The Project Delivery Evolution

 OP INSTITUTIONAL

By Ross Altman

The design and construction of a project is a high-risk proposition. Selecting a project delivery system that is suited for the primary objectives and needs of the project, however, offers an opportunity to manage that risk. Not one single project delivery system is the best option for all projects; all methodologies have trade-offs that require evaluation before deciding on a project delivery approach. That is one reason why so many different project delivery systems and permutations exist.

The challenges presented by some large and complex projects, and the opportunities provided by new technologies, are not always a good fit for project delivery systems that have been most commonly used to date. As a result, new methodologies are emerging.

Public-Private Partnerships

In March 2017, the American Society of Civil Engineers awarded America's infrastructure an overall grade of a "D+." The need for investment in infrastructure is generally acknowledged, but the delivery of such projects presents many challenges. Public agencies may not have the funds to pay for such projects, nor the resources to manage the process, no matter how desperately the projects are needed. Consequently, many public agencies consider using a public-private partnership (P3) to implement certain infrastructure projects.

A P3 essentially is a contractual arrangement between a public agency and a private sector project company, with the private sector project company providing a physical improvement or a service that customarily has been provided by the public sector. A P3 can be structured in many different ways, but most involve some or all of the following traits: the private sector project company not only designs and constructs the project, but generally has some obligation to operate and maintain it for a lengthy period of time, often 30 years or more; the private sector project company arranges financing for some portion of the project; and the private sector project company receives most of its compensation after completion of construction. This compensation includes recovery of tolls, other user fees or payments from the public agency based on the availability of the project in accordance with certain specified requirements.

A public agency typically considers using the P3 methodology only after completing a "value for money" analysis to evaluate if the public will receive benefits that justify the expense of delivering the project via a P3. When the private sector delivers a project on behalf of a public agency, financing likely will be more expensive than if arranged through the public sector, additional legal engineering will be required and a raft of issues will arise regarding whether private sector control will serve the public well. Proponents are quick to counter that P3s often allow projects to proceed when funding and other resources are not available, encourage innovation, align interests, transfer risk to the private sector and possess life cycle and other benefits that outweigh any disadvantage.

The United States is fairly new to adopt this project delivery approach. Experience to date, both in the United States and elsewhere, has shown that not all projects are good P3 candidates. In addition to a favorable value for money analysis, P3 is better suited for projects with clear and precise output specifications, both for purposes of establishing design criteria and also for providing key performance indicators through which to measure the project company's performance during operation and maintenance.

Integrated Project Delivery

The design and construction process can be highly confrontational. Project participants often spend significant time and energy attempting to avoid or deflect liability or when dealing with claims. Traditional delivery methods sometimes foster separate silos for design and construction activities, which can lead to low productivity and waste. Consequently, some participants to the process have considered how to better align the interests of all parties, and thereby reduce such endemic inefficiencies. The result is a methodology referred to as Integrated Project Delivery (IPD).

An IPD transaction can be structured in different ways. The general idea involves creating a contractual relationship among members of a core group – often the owner, lead design professional, lead constructor, and sometimes key suppliers or subcontractors. That relationship may be created by several interlocking contracts or a single, multi-party contract. The members of the core group waive claims against each other (excepting certain matters like third party claims for bodily injury and property damage), limit liability and establish a formula to share profits and losses. Payments are made on an open book basis, often without a cap. In theory, aligning interests and reducing the prospect for claims among the core group members lessens wasteful practices and promotes a focus on the success of the project.

IPD is a paradigm shift from nearly all other project delivery methodologies. It demands that the parties put the interests of the project first, ahead of their own individual interests. Not everyone is able to work in that environment, but the approach is gaining traction, particularly in the healthcare sector. Like P3s, not every project fits well with an IPD approach. IPD seems better suited for large, challenging projects where collaborative problem solving is essential for success. Most IPD projects contemplate use of technologies like BIM as well as lean construction techniques. IPD also requires significant owner involvement and devotion to the process. It will not work if the owner simply intends to delegate responsibility.

As the design and construction process continues to evolve, so must project delivery systems in order to address new risks and to capitalize on new technologies and opportunities to deliver projects more efficiently.

Ross Altman is a partner with the national law firm Dykema Gossett PLLC, where he leads the firm's construction law practice. He is based in Chicago, and may be reached at 312-627-8321 or at raltman@dykema.com.

Current Issue

Check out our latest Edition!

 

alan jim blog ct

Contact Us

Construction Today Magazine
150 N. Michigan Ave., Suite 900
Chicago, IL 60601

  312.676.1100
  312.676.1101

Click here for a full list of contacts.

Latest Edition

Spread The Love

Back To Top