By Jason Lewis, Senior Legal Counsel, WSP Canada, Catherine MacInnis, Associate General Counsel, IBI Group, Lauren Prolas, Student-at-Law, KMB Law, LLP, and Lampros Stougiannos, Partner, Dentons Canada LLP
Integrated Project Delivery (“IPD”) is still relatively new in Canada. For the uninitiated, IPD is a project delivery method that seeks to foster collaboration among key project participants – including the project owner, the general contractor, subcontractors, and suppliers, as well as design and engineering professionals – from project inception through to completion. Participants all sign on to a single poly-party agreement which provides that they will share in the wins and the losses associated with the project proportionally and in accordance with an agreed-upon cost and profit-sharing mechanism. Their interests are further aligned through project governance mechanisms that encourage cooperation throughout the design and construction phases of a project. Finally, parties to an IPD contract agree not to sue one another in relation to circumstances that arise during project execution, except in very limited and specified cases.
At a very high level, IPD is premised on the following principles:
These are revolutionary concepts for the construction industry.
Despite being touted as a model to improve project performance and value, IPD faces reluctance from participants at various project levels (most notably, the risk professionals and the risk averse).
The principles of IPD are, in many respects, foreign to what the industry has become accustomed to. This is particularly the case with regards to IPD’s focus on collaboration, risk sharing, and liability waivers. Rather than the more traditional approach, whereby each party to a design or construction contract seeks to minimize the risks carried by them and maximize those of their counterparty, IPD requires parties to share in these risks and to work collaboratively as part of a unified project delivery team. Given this, stakeholders interested in IPD are justifiably nervous.
So, does IPD really work? We asked some of the key players in the Canadian IPD market to offer their views on this important issue.
Terri Gosine, Director, Integrated Infrastructure Services, and Crystal Plante, Manager of Capital Projects, at Edmonton Public Schools. Terri and Crystal have led the implementation of IPD procurement for over a dozen schools with the Edmonton Public Schools District. The projects have ranged from large new high schools to small Inspection, Maintenance, Repair Infrastructure Maintenance and Renewal (IMR) projects. They have become recognized pioneers of IPD in the public sector.
Roddy Handa is trained as an architect and lawyer. Roddy is presently solving problems at holo-hlok, an architectural firm he co-founded, which is based in Edmonton and specializes in IPD.
David Bowcott is a Global Director at Aon in the Innovation & Insight, Global Construction & Infrastructure Group. Aon is a leading global professional services firm, providing a broad range of advice to clients on risk and insurance.
Handa: The industry is in a fragmented state that has led to stagnation in productivity, innovation, and value generation. The framework of an IPD project allows for a new approach to the delivery of a built asset where expertise and information can be shared without fear of litigation or repercussions. This appears to be one of the biggest perceived barriers in conventional procurement models.
Gosine: Why not? In 2017, we opened 11 schools at once (using IPD) which was a rewarding process. In 2017, we opened 11 schools at once (using IPD) which was a rewarding process once using the traditional design-bid-build model which became a race to the bottom which is not a good way of working – for any party involved. What is better? To have everyone pulling in the opposite directions and working towards opposite goals (using a traditional model) or pulling people together to sit as a team (using IPD).
Plante: Without IPD, it can be a race to the bottom, anticipating an influx of change orders due to the perceived inability to construct the project at the tendered costs (based on unrealistic submissions). As the owner you are the middle man, one contract with the architect and one with the general contractor – you become the middle person, trying to mitigate the process between both interests.
Bowcott: IPD does appear to be past the big hump in the hype cycle and be moving towards a more sustained growth globally. In October 2019, Aon was asked to participate in a World Economic Forum workshop on Risk Allocation in large/mega projects. The outputs from this effort were presented at Davos 2020 and spawned further workshops. The WEF just completed their second workshop on collaborative contracting where they brought owners from around the world, including LA Metro, Infrastructure Ontario, Infrastructure Canada, and Infrastructure Performance UK. Owners, design firms and contractors attending these workshops all agreed a new model is needed to manage the degree of uncertainty and risk on complex projects (the greater the degree of unknowns or risks, the greater the procurement model should focus on collaboration). The next phase of these efforts is quantifying the impact of collaborative models on key metrics like schedule, cost, number of RFIs, number of defects, and, my favourite – insurance claims. The hypothesis, and early data sets developed from the IPD community seem to be proving this point, that collaborative contracting leads to better outcomes in construction and if applied to the whole life of the asset, should lead to better outcomes related to total cost of ownership of the built environment asset. The more evidence being collected to confirm this hypothesis, the more you will see collaborative contracting grow.
Gosine: Ken Jaeger, Red Deer Catholic School was the first project in 2017, which was one high school and one elementary school. To see the schools and starting to learn about IPD was exciting. I was very excited to learn about the new processes and incorporating team work. A cognitive shift from the traditional approach. Schools are based on collaboration and so is IPD. Since that first project, there are now three schools through the IPD model and 4 schools currently under construction (in Edmonton). We are working on a modernization project across 13 schools at 4.5 million. It is complex, but there is more benefit of IPD in a modernization project including for the trades and the designers. There are no unexpected change orders. It removes the surprises from the project.
Handa: My first experience with an IPD project was on two schools for Edmonton Public Schools – Soraya Hafez and Thelma Chalifoux. My involvement on this project was limited but it gave me insight on how the project team could bring on a shared resource for the benefit of all stakeholders on the project. I was engaged to set up digital project delivery frameworks for the project that could be used by consultants, the contractor, the sub-trades, and the ownership group. After that, I became fully engaged on an IPD project as the co-prime consultant on two additional schools – Aleda Patterson and Alex Janvier. My involvement on this project included full digital project delivery implementation, design, documentation, and fabrication modelling for some of the trades.
Gosine: IPD mitigates the traditional risks and the unexpected. The risks that we have found are in the team. It is important to get the right cultural fit, to set the right culture is important for IPD. You need to make sure that everyone who sits at the table is empowered to agree or disagree – to make decisions. People become crucial to a project’s success in IPD.
Plante: Traditional thinking is the biggest risk. Companies need to be transparent in the budgeting and forecasting. There are no hidden contingencies.
Handa: The biggest risk to an IPD practice is certainly the composition of the team. An IPD is all about accountability, attitude, and ability. If each of the Incentive Compensation Layer members do not possess these characteristics, the team will fail. Moreover, given the structure of an IPD, this team needs to be willing to take some risks to innovate. One of the overlooked aspects of an IPD is the ability to find ways to inject more value into the project. This means reducing the costs of specific line items through innovation so that wish list items can be integrated. Unless the team is willing to innovate (which goes to the attitude of the team), IPD becomes an empty vessel where the same character of assets are built. I don’t think that’s what IPD is set out to do.
Handa: At holo-blok, we have taken a more holistic approach to all projects, whether they are IPD or not. Often one of the barriers preventing team members from innovating or contributing in an IPD setting is their lack of technological knowledge. We have developed a concept with industry leaders called “Digital Project Delivery” which aims to educate all stakeholders how they can participate in digital delivery. This Lean concept gives team members the ability and confidence to adopt new practices that can benefit the whole team. In addition, we try to support these team members who want to try something new. If a trade is eager to try something new, such as fabrication modelling, but doesn’t possess that skill in house, we take on that scope. That’s the beauty of IPD. Scope can flow between the team members without worrying about contractual amendments or restructuring liability.
Plante: You need to have a safe space. It is also important to have an experienced facilitator to assist with the project and having the facilitator to provide training to new members. You need to build the IPD culture and guide the process and facilitator and ensure the individuals feel empowered to speak their opinion. There must also be shared leadership and an environment that fosters innovation.
Bowcott: The emerging risks in the global construction economy are mainly:
Bowcott: Each risk has its own set of controls that optimally mitigates the frequency and severity of that particular risk; their own set of risk controls that can be used to manage each risk and other top risks. The following is a framework that Aon utilizes, which harnesses three categories of risk controls, and two categories of risk finance solutions in order to continuously improve the way in which project risks are being managed (each should feed the other to constantly improve risk management results):
Gosine: Fear of the unknown. IPD is so new and not well known across Canada – but it’s growing. People don’t quite understand the concept of a collaborative model in construction:
Plante: Transparency can be difficult to get into. All parties need to open their books and show how much their overhead is, maybe even in a situation where you are showing your competition these things. That is difficult. We need to focus on getting past these traditional trust issues.
Bowcott: “This is the way we’ve always done things!” seems to be a common stance in construction and it is clear that there should be more procurement model experimentation. It makes sense that early collaboration between design, contractors and owners leads to better outcomes on projects. There are some stakeholders within the construction sector (some advisors – lots like lawyers) that would discourage “going outside your swim lanes”, and it is advice that needs to be considered. That being said, to not experiment, in a measured manner, with new procurement models because of a fear of failure, or a fear of the unfamiliar, does seem to be a drastic position, but I think some interpret that advice to mean don’t try to find a way to make new procurement models work because you invariably go outside your swim lane. Given the losses we are seeing happening on the insurance sector side it doesn’t seem like the “tried and true” procurement methodology is working very well and perhaps the industry should consider some measured experimentation around new procurement models should be looked at.
Handa: Ironically, I believe most of the fear is associated with the fact that the profit layer is tied to the performance of the entire team. I find this ironic because that is always the case, regardless of the procurement model. For example, on a design-bid-build project, if the team is not collaborative and if decisions are not made with some precision, everyone’s profit layer is eroded. Industry just seems to have an issue with having that reality written down as it is on an IPD contract.
The second biggest issue in my opinion is that it is a new procurement model. Industry has historically used this line of thinking as a crutch – whenever anything is new and unproven, the industry is slow to adopt. This was the case with Building Information Modelling and Sustainability – but look how commonplace they are now. I believe IPD will be the next item on that list.
Many industry stakeholders are concluding that the traditional methods of delivering projects have led to excessive litigation and huge losses. As a result, there is now more of an appetite to accept change, including by working more collaboratively and agreeing to limit disputes.
When IPD is done right, it can reduce the risk of unexpected outcomes on a project, which is a key objective for all project participants. One of the ways this is accomplished is through transparency and a focus on project governance, allowing team members to communicate and collaborate more effectively – generally through the use of tools such as BIM – on matters such as value engineering and design-optimization. Use of BIM also allows for clash detection, which reduces risks on projects.
IPD cannot eliminate project risks altogether, especially those stemming from non-performing team members or those who remain “stuck” in a more traditional project delivery mindset. Buy-in is necessary and in order for an IPD project to be successful, parties should consider additional training for those involved.
One of the best ways to foster transparency is through careful contracting that includes: liability waivers amongst team members and provisions for the incentive pool, which is designed to reward members for their contributions (without the need for litigation).
“When IPD is done right, it can reduce the risk of unexpected outcomes on a project, which is a key objective for all project participants.”
The Canadian Construction Documents Committee has contracting resources available for IPD Projects (See: CCDC 30). There are ongoing efforts to update and improve upon these documents as we learn more.
Check in with legal and insurance professionals at the contracting stage. If your company has an insurer, they are often a free resource to bounce ideas off of.
In acknowledgment of the article’s takeaways, IPD is premised on collaboration and alignment of values where profits are maximized through a multidisciplinary approach to address project challenges in place of siloed litigation. However, it is these concepts in addition to traditional thinking, which aggravate the concerns for those, such as lawyers and insurers, tasked to be risk averse.
IPD is by no means a blanket solution for a successful project, but rather a tool – much like BIM, which in its infancy also challenged the status quo of conventional design thinking. IPD has proven to be more than the embodiment of aspirational language, but rather, in some instances, a vetted solution for the modernization of the construction process, providing a new path forward where, if our experts are to be believed, the future is friendly.