Brian Perlberg Joe Cleves DBL Law ConsensusDocs Executive Director Joel Darrington DPR Construction Will Lichtig The Boldt Company Patrick J. O’Connor Faegre Baker Daniels LLP Webinar: State of the Art in IPD Contracting April 6, 2016 1
CO M M E RC I A L
Organizational Operational Commercial • Hierarchical • CPM • Lump Sum • Siloed • Specialists • Low Price Old • Command & • Parts Control • Collaborative • Lean • Entrepreneurial • Flat • Sustainable • Collective ILPD • Consensus • BIM • Best Value
History of IFOA/CD 300
Construction Formation of team CD300 sequence Validation Pre-construction Construction Commissioning and close-out
Formation of Team • Identify initial IPD Team and Core Group Project Owner’s Allowable Project Business Program Cost objectives Case • Execute Agreement • Initial meeting • Joint worksite investigation by Core Group
Validation Phase Validation Study • Proposed Expected Cost • Project budget with Payable Costs • Proposed Risk Pool • IPD Team compensation and contingencies • Project Schedule.
Validation Phase Options if Expected Cost > Allowable Cost: • Owner can increase Allowable Cost • Core Group can assist with adjustments to Program • Owner can terminate Agreement.
Pre-construction Phase Update Project Schedule Create a Responsibility Matrix Initiate Target Value Design and set a Target Cost under Expected Cost Establish BIM parameters Designate design-build portions of Work Create a DP Work Plan Continuous cost modeling.
TVD Clusters M/E/P Building Structure Envelope Team Site Interior/ Improvements Finishes Leaders Landscape Vertical Material Transp. Handling
Risk Pool Integrated Members Project Delivery Other Core Group Landscape Team Imaging Diagnostics Owner Steel Electrical Stake Other holder CM/GC ’ s Material Mgt Mechanical PM A/E ’ s PM Civil Owner Rep Framing Landscape Structural Site Admin Food Service Plant Operations
Other operational elements Reliable commitments Pull planning • Applies to both design and construction Subcontractor selection and self-performance • Ts and Cs approved by Core Group Key personnel Meetings.
Compensation Basics of Compensation: Design Professional (DP) and Constructor are reimbursed their Payable Costs and paid their Profit, subject to the Risk Pool Plan Payable Costs detailed in Article 9; paid monthly Retainage: TBD in Risk Pool Plan Open book accounting Risk Pool Plan is team-developed Estimated Maximum Price (EMP) not guaranteed unless specifically provided in EMP Amendment 13
Cost Benchmarks Progression of Cost Benchmarks Allowable Cost Expected Cost & Target Cost Actual Cost V EMP a l i d Preconstruction Construction a Phase Phase t i o n 14
Build-Up of Benchmarks Expected Cost EMP Target Cost Profit Profit IPD Team Contingency Profit IPD Team Contingency IPD Team Contingency Allowances Allowances Allowances Payable Costs Payable Costs (includes o/h) of Design (includes o/h) of Design Payable Costs Professional & Professional & (includes o/h) of Design Constructor Constructor Professional & Constructor 15
Cost Overruns Order of funding cost overruns: 1 st 2 nd 3 rd 4 th 5 th Recover costs IPD Team Undistributed Clawback From Contingency from available amounts of from Owner insurance Risk Pool distributed (assuming proceeds or Risk Pool EMP is not responsible amounts team 3rd parties guarantee) 16
Payment Issues Owner Withholding: Owner may temporarily withhold payment for listed reasons until underlying reason is resolved, and only for the amount at issue Owner Failure to Pay: If Owner fails to pay within 7 days of due date, unpaid party may suspend work upon 7 days notice Final payment is due within 20 days of Core Group’s execution of certificate of Final Completion 17
Delays Extensions of Time: For any critical path delay beyond its control, Constructor or DP may request an extension of time and an adjustment of the Expected Cost/Target Cost/EMP by the amount of the associated additional Payable Costs. Reasonable notice requirements: 14 days after discovery Requirement to mitigate delay impacts No liquidated damages 18
Changes to Benchmarks Limited Bases for adjusting Expected Cost, Target Cost, EMP and Profit. Only for: Scope changes Changes in Law enacted after Agreement execution Differing site conditions Allowance reconciliations Other circumstances expressly provided in Agreement (e.g., excusable delays, Owner acceptance of defective work) 19
Interim Directed Changes Interim Directed Changes If Owner wants to implement a change before agreement on a Change Order, it may issue an Interim Directed Change Parties expeditiously negotiate adjustment to cost benchmarks and Contract Time in a Change Order If they don’t do so expeditiously, then adjustment is made on basis of incurred Payable Costs plus Profit 20
Risk Pool Plan Owner Risk Pool Members Risk Pool 21
Risk Pool Plan Risk Pool Plan: Included as part of approved Validation Study At minimum, involves Constructor and DP Profit set as a fixed dollar amount, adjusted for Change Orders Plan needs to establish a Target Cost 22
Risk Pool Plan Risk Pool Plan (cont.): Needs to address: Interim and final distributions of profit How cost savings are determined and shared How retainage is addressed for different IPD Team members How to adjust Profit for escalation Effect of Change Orders Impact of post-completion warranty repairs Termination of a Risk Pool Member 23
Overview of Risk Pool Plan Template #1 Basic plan, with fewer moving parts Sets out for each Risk Pool Member: Profit amounts Risk/Reward % Maximum Change Order Markup % Shared Savings: If Actual Cost < EMP, then x% of savings is added to Risk Pool No retainage on Risk Pool Members’ Payable Costs, but 10% retainage on non-Risk Pool subcontractors until 50% construction completion 24
Overview of Risk Pool Plan Template #1 No Profit paid until Final Payment Provides for lump sum payment for post-completion warranty services, due at final payment Cost overruns charged to Risk Pool at large and not to any one member’s Profit amount Adjustments to Profit for Change Orders determined by Core Group based on equities of the situation Recalculation of Risk/Reward %’s when anyone’s Profit is adjusted 25
Overview of Risk Pool Plan Template #1 Escalation: Baseline costs: Profit based on assumed level of escalation at time of Expected Cost. Payable Costs due to escalation initially funded from escalation allowance. Once allowance is exhausted, then a Change Order increasing cost benchmarks. For a Risk Pool Member, once it exceeds its estimated amount for escalation in the allowance, that member gets a Profit adjustment on that incremental cost increase using its Change Order Markup. This is initially funded from escalation allowance, and then by Change Order if allowance is exhausted. No Profit increase if Core Group determines that IPD Team failed to protect against foreseeable escalation 26
Overview of Risk Pool Plan Template #1 De-escalation: Also addressed, and is essentially the flip side of what happens with escalation, except that Core Group may limit the amount of Profit decrease to prevent inequity Termination for convenience: Before EMP: Terminated member gets pro-rated amount of its Profit based on its % completion of work at termination. After EMP: Terminated member gets its Risk/Reward % of the Risk Pool as reasonably estimated by the Core Group at termination. 27
Overview of Risk Pool Plan Template #1 Termination for cause: No Profit paid to terminated Risk Pool Member until after Final Completion. At time of termination, the terminated member’s Risk/Reward % of Risk Pool as reasonably estimated by the Core Group is converted to a dollar value, but capped at the terminated member's Profit established in this Risk Pool Plan pro-rated to the date of termination based on the % completion of its work Owner right to offset Owner’s costs incurred because of such terminated Risk Pool Member's default to the extent allowed by the Agreement. 28
Overview of Risk Pool Plan Template #2 Robust plan, with advanced features to promote integration and project excellence Sets out for each Risk Pool Member: Profit amounts Risk/Reward % Maximum Change Order Markup % Regular Performance Evaluations with scoring against Key Performance Indicators (KPI) Helps drive continuous improvement KPI score on scale of 0-5 KPI scores adjust compensation 29
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