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Integrated Project Delivery Agreements g j y g in Construction Contracting

Crafting IPD Contracts Using the AIA and ConsensusDOCS Forms

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific WEDNES DAY, JULY 13, 2011

Today’s faculty features: S cott R. S leight, Partner, Ahlers & Cressman, S eattle Howard Goldberg, Principal, Goldberg Besche & Banks, Baltimore Richard M. S hapiro, Partner, Farella Braun & Martel, S an Francisco Patrick J. O'Connor, Partner, Faegre & Benson, Minneapolis

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INTEGRATED PROJECT DELIVERY (IPD) AGREEMENTS IN COUNSTRUCTION CONTRACTING (IPD) AGREEMENTS IN COUNSTRUCTION CONTRACTING

July 13 2011 July 13, 2011

OVERVIEW

Presented by: S tt R Sl i ht

OVERVIEW

Scott R. Sleight Ahlers & Cressman PLLC sleight@ac-lawyers.com 206-287-9900 For Strafford Webinars and Publications

5

About Scott R Sleight About Scott R. Sleight

 Member of Ahlers & Cressman PLLC  Practice emphasizes contract negotiation of large i l j t d iti l f iliti d commercial projects and critical facilities and resolution of construction disputes  Involved with Lean since 2006 Involved with Lean since 2006

6

Experience with Relational Contracting Experience with Relational Contracting

 Represented Contractor in negotiation of first t l i t t d t t truly integrated contract.  Parties included Sutter Health affiliate, NBBJ and Skanska USA Building Inc. g  Represented Contractor in negotiation of Virginia Mason Hospital Addition utilization “Collaboration Guide” to facilitate lean methods Collaboration Guide to facilitate lean methods and Relational Contracting.  Assisted with development of NBBJ contract template template.  Boeing utilizes Relational Contracting concepts.

7

“Typical Organization For Hospital Project” Typical Organization For Hospital Project

Source: McDonough Holland & Allen PC

8

Source: McDonough Holland & Allen PC

Structure Structure

 One Agreement signed by O-A-C g g y  “Joined” by jointly selected team members  Provides for formation of

 Core Group  Integrated Project Delivery Team  Senior Management Group Senior Management Group

9

Integrated Team Concepts Integrated Team Concepts

10

Source: McDonough Holland & Allen PC

Executive Involvement

Source: McDonough Holland & Allen PC

11

Source: McDonough Holland & Allen PC

Integrated Project Delivery Level of Common Understanding Level of Common Understanding

Source: McDonough Holland & Allen PC

12

Courtesy of McDonough Holland & Allen PC

Source: McDonough Holland & Allen PC

Goals of Lean Project Business Model Goals of Lean Project Business Model

 Early involvement of key participants y y p p  Equitable distribution of risk and reward  Compensation structure must incentivize “best for project”  Clearly defined responsibilities without inhibiting communication and risk taking communication and risk taking  Management and Control structures should be built around team decision making wherever appropriate

13

Restructuring Design Restructuring Design

 Validated budget as basis for Target Value Design g g g  Pause to pursue Process Design  Communication Protocols

 (flow of communication, use of BIM, co-location, virtual meetings)

 Target Value Design Plan (How) Target Value Design Plan (How)  Pull Planning throughout design  Elimination of waste (redundant effort, etc.)

14

Restructuring Contracting & Finance Restructuring Contracting & Finance

 IFOA signed by all major stakeholders  C ti  Compensation

 Individual Cost & Overhead Paid  Pooled Profit At Risk  Incentives/Bonuses (Innovation, Production)

 Joint IPD Team Contingency

 Combines A/E “Design” & CM/GC’s “Construction” g

(Reduced total because pooled)

 IFOA eliminates traditional “Negligence” standard as Core Group negotiates a deductible as a % of as Core Group negotiates a deductible as a % of construction costs for “Errors & Omissions”

15

Sharing Project Risk Sharing Project Risk

16

Sharing Project’s Innovation Benefits Sharing Project s Innovation Benefits

Source: McDonough Holland & Allen PC

17

Source: McDonough Holland & Allen PC

Dispute Resolution Dispute Resolution

 Notice  Notice  Negotiations  Core Group  Core Group  Senior Management of Core Group  Independent Expert  Mediation

18

What Are The Major Challenges? What Are The Major Challenges?

 Method used to form IPD team Method used to form IPD team  Building trust between the Design and Construction industries  Accepted contract vehicle for implementing IPD  Accepted contract vehicle for implementing IPD  Risk  Shared Savings  Liability  Insurance and Surety acceptance  Adoption of Lean and BIM as standards of practice  Education to promote understanding of the value proposition of Lean Project Delivery

19

Resources Resources

 IFOA ~ LCI  IFOA ~ LCI  ConsensusDocs 300  AIA-IPD  AIA IPD  NBBJ – Integrated Delivery contract template

20

Integrated Project Delivery Agreements in Integrated Project Delivery Agreements in Construction Contracting

HOWARD G. GOLDBERG

Goldberg, Besche & Banks, P.C. 1829 Reisterstown Road, Suite 120 Baltimore, Maryland 21208 410‐580‐9530 410 580 9530

“Integrated Project Delivery (IPD) is a project delivery Integrated Project Delivery (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 optimize project results increase value to insights of all participants to optimize project results, increase value to the owner, reduce waste and maximize efficiency through all phases

• f design, fabrication and construction.”

22

Governmental data, both in this country and abroad, demonstrates that a very significant portion of the cost incurred in construction results in complete “waste.” In the United States alone, as much as 30% of the total construction cost is consumed by waste, with no value to the project. The construction industry is the only significant industry in the United States which has shown a decline in productivity in the past few decades. p y p

23

With the use of new digital programs tailored to the construction industry, it is now possible to almost build a building “virtually” before the first shovel of dirt is moved at the site With the use of new digital programs tailored to the

• site. With the use of new digital programs tailored to the

construction industry, it is now possible to almost build a building “virtually” before the first shovel of dirt is moved at the site.

24

The A295 Family Consists Of: y

• A295‐2008 General Conditions for IPD Projects
• B195‐2008 Standard Form of Agreement between

Owner and Architect for IPD

• A195‐2008 Standard Form of Agreement for Owner

and Contractor for IPD

• GMP Amendment to A195 Agreement

25

For each of the “phases” of activities, the duties of each of the three participants are integrated and defined, so that each participant can determine that participant’s duties during any specific phase by reading the text relating to that phase specific phase by reading the text relating to that phase.

26

Phases of A195 1 Conceptualization Phase

• 1. Conceptualization Phase
• 2. Criteria Design Phase
• 3. Detailed Design Phase
• 4. Implementation Documents Phase

5 Construction Phase

• 5. Construction Phase

27

Conceptualization Phase Conceptualization Phase K C lt t d S b t t id tifi d

• Key Consultants and Subcontractors identified
• Architect prepares schedule for design services
• Contractor prepares preliminary Project schedule
• Project delivery issues addressed

28

Criteria Design Phase g

• Architect identifies alternative approaches to Design
• Architect identifies alternative approaches to Design
• Architect prepares Criteria Design Documents
• Contractor identifies alternative systems, equipment

and early procurement y p

• Digital Model is Introduced

29

The Model will be used throughout the balance of the design and construction of the project, with the building being “virtually built” at the end of design and the model then updated during construction to eventually serve as a “record drawing” of the completed project in order to assist the Owner with regard to the completed project in order to assist the Owner with regard to the eventual operation and maintenance of the Project.

30

Detailed Design Phase

• Architect and Team prepare detailed design documents
• Contractor updates cost estimates

Contractor updates cost estimates

• Contractor verifies constructability
• Contractor assembles construction participates
• Contractor creates Guaranteed Maximum Price Proposal

31

Guaranteed Maximum Price Proposal includes: p a A list of documents and information on which the

• a. A list of documents and information on which the

proposal is based; b li f ll

• b. A list of allowances;
• c. A list of any clarifications and assumptions on which the

y p price is based; d The proposed price organized by trade categories with

• d. The proposed price organized by trade categories, with

defined contingencies; A d f S b i l C l i

32

• e. A date of Substantial Completion.

Implementation Documents Phase

• Architect incorporates all design components (including

Architect incorporates all design components (including shop drawings) into Model

• Contractor coordinates with all subcontractors
• Contractor coordinates with all subcontractors
• Any substitutions considered and either included in

Model or rejected

• All Contractor questions resolved

q

33

Construction Phase

• No RFIs
• No Change Orders
• No conflicts in documents

N i li d W t f th D i t C t t

• No implied Warranty of the Design to Contractor

Cost Plus with Guarantee

34

INTEGRATED PROJECT DELIVERY AGREEMENTS IN CONSTRUCTION CONTRACTING CONSTRUCTION CONTRACTING

JULY 13, 2011 ConsensusDOCS 300 Standard Form of Tri-Party Agreement for Collaborative Project Delivery

RICHARD M. SHAPIRO rshapiro@fbm.com (415) 954-4934

Contractual Relationships Among Project Participants

ConsensusDOCS 300

Owner Consultants Designer Constructor Consultants Subs Suppliers Consultants Subs Suppliers

36

Contractual Relationships Among Project Participants

AIA A195/B195/A295

Owner Limited Liability Company DP O CM Architect Contractor DP, O, CM Consultants Contractor Subs / Consultants Contractor Suppliers

37

Contractual Relationships Among Project Participants

AIA C195/C196/C197

Owner Design Professional Contractor Consultants Subs Suppliers Consultants Subs Suppliers

38

Parties

• Owner
• Constructor
• Designer

T d C t t

• Trade Contractors
• Subcontractors And Suppliers

D i C lt t

• Design Consultants

39

Parties

• Collaborative Project Delivery Team (“CPD Team”)

O

• Owner
• Constructor
• Designer
• Designer
• “Joining Agreements” By Design Consultants And

Trade Contractors

40

Parties

• Management Group

representatives of: representatives of:

• Owner
• Constructor

Constructor

• Designer
• Others by joining and leaving.

41

Relationships

• Privity Among Owner. Designer. Constructor
• Constructor And Trade Contractors
• Designer And Its Consultants

“J i i A t ”

• “Joining Agreements”

42

Decision-making Process

• Management By Management Group

E d h b

• Group Endeavor to reach agreement by consensus
• Designated representatives
• Replacement of members
• Replacement of members

43

Decision-making Process

• Decision-making By Management Group

“P i i l f ll b i ”

• “Principles of collaboration”
• Consensus
• Best interest of the Project not each member’s own
• Best interest of the Project, not each member s own

interest

44

Decision-making Process

• Owner Ultimate Decision

If O d id “i h b i

• If no consensus, Owner decides “in the best interest
• f the Project as a whole, subject to …Article 23.”
• Implications

p

• Article 23: Dispute Resolution Article

45

Dispute Resolution

• Work And Payment Continuance
• Direct Discussions
• By Management Group

Mitigation

• Mitigation
• Optional
• Project Neutral
• Project Neutral
• Dispute Review Board

46

Dispute Resolution

• Mediation

C AAA C i I d R l

• Current AAA Construction Industry Rules
• Binding Dispute Resolution

Arbitration (AAA Construction Industry Rules)

• Arbitration (AAA Construction Industry Rules)
• Litigation – Costs Borne By “Non-prevailing Party”
• Venue: Project Location

Venue: Project Location

47

Limitations Of Contractual Liability

• ALLOCATION OF “PROJECT RISKS” (Article 11)

Losses

• Losses
• Borne By Owner
• Shared
• LOSS LIMITS – Costs In Excess Of The PTCE
• Designer’s And Constructor’s Fees As Limits Of

Th i Li bilit F E C t ? Their Liability For Excess Costs?

48

Limitations Of Contractual Liability

• Risk Allocation (3.8)

“S f H b D i i ”

• “Safe Harbor Decisions”
• Traditional Risk Allocation
• Limitations Of Designer’s And Constructor’s Liability
• Limitations Of Designer s And Constructor s Liability
• Mutual Waiver Of Consequential Damages

49

Cost Determination And Limit

• Financial Incentive Program

M G “Sh ll D l ”

• Management Group “Shall Develop…”
• An Amendment To The Agreement
• Characteristics Of Program
• Characteristics Of Program
• Funded With Project Savings
• Savings

Savings

• To Extent That Actual Project Cost Is Less Than The

PTCE

50

Cost Determination And Limit

• Project Budget

Design Budget

• Design Budget
• Construction Budget
• Cost Modeling
• Cost Modeling

If No BIM, Then:

• Preliminary
• Schematic Design
• Design Development
• Construction Document

Construction Document

51

Cost Determination And Limit

• Project Target Cost Estimate (“PTCE”) (8.3)

I I l d d

• Items Included
• What If Budget Bust? (8.3.5)

Owner Acceptance

• Owner Acceptance
• Owner Terminates The Project
• Management Group Requires Re-bidding And/Or VE

Management Group Requires Re bidding And/Or VE

52

Integrated Project Delivery Agreements in Construction Contracting

SPE Contract

Patrick J. O’Connor, Jr. Faegre & Benson LLP poconnor@faegre.com

Presented for Stafford Publications July 13, 2011

53

IPD Guide Describes Principles

• Jointly drafted by AIA National and

AIA California Council

• Sets forth broad principles relating

t I t t d P j t D li to Integrated Project Delivery

• Describes how to set up and deliver

Describes how to set up and deliver an integrated project

• Evaluates how existing delivery

models can be improved with principles of integrated practice

54

principles of integrated practice

For commentary regarding the C191, visit the following website:

http://www aia org/aiaucmp/groups/aia/documents/pdf/aiab081495 pdf http://www.aia.org/aiaucmp/groups/aia/documents/pdf/aiab081495.pdf

55

SPE Contract Structure

1 SPE Agreement

Owner

• 1. SPE Agreement
• 2. SPE Member

Services Agreement

C

4

C

4 3

Services Agreement

• 3. SPE Owner

Agreement

C

4

C

4

SPE

g

• 4. Non-Member

Agreement

2 2 1

CM A

56

IPD Approaches Multi-Party Agreement

Multi-Party Agreement

• New in October 2009

Blends concepts from Transitional and SPE models

• Blends concepts from Transitional and SPE models
• Adopts many tools and protocols from SPE model
• Owner Architect Contractor (and perhaps other parties) use
• Owner, Architect, Contractor (and perhaps other parties) use
• ne Agreement (but not an LLC)
• Other structural and management differences

g

• Responsibilities set out in General Conditions Exhibit

57

IPD Multi-Party Agreement Documents y g

Contract Relationship Diagram:

C191 Documents Owner Architect Contractor C191 Architect Contractor Consultant(s) Sub-Contractor(s) A401* C401*

*If A401 or C401 is to be used on a project with the Multi-Party Agreement, appropriate modifications should be made with the assistance of insurance and legal counsel.

58

IPD Management Approach

• Encourage joint leadership and responsibility
• Collaborative decisions for “good of the project”

g p j

Project Executive Team Project Management Team

• One rep from each party
• Lead overall coordination and

management of project

• One rep from each party
• Responsible for day to day management
• f project

management of project

• Unanimous decisions required
• Impasse subject to dispute resolution
• f project
• Unanimous decisions required
• Impasse matters are raised to Project

procedures

• Owner’s Directive may be issued

Executive Team for resolution

59

Mutual Benefit and Reward

SPE/MP attempt to align individual and project success

• Utilize both positive and negative incentives
• Utilize both positive and negative incentives
• Often referred to as pain share/gain share
• Profit only earned if project goals achieved /below

target cost

• SPE Members are at risk for services/MP labor
• ption

p

• Labor option for non-owner parties if target cost exceeded

60

Outline of MP Agreement Form

A General Conditions

AA Target Cost Breakdown

Multi-Party Agreement

BB Project Definition CC P j t G l

B Legal Description

g

CC Project Goals DD Integrated Scope

• f Services

C Owner’s Criteria D Target Criteria

EE Project Schedule FF Digital Data Protocol

D Target Criteria Amendment

GG BIM Protocol

61

Target Criteria Amendment g

62

Target Criteria Amendment g

Target Criteria Amendment (Exhibit D): Target Criteria Amendment (Exhibit D): A change to the Agreement made at end of Criteria Design Phase and before Detailed Design Phase g Sets Target Cost, Project Goals and more…. g j

63

Target Criteria Amendment g

Includes exhibits that allow parties to effectively manage Includes exhibits that allow parties to effectively manage project:

• Target Cost Breakdown (Exhibit AA)
• Project Definition (Exhibit BB)
• Project Goals (Exhibit CC)
• Integrated Scope of Services matrix (Exhibit DD)
• Integrated Scope of Services matrix (Exhibit DD)
• Project Schedule (Exhibit EE)
• Digital Date Protocol (Exhibit FF)
• Building Information Modeling Protocol (Exhibit GG)

64

Target Criteria Amendment Target Criteria Amendment

65

Non-Owner Party Compensation y p

Structured similarly to SPE Parties compensated for direct costs Profit Earned in two ways: Profit Earned in two ways:

• 1. Goal Achievement Compensation: parties receive additional

payments for delivering on specific goal payments for delivering on specific goal

• 2. Incentive Compensation: parties share in savings realized on

the project the project

66

Non-Owner Compensation Options

Goal Achievement Incentive Compensation

Parties jointly identify Goals: Project milestone goals

• Incentive Compensation =

portion of any savings realized j g End of project goals Project Goal achievement results

• n project
• Savings = amount Actual Cost

is less than Target Cost Project Goal achievement results in added compensation Achievements and resulting is less than Target Cost

• Parties receive a portion of the

savings as Incentive C ti compensation is all for one Compensation

67

Calculating Potential Savings

Target Cost Actual Cost Project Savings (if

Budgeted costs to design and construct project Paid direct + indirect cost to complete project A E d/P id G l

• =

Savings (if positive)

Available Contingency Insurance, including deductibles; bonds Any Earned/Paid Goal Achievement Compensation An Paid Disp te Possible Goal Achievement Compensation Any Paid Dispute Resolution costs p Dispute resolution costs

68

Target Cost g

t Cost

Available Contingency/ Potential Incentive Compensation Available Goal Achievement Compensation Target Cost Structure

Target

Anticipated Direct Costs Target Cost Structure

69

Cost Control

Primary Goal to maintain/beat Target Cost

• Monthly costs projections reported to Parties
• Monthly costs projections reported to Parties
• Recovery Plan written if Target Cost in jeopardy
• Recovery Plan may require changes to scope

Target Cost may be adjusted only:

• Owner-initiated changes in scope or schedule

Owner initiated changes in scope or schedule

• (Owner Directives)
• Force Majeure events, or

Oth i b i itt t f th ti

• Otherwise by unanimous, written agreement of the parties

70

TARGET Cost vs ACTUAL Cost TARGET Cost vs. ACTUAL Cost

et Cost

Available Contingency & Incentive Compensation

Target Cost Structure

Targe

Anticipated Direct Costs Available Goal Achievement Compensation

Target Cost Structure

• st

Actual Costs < Target

Actual Co

Actual Costs > Target

71

Target Cost Exceeded g

Architect and Contractor continue working and get paid for items Architect and Contractor continue working and get paid for items included as Cost of Work and direct Labor Costs OR OR Architect and Contractor continue working and get paid for items included as Cost of Work but NOT direct Labor Costs (Note: Subcontractor and consultant costs are not included in Labor Costs)

72

Risk Management Risk Management

Insurance

P ti i d t bt i i lt t t l b t i

• Parties required to obtain an insurance consultant to explore best insurance

program for project.

Waiver of Claims

• Agreement requires Parties to waive liability against each other, including

claims for consequential damages, except for claims arising from a party’s willful misconduct or breach of certain enumerated contractual duties.

Indemnity

• Each party required to indemnify others for claims for bodily injury or property

damage to the extent of the indemnifying party’s negligent acts or omissions. E h t l i d t i d if th f l i b d i i Each party also required to indemnify others for claims based on vicarious liability arising from failure of another party to perform an obligation under the contract.

73