Lecture 9 Flashcards
The cost expended producing goods and services
Production cost
the cost of “doing the deal”, associated with the movement of those goods and services across organizational or market boundaries
Transactional costs
What are two types of contracts?
Transactional contracts and Relational contracts
where exchanges are made for goods and services.
Transactional contracts
where the relationship takes on the properties of a mini society with a vast array of norms beyond those centered on the exchange and its immediate processes.
Relational contracts
- Good ideas are held back.
- Transactional Contracting limits cooperation and innovation.
- Inability to fully coordinate the project.
- The Pressure for local optimization.
Problems With Traditional Contracting
- Could the project parties be reorganized to function as a single company with unified goals and objectives?
- Could independent design firms and construction companies actually find a way to integrate project delivery?
- A new set of questions suggested the new approach:
Approaching the Solution with Traditional contracting
Is a project delivery method in which the interests of the primary team members are aligned in such a way that the members can be integrated for optimal project performance.
Integrated project delivery system (IPD)
Shaping the Team: The Project team can be shaped in one of three different ways:
- Incorporate a company called as a sub S. Corporation
- Think of a joint venture established to deliver design-build projects using integrated project delivery
- Or, we have team-member-led IPD project (Led by the CM, Designer, or Contractor)
Two Principles govern the Team relationship:
- With an IPD project, whether joint venture or team-member-led ,all Primary Team Members (PTMs) are responsible for all provisions of the prime contract with the Client.
- Primary Team Members share the risk and profit for total project performance.
- A single contract binds the IPD team to the client. The prime contract may be any one of a number of standard forms that are available and spells out the commercial terms while defining the scope, schedule and cost of the project. One entity signs the prime contract. (Team Member or JV)
- Typically we seem to gravitate toward the DBIA cost plus contract with a GMP established at the design development phase.
The Prime Contract
Each Primary Team Member (PTM), including the one who holds the prime contract, then enters into a single “partnering agreement ” with the other PTM’s
The Team Member Agreement
The PTMs each agree to be bound together accepting full responsibility for all of the terms and conditions of the prime contract, sharing together in __________________.
the cost and profit in accordance with a pre-established formula.
Each member is reimbursed for all verifiable direct costs that he incurs. Profit is calculated at the project level at the _______________.
end of the project and divided based on the formula.
Each of the PTMs provides a certificate
of insurance in the form and amounts
as indicated in the prime contract.
certificate of insurance
Each PTM agrees to open their books
pertaining to this project to the other
PTMs and to the _____.
client
- Local optimization leads to sub-optimal project
performance - If one PTM makes a mistake each PTM will pay for it
- Cost reductions anywhere are shared among
those in the Partnering Agreement and with the
Client - An overrun on the project will reduce the gross
profit available for distribution
Key Lean Principle
Employed
- The principals of the companies developing
the IPD process meet two mornings a month
for breakfast and fellowship. - The IPD concept is discussed in order to refine
and further develop it. Attendance at these
meetings, and the involvement and “buy in”
of the top stakeholders is crucial to success of
the process. - These meetings underpin the broader
network of relationships that hold the project
together.
Executive commitment
The Team decides what positions such as _________________________
need to be filled for the particular project at hand.
Project Executive, Director of Design Services,
Director of Construction Services, Project
Manager, Project Superintendent, Project
Accountant, Manager of Information
Technology, and Systems Manager
When team positions become established they become ______ and the
company from which they came is reimbursed
for the time they spend on the project.
direct job cost
All have the traditional authority and
responsibilities of the positions that they
are filling. The team benefits as a whole
from their successes and pays as a whole
for their failures.
team positions
- All of the primary team members wear the
same hardhats on the job with the same
logo. - They all work under one general
superintendent who has total authority from
the Primary Team Members to direct the
project to achieve the most efficient and
lowest overall cost delivery. - Field problems are quickly resolved based
on the lowest perceived overall cost and
least impact principle.
Unity at the job site
Each month the PTMs are reimbursed
based upon their ____________.
actual verifiable direct job cost
Labor is verified by __________.
certified payroll
Equipment and material verified by _________.
invoice
Subcontracts verified by __________.
payment vouchers
Rentals verified by _____.
invoice
1. Team members bring forward best ideas early 2. Value engineering takes place at the beginning of the project 3. Effective solutions can be devised when there is no concern over which entity will pay for them 4. Lean design now possible
The impact of IPD On the design process
Is handled by discussion and agreement between the PTM’s. Instead of looking to the contract to
settle disputes as in transactional contracting, the team can invoke the power of the relationships.
Dispute resolution
With IPD, the value engineering process is so
strong and effective that by the time we
reach the design
-
development stage
everyone’s best ideas are incorporated. The
budget produced at that time, therefore,
reflects all of the Team’s creativity and
experience
Setting the price
could review the project monthly focusing on such areas as the team’s performance, any indications of a
team member problem, change orders and
claims initiatives, payment history of the Client
and any trends that may need correcting
A joint risk assessment committee
It is fairly easy to introduce a specialty
contractor into a project as a member of the
team either by bringing him in early and
negotiating a price at the appropriate time
or by actually inviting them to become a full
member of the team for a particular project
sharing cost with the rest of the Team. Circumstances would determine which method might be employed.
Working with Non-IPD Members
employs both transactional and relational
contracts.
IPD
Externally, they enter a classic transactional
contract with the client and some suppliers. Internally, members are bound by a relational
contract described in the “pact” they all sign.
IPD Contracts
When dealing with IPD contracts, the ____ minimizes transactional cost by binding the parties together in a partnership for the duration of the project.
“pact”
When dealing with IPD contracts, ______ are not kept to allocate costs or
determine blame. They have yet to have a
dispute internally or with a client.
Records
Fragmented, assembled on “just-as-needed” or “minimum necessary” basis, strngly hiercrchical, controlled.
Teams in the Traditional Project delivery system.
An integrated team entity comprising key project stakeholders, assembled early in the process, open collaborative.
Integrated Project delivery system team
Linear, distinct, segregated; knowledge gathered “just-as-needed”; information hoarded; silos or knowledge and expertise.
Process in the Traditional project delivery system.
Concurrent and multi-level; early contributions of knowledge and expertise; information openly shared; stakeholder trust respect.
Integrated Project delivery system Process
Individually managed, transferred to the greatest extent possible.
Risk traditional Project delivery system
Collectively managed, appropriately shared
Risk in the Integrated Project delivery system
Individually Pursued; minimum effort for maximum return; (Usually) first-cost based.
Compensation/reward traditional Project delivery system.
Team success tied to project success; value-based.
Compensation/reward Integrated Project delivery system
Paper-based, 2 dimensional; analog
Traditional Project Delivery, Communications/technology
Digitally based, virtual; Building Information Modeling (3, 4 and 5 dimensional)
Integrated project delivery system, Communications/technology
Encourage unilateral effort; allocate and transfer risk; no sharing.
Traditional Project Delivery system, Agreements
Encourage, foster, promote and support multi-lateral open sharing and collaboration; risk sharing.
Integrated Project Delivery system, Agreements
IPD is ______ a approach that
aligns project objectives with the interests of
key participants.
Relational Contracting
It creates an organization able to apply the
principles and practices of the Lean Project
Delivery System.
IPD
