What makes IPD (Integrated Project Delivery) contracts different to other forms of agreements for commercial design and construction projects?
The primary difference with integrated project delivery lies in a single contract where the owner, the primary designer and the primary builder sign the same agreement. This is often called an integrated form of agreement, or an IPD contract.
In other delivery models, the owner contracts with the design party and separately contracts with the general contractor or the build party. In Design/Build, the owner typically contracts with the builder and the builder then contracts with the designer. The owner either ends up administering two contracts and is in between the designer and builder or they end up with a direct contract to the builder and don’t have a direct contract with the designer at all.
Advantages of an IPD contract
Contrary to a Design Bid Build or Construction Manager at Risk model, the advantage of an IPD contract is that there is only one contract for a single dollar value.
Below are the primary components of an integrated project delivery agreement.
Design and construction are aggregated into a single amount, either called the target cost or the estimated maximum price, depending on which version of the contract teams are using. Consequently, the owner contracts for one single dollar value.
The team, on the other hand, has guaranteed costs, which are done open book. The designers and builders get guaranteed costs from the owner. In exchange, they put their profit at risk. Consequently, if the project goes over the target cost or the estimated maximum price, the team will forfeit their profit for the job.
The owner typically provides a shared savings plan. If the project finishes under budget, the team will get their entire projected profit for the job plus an enhanced profit from the shared savings on the project.
Shared risk and reward program
A single contract with a shared risk and reward program allows guaranteed costs to the build and the design teams and shared savings for all involved parties.
Within this contract structure, it doesn't matter who goes under budget or over budget within the team because the entire team is evaluated on whether they exceed or beat that target cost or estimated maximum price as a whole.
This contract model aligns all parties to a single goal in a single project, which is one of the first steps to getting a truly aligned team and better outcomes in the development of commercial construction projects.
Feature image: Krakenimages via Unsplash
James is an expert in the set-up and structure of large, complex capital projects using Lean and Integrated Project Delivery to drive highly reliable results.
He has negotiated IPD contracts and delivered over $650M in complex healthcare projects as an Owner's Representative with multiparty contracts, aligned team incentives and collaborative delivery models.