By Dan Linehan | Contributing Writer
A building that begins in the imagination of its future owners usually enters the world slowly, moving from a designer’s drawings to construction blueprints to reality.
Under typical construction methods, the project changes as it gets passed from hand to hand. Often, these changes are made to save money for the owner or make it profitable for the builder.
The designer, general contractors and subcontractors bid separately and are accountable for their own work, but this method also erects barriers between these companies.
When it considered how to build its just-opened $314 million Sussex Campus along Del. 1 in Milford, Bayhealth wanted to try a different approach.
It turned to a small but growing project delivery strategy called integrated project delivery, or IPD. It’s called “integrated” because the designer, builder and owner work closely together from the start. They share the same contract, and, if they deliver a project under budget, they all share some of the savings.
“The difference with IPD is that the architect, engineer, construction manager and owner are all agreeing on the same target value,” said Mike Metzing, vice president of corporate support services at Bayhealth. That means they can work together to find value rather than operate based on their own incentives.
The project’s architect was CannonDesign, one of the country’s largest designers of hospitals. Troy Hoggard, a principal at the firm, says in the typical model the architect is “trying to make it bigger and more expensive, and the contractor is trying to make it smaller and less expensive.”
“We’ve figured out the better way to deliver a project is to have the owner, builder and designer work together,” says Hoggard, a self-described evangelist for IPD. Metzing agrees that IPD does a better job at pointing everyone in the same direction.
“We’re incentivizing people to always do the right thing, to work with us and save money,” he said.
Whiting-Turner, one of the nation’s largest privately held construction companies, built Sussex Campus. The company, based in Baltimore, managed this project from its Delaware offices in the Christiana Executive Campus.
Whiting Turner Division Vice President Joshua Fanelli, says more complex, difficult projects like a hospital lend themselves to an IPD approach. But it takes an owner willing to look at risk in a new way.
The difference is risk
In a design-bid-build project, a contractor gets a design, makes a lump-sum bid and, depending on its ability to deliver what they promise under that bid, profits. In most cases, that’s the best approach, Fanelli says.
This is because most projects are smaller and simpler, and a single, lump-sum bid gives the owners the ability to pay one price and benefit from a series of competitive bids.
The biggest difference with IPD is that every firm on the project is shooting toward the same price, called the target cost. If the total cost is below that, every party to the contract shares in the profit.
“IPD shares risk among all the various parties,” Fanelli says.
The idea is to motivate everyone to work together to find places to save money and add value. If there’s
a problem, everyone is motivated to fix it.
“You just did it and didn’t have a three-week discussion about who’s paying,” Fanelli says. “You didn’t argue about who was responsible and say things like, ‘That’s not in my contract.’”
Among the results is that contractors are more likely to share tools and staff.
That also changes the accountability structure. In a traditional method, a contractor’s mistake is their own; in IPD, it’s everyone’s.
As Metzing put it, “In IPD, it forces people to kind of look across the table at the other people and be concerned if somebody else is not performing.” In a few cases, a contractor had to be removed from the project, or “voted off the island,” he said.
It can require more work from the owner and general manager to keep reminding contractors about, for example, why they shouldn’t use overtime unless they really have to.
IPD remains a niche method; the majority of Whiting-Turner’s projects use the construction manager at risk model, which is something of a hybrid as far as risk is concerned. IPD is becoming more common on larger educational and healthcare projects, Fanelli said.
A new way to bid
In a typical project, design happens first, so a construction firm can use it to make a legally binding bid. But in IPD, those designs are created collaboratively, so subcontractors had only a general idea of their budget when they join.
When Whiting-Turner interviewed contractors, it didn’t simply ask for bids. Instead, it put out a request for proposals asking contractors to submit a non-binding budget estimate, among other requirements.
The contractors agreed to participate because the contract was structured so that they couldn’t lose their overhead costs. But if they delivered under budget, they could share the profit.
“In essence, at worst you break even and make no profit,” Metzing says. “That’s it in a nutshell.”
Getting contractors onboard early allowed them to help shape the design.
“The trades were able to attend design meetings and actually had input on what was actually going on the building,” Fanelli said. Those ideas helped the team save time and money.
Sometimes, owners struggle with the lack of competitive bidding, says Hoggard, who has a few responses to that.
First, a project owner will interview top firms with the experience in a particular state and industry. These firms are not competing on price, but they’re competing on reputation and experience of delivering projects under budget.
Second, any money saved by competitive building is more than made up for by change orders and inefficiency, Hoggard says.
“The waste they wring out from working together is greater than what you gave up by going without traditional bidding,” he says.
Metzing says the real benefit of IPD to a building owner isn’t in saving money, but about getting more of what they want in a project.
“What I tell people all the time is IPD won’t save you money, but you’ll get much better value,” he says. “You’re going to get more of what you thought you were going to get without spending extra money.”
A few examples illustrate why the partners say IPD did a better job at negotiating the trade-offs inherent in construction.
Patient beds, IV stands and other heavy equipment can be punishing to hospital walls. To protect them, hospitals erect bumper-like barriers, often including a railing to help patients steady themselves.
The tradeoff in wall protection is often durability and appearance versus cost. Wall protection can be cheap — some stained wood from a home improvement store can do the trick — or durable, stylish and expensive.
Using traditional project delivery, a designer like Hoggard may plan for pricey wall protection everywhere. Without knowing the details, especially the true installation cost, they have to paint with a broad brush.
Metzing, at Bayhealth, said having a deeper discussion about wall protection led them to add it in places that need maximum protection, like a loading dock, but holding off elsewhere to see if it were needed. He drew an analogy to how colleges wait to build paths until they observe where students choose to walk.
Discussions between Hoggard and a concrete subcontractor about how the building would look provide another example of how IPD works. The team wanted to “skin,” or erect a covering over, the building as quickly as possible but still end up with a good-looking facade.
Using traditional methods, he’d design the facade, send it to the contractor and probably get it back to cut costs. Instead of tossing the design back and forth, he worked with a pre-cast concrete contractor to find an option that could be built quickly and still look good.
Fanelli said Whiting-Turner ended up picking the concrete contractor in part because they were able to meet that design intent. The budget, in other words, was part of it, but it wasn’t everything.
Even if it didn’t save money, it satisfied the owner. “I would do it again,” Metzing said.