Supporting Lean Project Delivery with a Relational Contract

1. Supporting Lean Project Delivery with a Relational Contract Presented by: Scott R. Sleight Ahlers & Cressman PLLC sleight@ac-lawyers.com On behalf of the LCI-Cascadia Chapter Introduction to Lean Construction / Vancouver, BC

2. Scott R. Sleight • Member of Ahlers & Cressman PLLC • Practice emphasizes contract negotiation of large commercial projects and critical facilities and resolution of construction disputes • Student of Lean since 2006 • Actively involved with LCI, LCI-Cascadia Chapter • Accessible • sleight@ac-lawyers.com • 206-287-9900 Introduction to Lean Construction / Vancouver, BC

3. Experience with Relational Contracting • Represented Contractor in negotiation of first truly integrated contract. • Parties included Sutter Health affiliate, NBBJ and Skanska USA Building Inc. • Represented Contractor in negotiation of Virginia Mason Hospital Addition utilizing “Collaboration Guide” to facilitate lean methods and Relational Contracting • Assisted with development of NBBJ contract template • Boeing utilizes Relational Contracting concepts Introduction to Lean Construction / Vancouver, BC

4. • Collaboration Guide: • This Guide is intended to promote high quality delivery of the project through elimination of redundancy, errors and waste. The intention is realized by aligning the interests of the parties with a mutually agreed definition of project success. This Guide is also intended to enable the integration of project outcome with the owner’s goals for enterprise performance. • The Guide promotes these outcomes through: • Rewarding desired behaviors • Alignment of risk and reward with a party's ability to control risk in separate contracts between Owner and Architect and Owner and Contractor • Creating a culture of partnership among stakeholders • Creating an open information environment • Integrating operating, design and construction knowledge through broad based team meetings • Building virtually before building physically • Reducing redundant efforts, conflicts • Improving means and methods • Increasing use of off site construction • Modeling enterprise operations at the start, and behavior after occupancy. • The parties following this Guide should mutually promote the success and benefit of the project and abide by the consensus decisions made by the Core Team composed of one leader from each of the three major entities. • The parties agree to design the Project using Process Design methods and in the spirit of Lean Product Development and Lean Production wherever appropriate. • The parties should use this Guide to promote high performance with mutual benefit in the quality and efficiency of the process and outcome. Introduction to Lean Construction / Vancouver, BC

5. Why Relational Contracting? • Cost • Waste • Complexity • Coordination • Value Introduction to Lean Construction / Vancouver, BC

6. Hospital Construction Costs ~ High and Going Higher Source: Davis Langdon OSHPD Report 2006 Introduction to Lean Construction / Vancouver, BC

7. “Typical Organization” Source: McDonough Holland & Allen PC Introduction to Lean Construction / Vancouver, BC

8. “Buildings Leak at the Intersection of Contracts” Source: McDonough Holland & Allen PC Introduction to Lean Construction / Vancouver, BC

9. Traditional Project Delivery Level of Common Understanding Source: McDonough Holland & Allen PC Courtesy of McDonough Holland & Allen PC Introduction to Lean Construction / Vancouver, BC

10. Insanity “Doing the same thing over and over again and expecting different results” John Dryden, Spanish Friar, 1681 (often attributed to Albert Einstein & Ben Franklin) Introduction to Lean Construction / Vancouver, BC

11. What to do? Change the Organization • Change the Design Process • Change the Construction Process • Change the Commercial Relationships Introduction to Lean Construction / Vancouver, BC

12. History of Relational Contracting • All Parties Forum – Late 70’s • Solution? • CII Project Task Force – Mid 80’s • Dependence, Uncertainty and Governance • Williamson & Keidel • McNeil: Many Futures of Contract • Traditional vs relational • Partnering and Alliance Contracting (Australia) – Mid 90’s • Partnering (an interim approach) Dart 1999 • Lean Contracting Meeting October 2003 • LCI Relational Contracting Symposium November 2004 • IFOA • Implementation • Cardinal Glennon • Sutter • Document Forms • LCI – IFOA • ConsensusDocs 300 • AIA – IPD • NBBJ – Integrated Delivery contract template Introduction to Lean Construction / Vancouver, BC

13. Foundations of Success ~ CII Study • A knowledgeable, trustworthy, and decisive facility owner/developer • A team with relevant experience and chemistry assembled as early as possible, but certainly before 25% of the project design is complete. • The contract encourages and rewards organizations for behaving as a team.” “Projects are built by people. Research into successful projects has shown that there are several critical keys to success. Introduction to Lean Construction / Vancouver, BC

14. The Toyota Way ~ Jeffery Liker Philosophy Process People & Partners Problem Solving Introduction to Lean Construction / Vancouver, BC

15. What Underlies a Relational Contract? ~Ian MacNeil • Relations of a significant duration • Objects of “value” are not easily measurable • Many individuals, collective poles of interest • Future cooperation anticipated • Benefits and burdens shared • Trouble is expected • Relations will vary as unforeseeable future unfolds Introduction to Lean Construction / Vancouver, BC

16. Sutter Health Lean Initiative Lean Project Delivery Paradigm Dynamic Stodgy Physics of Work Organizations Contracts Introduction to Lean Construction / Vancouver, BC

17. Structure • One Agreement signed by O-A-C • “Joined” by jointly selected team members • Provides for formation of • Core Group • Integrated Project Delivery Team • Senior Management Group Introduction to Lean Construction / Vancouver, BC

18. Integrated Team Concepts Source: McDonough Holland & Allen PC Introduction to Lean Construction / Vancouver, BC

19. Executive Involvement Source: McDonough Holland & Allen PC Introduction to Lean Construction / Vancouver, BC

20. The 5 Big Ideas ~ Emergent Outcomes Collaborate; Really Collaborate Optimize The Whole Increase Relatedness Innovation Competitive ContinuousImprovement Build Trust Reliability Projects as Networks of Commitment Tightly Couple Learning w/ Action Source: Sutter Health Introduction to Lean Construction / Vancouver, BC

21. Integrated Project Delivery Level of Common Understanding Source: McDonough Holland & Allen PC Courtesy of McDonough Holland & Allen PC Introduction to Lean Construction / Vancouver, BC

22. Goals of Lean Project Business Model • Early involvement of key participants • Equitable distribution of risk and reward • Compensation structure must incentivize “best for project” • Clearly defined responsibilities without inhibiting communication and risk taking • Management and Control structures should be built around team decision making wherever appropriate Introduction to Lean Construction / Vancouver, BC

23. What to do? Change the Organization • Change the Design Process • Change the Construction Process • Change the Commercial Relationships Introduction to Lean Construction / Vancouver, BC

24. Restructuring Design • Validated budget as basis for Target Value Design • Pause to pursue Process Design • Communication Protocols • (flow of communication, use of BIM, co-location, virtual meetings) • Target Value Design Plan (How) • Pull Planning throughout design • Elimination of waste (redundant effort, etc.) Introduction to Lean Construction / Vancouver, BC

25. What to do? Change the Organization • Change the Design Process • Change the Construction Process • Change the Commercial Relationships Introduction to Lean Construction / Vancouver, BC

26. Restructuring Construction • 5S Plan • (sort, set in order, shine, standardize, sustain) • Zero RFI Goal • Conversation first, reliable promise for resolution • RFI to confirm solution (not to initiate inquiry) • Pull Planning to coordinate action • Built-In Quality Plan • ( as opposed to “inspect in” quality) • Standard Work (repeatable quality) • Root cause analysis • PDCA (Plan – Do – Check – Act) Introduction to Lean Construction / Vancouver, BC

27. What to do? Change the Organization • Change the Design Process • Change the Construction Process • Change the Commercial Relationships Introduction to Lean Construction / Vancouver, BC

28. Restructuring Contracting & Finance • IFOA signed by all major stakeholders (A–C–E–S) • Alliance-like multi-part compensation model for “profit-participants” (A–C–E–S) • Individual Cost & Overhead Paid • Pooled Profit At Risk • Incentives/Bonuses (Innovation, Production) • Joint IPD Team Contingency • Combines A/E “Design” & CM/GC’s “Construction” (Reduced total because pooled) • IFOA eliminates traditional “Negligence” standard as Core Group negotiates a deductible as a % of construction costs for “Errors & Omissions” Introduction to Lean Construction / Vancouver, BC

29. How to share? • Project Risk? • Project Innovation Benefit? • Project Production Success? Introduction to Lean Construction / Vancouver, BC

30. Sharing Project Risk Source: McDonough Holland & Allen PC Introduction to Lean Construction / Vancouver, BC

31. Sharing Project’s Innovation Benefits Source: McDonough Holland & Allen PC Introduction to Lean Construction / Vancouver, BC

32. Sharing Project’s Production Successes Source: McDonough Holland & Allen PC Introduction to Lean Construction / Vancouver, BC

33. Dispute Resolution • Notice • Negotiations • Core Group • Senior Management of Core Group • Independent Expert • Mediation Introduction to Lean Construction / Vancouver, BC

34. What Are The Major Challenges? • Method used to form IPD team • Building trust between the Design and Construction industries • Accepted contract vehicle for implementing IPD • Risk • Shared Savings • Liability • Insurance and Surety acceptance • Adoption of Lean and BIM as standards of practice • Education to promote understanding of the value proposition of Lean Project Delivery Introduction to Lean Construction / Vancouver, BC

35. Resources • IFOA ~ LCI • ConsensusDocs 300 • AIA-IPD • NBBJ – Integrated Delivery contract template Introduction to Lean Construction / Vancouver, BC

36. Resources - IFOA • Originally developed for Sutter Health by Will Lichtig (McDonough Holland & Allen PC) • Adopted and supported by LCI (custodians) • ConsensusDocs 300 based on IFOA • IFOA has evolved faster to meet industry needs • Several versions of contract • (customized by users) • Available by e-mailing: • wlichtig@mhalaw.com • GHowell@Leanconstruction.org • GBallard@Leanconstruction.org • RBlakey@LeanConstruction.org Introduction to Lean Construction / Vancouver, BC

37. ConsensusDocs 300 • Based on Sutter Health IFOA • (early version of IFOA) • Standard set of contract documents that represent a broad consensus within industry • Construction Users, Builders, Engineers, Government, Insurance/Surety • Released Fall 2007 • Available at: www.consensusdocs.org Introduction to Lean Construction / Vancouver, BC

38. AIA-Integrated Project Delivery (IPD) • AIA has adopted IPD as a standard form of practice • AIA IPD still a multi-part contract • “Integrated Project Delivery – A Guide” • Synopses • A201 and B101 Commentaries • Comparatives to 1997 • Available at: www.aiacontractdocuments.org • DocInfo: docinfo@aia.org or 206-626-7526 Introduction to Lean Construction / Vancouver, BC

39. – Integrated Delivery contract template • Developed by NBBJ for use on their projects • Based on IFOA but specific to the needs and desires of NBBJ • Available at: www.nbbj.com/access/IntDelDraftNBBJ.doc Introduction to Lean Construction / Vancouver, BC

40. Questions and Answers? • Presenter: • E-mail: sleight@ac-lawyers.com • Phone: 206-287-9900 • LCI • GHowell@Leanconstruction.org • GBallard@Leanconstruction.org • RBlakey@Leanconstruction.org Introduction to Lean Construction / Vancouver, BC