeling (BIM)and other technological developments that facilitate the collaborative approach. Early results confirm a likelihood of success and legal and insurance professionals are making progress in understanding and resolving the liability issues that have plagued early adapters. Call on us when an IPD opportunity crosses your desk and we’ll be happy to help you investigate the coverage options available.

We may be able to help you by providing referrals to consultants, and by providing guidance relative to insurance issues, and even to certain preventives, from construction observation through the development and application of sound human resources management policies and procedures. Please call on us for assistance. We’re a member of the Professional Liability Agents Network (PLAN). We’re here to help.