Removing the Main Barrier to Improvement

on capital & construction projects

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Ian Heptinstall – my CV

• 15 years managing projects - chemicals/ process

• 10 years in procurement – chemicals, pharma, construction

• 10 years management consulting –procurement & supply chain

• Now independent

Collaboration Why the lack of collaboration is the main driver of poor productivity

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And what you can do about it

The Project Alliance (Integrated Project Delivery – IPD)

CollaborationCollaborative teams deliver better results• They need less ‘policing’• Are more creative• Waste less• Are more fun and less

stressful to be a member of

Collaboration• Those of us in the UK are aware that Latham, Egan,

etc al have been saying this for years

Collaboration• In the USA the CII found

these results over 20 years ago

• And more recently, in 2015, the University of Minnesota looked at 59 collaborative project teams• 90% -> Better overall

value

+25% Profit

+30%Satisfaction

-10% Cost

-20% Time

-65% Changes

-83% Claims

-99.8% LTA

The impact on productivity

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And it isn't just a tiny issue

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• McKinsey have identified collaboration one of their major enablers of productivity improvement

• But these are not independent improvement opportunities that you can pick-and-mix

• Collaboration – or the lack of it underpins many of the other opportunities. It is a PREREQUISITE for many of the other value-enhancing methods.

• Meaning its impact is MUCH MORE than the 6-7% from27-38% implied in this report

Levers for productivity improvement

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Main Categories Saving Levers

Regulation

Collaboration & Contracting

6 Time & cost reduction from process & admin

Design & Engineering

8 Value Engineering, Constructability, Repeatable & standardised design, “Production System”, Tighter

integration with contractors

Early involvement. Reduced waste – design for bidding

Procurement & SCM

4 Consolidation, Digitisation, Category Management, Planning & transparency

Coordinated logistics

On-site Execution

4 Rigour in planning, Last Planner®, Owner/Contractor alignment, Synchronisation &

coordination between different contractors

Technology 5 BIM & PMIS tools, allowing common data base across whole project

Capability Building

4 Reskill – esp digital tools. Which skills are needed. Reduced resource needs.

Reduced stress levels

31%

Highlight => Work much better in a collaborative project team & lack of collaboration seriously inhibits their power

It doesn’t look like we have got it right!

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201020001990

In 3500 projects drawn from all over the world in several different industries, [cost] overruns are the norm, being typically between 40 and 200 per cent. [1987]

90% of projects overrun their budgets at an average rate of 28% [2002]

The Main Barrier to collaboration

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Contracts &Procurement

Procurement - The Main Barrier• The common forms of contract used on capital and construction

projects are inherently un-collaborative in nature• Fixed Prices, GMP, and associated penalties for breach

• I can win, you can lose• Very high risk to suppliers• Add to the overall cost• Waste time because they take longer to agree, and for change to be managed• Incentivises conservatism and behind-the-scenes cost cutting

• Reimbursable or basic cost-plus• Incentivises suppliers to increase billings• Penalises suppliers who uncover savings and improvements

• Adding a “Partnership Charter” over the top of other contract terms adds a potential conflict• But it is possible, with luck and senior-level support

Removing the commercial barriers to collaboration

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•Use a Project Alliance

• Also known as IPD – Integrated Project Delivery

•This is BOTH

• A form of contract

• A philosophy or mindset

What is an Alliance?

What I’m not talking about…

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• A legal organisational structure• PPP style formal joint ventures (SPV)

• Supply chain JV’s

• Long-term, multi-project, agreement or framework

• A “let’s be nice and things will work out” partnership charter, added to a traditional contract

A Project Alliance/IPDA few key features• Exists for a single project.• A multi-party contract (usually).• Removes the obstacles to team-wide collaboration.

• Aligns the commercial interests of the client and supply members• Win together, Lose together

• Consensus, unanimous, decision making• Limited ability for members to claim & litigate

• A “relational contract”, based on principals rather than detailed obligations.

• Team selected early, based on competence. • Though still selected competitively.

• Works collaboratively with whole supply chain.• Focus & resources on the problem/opportunity.

• Not on the contractual relationships between team members

A Project Alliance/IPD

Sub-contractors

Sub-contractors

Sub-contractors

Main Contractor

Client

Traditional Contracting

Advisors

Sub-contractors

Sub-contractors

Sub-sub-contractors

Project Alliance (IPD) TeamMember

1Member

4

Client

A Project Alliance

Member 2

Member 3

Shared risk/reward Traditional Contracts

Sub-contractors

Sub-contractors

Sub-contractors

Sub-contractors

Sub-contractors

Sub-sub-contractors

Collaboration on a Project

Case Study: The “Fix 7” Project

Integrated Project Team

Alliance Contract

Project Alliance Case Study: Fix-7Project Alliance3-company contractReduced waste & “policing”Difficult Goals

Client

EPCM

Construct

SuppliersSub-

contractors

Client

EP CM

SuppliersSub-

contractors

Traditional Approach

Project Alliance Case Study: Fix-7

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• 3-party contract: Client | Engineer &Procure | Construct• 4 week selection for $10M construction work• RFP was 3 pages• Payment using CFV method

• Cost + Fixed Fee + Variable Fee

Contin.y

Constr

EPCM

Cost

FF 1

VF 1

FF 2

VF 2

FF 1

VF 1

FF 2

VF 2 SafetyShutdownScheduleCostBehaviour

… 30%… 25%… 15%… 20%… 10%

3rd Parties

SalariesN

ot to

sca

le!

Performance Fee Breakdown

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• Variable Fee – “Profit at Risk” = £300,000 total• Co.1: £200,000 67%• Co.2: £100,000 33%

SafetyShutdownScheduleCostBehaviour

… 30%… 25%… 15%… 20%… 10%

£90,000£75,000£45,000£60,000£30,000

£300,000

£180,000£22,850£45,000

£168,135£60,000

£475,985 159%

CFV Payment: Cost + Fixed + Variable

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• Cost• Should be just that – no margin• 100% money flowing through the

supply partner• Fixed

• Fixed in £/$/€, not in %• A contribution to overheads

• Variable• Each member gets a defined

percentage of the performance fee pot

Performance Fee Pot

Co. 1 Co. 2 Co. 3

Co. 4 Co. 5 Co. 6• Client Changes• Change the targets, F and V

Performance Fee Pot

Co. 1 Co. 2 Co. 3

Co. 4 Co. 5 Co. 6

Example Variable Fees

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Quality

Customer Experience

Operating Cost

EfficiencyLCC/TCO

BehavioursAesthetics

Income/Profit/ROI

You can get complicated with the performance fees

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• My recommendations• Keep it “as simple as possible, but not simpler”• DON’T make the Variable Fee payment dependant upon

savings

A Project Alliance/IPD• A single contract binding the client and

one or more of the main project suppliers• Meaning usually it is a multi-party contract

• A relational contract with high-level mutual commitments• Work together to achieve the agreed

project objectives.• Manage the project well.• Collective responsibility, with much less (or

no) importance to who did what. “No Blame”.

• Collaborative decision making• Disputes are resolved by the alliance as

much as possible. “No Claim”.• Risks are either retained by the client, or

collectively managed and shared by the alliance.

• Commercial obstacles to collaboration are removed• CFV (Cost-Fixed-Variable) payment

mechanism that ensures team members’ commercial interests align with the project client’s.

• There will be a learning curve• Simply because it is different• You may need to change corporate

processes, or at least get an exemption• But it isn’t hard to do: Some will be able

to read a book and do it. You can learn on-line and on-the-job, or use a part-time coach

Planning Selection Contract Deliver

ALLOW TIME TO PREPARE

1. Ensure senior-level support

2. Prepare the supply market

3. Selection strategy: • Team or separate

members?• Role of price & cost

COMPETENCE-BASED SELECTION

1. Select the team early and quickly

2. Multi-stage process

FINALISE THE AGREEMENT

1. Proactively build the leadership & core teams

2. Draft the contract3. Link payment to

performance4. Multi-way due

diligence

EXPLOIT YOUR COLLABORATION

1. Contract Governance

2. Project Management

3. Integrated, team-based actions

4. Value-enhancing practices & tools

5. Visible leadership

Alliance/IPD Standard Contracts

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• Most projects use bespoke agreements• Unique, or based on standard form contracts

• Some of the best known standards are• USA: AIA C191• USA: ConsensusDocs 300• Aus: Australian National Alliance Contract Guidelines• UK: PPC2000• UK: JCT/Construction Excellence• UK: NEC4 ALC (draft)

Governance Structures

Alliance Board

Management Team

Steering Committee

Dispute Resolution Body

Independent 3rd

party

Facilitation Support (technical & team)

Project Team

Timing – when to choose the alliance members

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Business

Case

Concept

Design

Detailed

DesignBuild

Detailed Design

Build - Construction

1-stage, after concept finalised

2-stage, established during concept development

But they are worth it?...

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+25% Profit

+30%Satisfaction

-10% Cost

-20% Time

-65% Changes

-83% Claims

-99.8% LTA

The Alliance/IPD is just the start!If gives you a great foundation

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You get some benefit from the alliance itself

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• Reduced ‘policing’ and ‘man-marking’ resources• Reduces time-related costs from early selection• Reduced waste in design time (design for selection)• Improved client ROI from earlier completion• Cost risk aggregation• Facilitates creativity

Team

Critical Success FactorsA Project Alliance/IPD is necessary…but not sufficient

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• Exploit the collaborative team & use value-enhancing methods & tools• BIM/PDMS & PIMS technologies• Standardisation & modularisation• Lean Construction tools• Value-analysis & engineering• PDRI - (Project Definition Rating Index)• ESI/ECI - (Early Supplier/Contractor Involvement)• Collaborative planning & control – such as CCPM- (Critical Chain Project Mgt)

• Lead the collaborative team• Visible leadership from the top• Facilitation & challenge-driven leadership• New member induction process• Throughout the project team, not just those who sign

the agreement• Co-location

Alliances aren’t for everyone

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• You will need senior stakeholder support• Or great delegation

• You will need to ‘call the shots’• There will be resistance, so be ready and willing to take it on• Not everyone likes the idea of collaborative, team-based

projects.• They like command and control

• BUT• There is no reason project alliances cant work on all types of

projects, in all environments, and at all scales• The potential benefits are significant

How you implement this?

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• Just give it a go• Find out more yourself

• Read case studies, and freely available guidance• Go on a training course

• ….if you can find one, and if it suits• Get specialists to support your project

• Lawyers• Alliance Facilitators

• Get online coaching• Join my pilot development

programme in the New Year

Get support to learn how to implement a Project Alliance/IPD

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• The full programme will launch in April 2018• Opportunity to join the PILOT from January 2018• 6 Module Development Programme• The Pilot will include

• Live presentations – about 8-10 hours• Live group coaching & discussion – about 10-12 hours• Preparation materials – to read or watch• Ability to shape the content• 2 x 1-hour coaching sessions• Lifetime access to the full programme, with updates.

• Videos, Discussions, Templates, Workbooks, Guidelines & Checklists

Modules 1-3

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• Alliance Critical Success Factors

• The CFV Payment Method

• Applications of Project Alliancing

• Public Sector Considerations

• Change management and obstacles

1: Introduction

• Why you might need to• Internal & External• How ready is your supply

base?• Motivating suppliers,

and pro-actively addressing their concerns

2: Preparation

• Procurement Planning • Competency-based

selection• Early, fast & multi-stage

selection process• Assessing proposals &

bidders• Role of price/cost• Public Sector

Procurement rules

3: Selection

Modules 4-6

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• Build the leadership team

• Governance processes• 360º due-diligence• Targets• Risk allocation• Planning & Scope

4: The Deal

• Standard v Bespoke• Standard forms• Drafting process & link

to team building• Key features checklist• The contract v the

project

5: The Contract

• This is just the beginning!

• Exploit your collaborative team –value-enhancing methods

• Key leadership skills• Risk areas• Action planning

6: Get Going

Do you want to join us?

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• There will be a maximum of 15 places on the pilot programme• It will start on Tuesday 9 January• Timing of the live sessions will suit the locations of members• Everything will be recorded• It will cost £1470 to join the pilot

• Or 4 months @ £430• 45% saving on the full price of the programme & coaching

• Learn more at https://ianheptinstall.com/PA-pilot • To join go to https://academy.ianheptinstall.com

• Or email ian@ianheptinstall.com

Project Alliances & IPDKey Takeaways

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• A truly collaborative team should always deliver a better, faster, lower risk & lower cost project.

• You have to remove contractual obstacles to collaboration & disincentives.• There is no better way to form a collaborative project team than a Project Alliance

(IPD).• The project alliance is a one-off arrangement for a project, with competition used to

select the members.• Project alliances are not complex, and they don’t cost more.• But they are different, and to many will constitute a major change.• Payment – Align supplier margin & contribution to overall project success.• Warm people up to the idea – supply base & internal stakeholders.• Collaboration itself will deliver benefits – but the significant benefits come when

you use it as the foundation for delivering good project management and innovation.

What unanswered questions do you still have?

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• Type your comments, worries, and questions in the Q&A panel.

• And if you don’t have a question, please let me know what you thought of the presentation

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The Project Alliance & IPD – Integrated Project Delivery

I hope you found this useful and interesting.

To learn more about how you can implement a project alliance on your next project, and to get my support in doing so, take a look at my online programme at

academy.ianheptinstall.com

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Project Alliances & IPDThe key to improving the performance of

capital & construction projects.

Find out why and how by joining my FREE webinar on Tuesday 28 November 2017

FASTER | CHEAPER | LOWER RISK

55

Project Alliances & IPDThe key to improving the performance of

capital & construction projects.

Find out why and how on myFREE webinar on 28 November 2017

FASTER | CHEAPER | LOWER RISK

56

Project Alliances & IPDThe key to improving the performance of

capital & construction projects.

FASTER | CHEAPER | LOWER RISK

57

Join my FREE webinar to learn why using Project Alliance (or IPD) contracts is such a powerful way to improve project performance.

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