Project delivery in construction is troubled by cost and schedule overruns. Why? Disjointed interests among various stakeholders creates big problems. It is not intentional, but it is endemic due to the contractual obligations and process of traditional project delivery.
Table of Contents
Traditional project delivery
In a design-bid-build environment, an owner contracts a designer or architect to develop a set of design documents for a project. Following the completion of the design, the owner solicits bids from general contractors who develop their proposals from various subcontractors. In order to submit a competitive proposal for submission, the general contractor tends to select subcontractors based on the lowest priced bid.
This delivery method presents the highest amount of risk for the owner. Designers develop designs and plans according to the specifications of the owner with limited, if any, input from contractors. Whereas contractors submit low bids with extremely tight profit margins based on sets of plans handed down to them. This creates a very adversarial relationship between the stakeholders. Any gaps or conflicts that arise during construction between design and construction need to be resolved by the owner. As a result, contractors issue numerous change orders throughout the project which is the primary reason for cost overruns and schedule delays.
Because of these fundamental challenges within the process, the design-build framework has gained popularity in construction. The owner presents one contract to a design-build entity who is responsible for the design and construction. This presents more collaboration and input by the contractor into the design process in terms of pricing and scheduling. While this method provides greater coordination during the pre-construction phase to reduce change orders, this provides fewer checks and balances. There is no competitive pricing on behalf of the owner. The process favors protecting the profits of the design-build entity.
Integrated Project Delivery
Based on the collaboration and efficiencies derived from the design-build method, a new delivery method called Integrated Project Delivery (IPD) is gaining traction within the industry. The key difference between IPD and the Design-Build method is in the contractual agreement. In Design-Build, the owner develops a single contract with the design build entity. For IPD, the stakeholders of the owner, architect, and general contractor all come together into one agreement. The contract dictates the details of the project and provides for shared risk and reward structure. Most of all, the contract creates a partnership between the stakeholders.
The stakeholders become financially invested into the outcome of the project. Many IPD projects provide for a contingency budget for cost overruns and performance bonus. The collaboration from the early stages of the project to closeout keep the projects within budget and on schedule.
Integrated Labor Delivery
Many projects have been successfully completed at a lower cost and ahead of schedule utilizing the IPD framework. The key component in those projects was the inclusion of major subcontractors such as the MEP contractor as a major project stakeholder. Because of the critical role that subcontractors play in the successful delivery of projects, an Integrated Labor DeliveryTM (ILD) method provides greater efficiencies.
In order to effectively manage the demand for construction amidst an ongoing labor shortage, contractors must optimize labor delivery on projects. The ILD model provides a framework for subcontractors to participate in the planning, budget, and scheduling process. Most importantly, the ILD model includes the Subcontractor into the same IPD framework for risk and reward to hold them accountable for their labor delivery. With labor taking on the biggest cost on a project, the ILD model optimizes the delivery of labor in a manner that will reduce costs.
Additionally, aligning subcontractors more closely with the owners and designers provides for more open channels of communication to allow for faster decision making. In traditional models, the subcontractor communicates to the general contractor who then communicates to the owner and architect for direction. The ILD model eliminates the bottlenecks to move progress forward more quickly.
At the center of any project is labor. However, the subcontractors and specialty tradespeople who provide the labor are often left out of pre-construction and design phases. An ILD approach presents a unified framework to an industry suffering labor shortages and poor productivity. Aligning subcontractors more closely with the owners and designers fundamentally optimizes labor delivery to a project. Consulting on the design ensures greater accuracy of labor costs and deadlines. Direct communication between subcontractors and the owners and designers provide for quicker decision making.