IPD: Impress Me, Please

Posted on June 15, 2012

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In an article on the Seattle Children’s Bellevue Clinic in Green Source’s March+April 2012 issue, I read a couple of sentences about how the project was delivered in the IPD model, or Integrated Project Delivery.

I am surprised how positively IPD is still portrayed as something new and good for the owner. Is it really?

The article mentions how the owner asked the architect, NBBJ, and the contractor, Sellen, to pony up 1% each of the construction cost, which would be lost if they did not meet budget and scheduling goals (they earned 95% of that at-risk 1%). Although not discussed so much in this article, such project arrangements are often made to seem especially sacrificial, extraordinarily gutsy, all-for-one, progressive.

I disagree. Forfeiting 1% if you don’t do your job?  That seems paltry.

Staying within budget and schedule are par-for-the-course. Make no mistake:  that 1% at-risk is revenue for sure for the architect and contractor, but likely profit as well, so losing it would be a relatively small sacrifice. Sure, if the architect and contractor don’t perform, they lose that margin—but they still cover their costs, and likely still make a profit on the job.

Guaranteeing a profit for the architect and contractor:  how is that somehow innovative, more effective teaming, or an improvement over other alternatives for the owner?

In the investment world, where equities are traded, brokerage houses offer traders (and companies like Scottrade offer individual investors) the ability to limit losses on a trade with something called a stop-loss order. A stop-loss order automatically initiates a sale of an equity (stock, mutual fund, etc.) when it drops to a certain price. This arrangement helps limit the downside risk for when a hunch does not pan out.  Stop-loss orders are particularly useful in high-risk trading scenarios involving options, where investors buy an open-ended contract to buy or sell a stock at a future price.  Such arrangements allow investors to gain, or lose, proportionately more depending on their appetite for risk.  Greater risk, greater reward.

IPD looks to me like a preemptive stop-loss order for the architect and contractor. It limits downside risk for the architect and contractor without providing equivalent value for the owner. After locking the owner in on project objectives, the IPD team gambles 1% on the fact they will perform as expected.  If they don’t, they lose 1% of their fee—but still get paid for everything else.  If the IPD team misses by a bit, they earn a fraction of their 1% back. If they miss the budget or schedule by 15%, overages the owner must pay for, the team still forfeits only 1%. Less risk, greater reward.

Compare that with design-build.  The architect and contractor guarantee a maximum project price (GMP), schedule, quality.  The main difference here is the GMP is the number, and any cost over that number is the responsibility of the design-build team—not merely a 1% limit, but anything. Greater risk, greater reward.

If the team does not meet its budget and schedule responsibilities and it runs 5% over, the design-build team absorbs the 5% difference.  If it goes 17% over, the team eats 17%, in which case revenue and profit are both lost.  If a project is poorly managed, a design-build team can end up paying the owner to build the owner’s project—as it should be. Now that is stepping up and managing risk, staking a professional reputation on delivering promises. Design-build delivers a clear message the owner:  you will get your project delivered for the GMP, period.

IPD touts many benefits already present in integrated design-build, aka design-build by a single company, like co-located team members, improved collaboration and shared risk and reward. Integrated design-build has been providing integrated project delivery for over 45 years.  Not “IPD” but “ipd”. I don’t see anything remarkably new, collaborative or pro-owner in IPD.

Design-build is the original integrated project delivery.

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