New IPD Agreement Offers Significant Improvements
Joel W. Darrington
Posted: November 6, 2017 | Project Management
Integrated Project Delivery (IPD) greatly improves project outcomes by realigning the contractual relationships of project team members to serve the best interests of the project rather than any one team member. Recent academic research bears this out.* Also, people working on IPD projects find greater engagement, and even fun, working in that environment.
But some people have shied away from IPD because of what they see as high barriers for entry, including uncommon contracts that require specialized outside legal counsel to draft, negotiate, and understand.
I was privileged to work with the committee tasked with creating a comprehensive update of the ConsensusDocs 300 IPD Agreement (CD300). Among our key goals was producing an industry form agreement that represented the current state-of-the-art in Integrated Project Delivery and eased some of the barriers for entry to companies wanting to undertake an IPD project. The committee worked for a number of years, with input from various perspectives in the industry, and released the entirely updated ConsensusDocs 300 and an accompanying Guidebook in early 2016.
As I speak with people about my work on the editorial group for the updated CD300, I am frequently asked what makes the new document better. The early responses I've heard from those who have reviewed the new document have been enthusiastic: the new CD300 is a major improvement over the former version. What makes it better? Here is my summary of the key improvements:
- Provides for a structured Validation Phase at outset of the project. The team validates the Owner's Business Case, develops the Expected Cost and Target Cost, gains alignment on key Project Objectives, and the risk/reward approach for the Project prior to advancing to the full Preconstruction Phase and Target Value Design.
- Reformulates the basic compensation provisions to reflect current best practices in IPD contracting, and provide flexibility to select among common alternative approaches to reimbursement of various kinds of team costs.
- Provides flexibility and better guidance in the parties’ development of the risk/reward compensation system. The CD300 provides appropriate parameters for the team's development of a Risk Pool Plan, but allows the team the flexibility to develop their risk/reward incentives in the way best suited for that team and project. For additional assistance, the Guidebook to the new CD300 provides a few different Risk Pool Plan templates that can be used or adapted.
- Provides greater certainty and clarity about how cost overruns are handled.
- Adopts a broad limitation of liability of Risk Pool Members to their profit at risk, with clear and limited exceptions. (Note: Because of the broad limitation of liability, which would apply to both direct and consequential damages, there is no waiver of consequences damages.)
- Consistent with current best practice, introduces two levels of collaborative project governance: a Core Group of representatives of the Owner, Design Professional and Constructor, plus any invited Joining Parties, and a Senior Executive Team of senior executives from each company represented on the Core Group. The Core Group makes the project decisions on a consensus basis, with unanimity required. If they cannot achieve unanimity, the matter is referred to the Senior Executive Team for decision.
- Better provisions supporting Target Value Design (TVD), including the use of TVD Clusters.
- Improved alignment with current best practices in Lean Construction methodologies.
- Provides processes for risk identification, tracking, and mitigation.
- Greatly improves organization, coherence, and clarity of expression in contract provisions.
For more details on the items summarized above, you can check out this helpful website: http://www.consensusdocs.org/StateoftheArtinIPDContractingWebinar.
Our hope is that this well-crafted and flexible industry form IPD agreement, along with the accompanying Guidebook, will make it easier for project teams to choose Integrated Project Delivery when structuring their projects.
* See “Motivation and Means: How and Why IPD and Lean Lead to Success”, Research Report, November 2016 by University of Minnesota in collaboration with University of Washington, University of British Columbia, and Scan Consulting, available at http://arch.design.umn.edu/directory/chengr/documents/motivation_means2016.pdf, accessed 18 September 2017.