understanding integrated project delivery -...

Understanding Integrated Project

Delivery

Paul Emanuelli General Counsel and Managing Director

Procurement Law Office [email protected]

416-700-8528

www.procurementoffice.ca

Copyright Notice

The following excerpts from Government Procurement (copyright LexisNexis Butterworths 2005, 2008, 2012 and 2016), The Laws of Precision Drafting (copyright Northern Standard Publishing 2009), Accelerating the Tendering Cycle (copyright Northern Standard Publishing 2012) and the Procurement Law Update newsletter (copyright Paul Emanuelli 2006-16) are reproduced with permission. The further reproduction of these materials without the express written permission of the author is prohibited.

© Paul Emanuelli, 2016

For further information please contact: [email protected]

About the Author Paul Emanuelli is the General Counsel and Managing Director of the Procurement Office. He was recognized by Who’s Who Legal as one of the top ten public procurement lawyers in the world. His portfolio includes advising on strategic governance in public purchasing and on negotiating high-profile major procurement projects. Paul has an extensive track record of public speaking, publishing and training. He is the author of Government Procurement, The Laws of Precision Drafting, Accelerating the Tendering Cycle and the Procurement Law Update newsletter. Paul hosts a monthly webinar series and has trained and presented to thousands of procurement professionals from hundreds of institutions across North America through the Procurement Office and in collaboration with leading industry organizations including NIGP, SCMA, the University of the West Indies and Osgoode Hall Law School.

Strategic Contract Construction Understanding Integrated Project Delivery

Cost overruns and project delays are a leading occupational hazard in the procurement cycle. This discussion will explain how leading institutions are using advanced contracting formats, including integrated project delivery, to leverage marketplace knowledge in the development of tailored specifications and clear project plans. It will also explain how to build the right incentives into your contracts to encourage your suppliers to reach project completion below budget and ahead of schedule.

The Purchasing Pyramid

Special Non-Recurring

Projects ($5 million+)

Regularly Recurring Open Tender Contracts for Repeat

Purchases Valued Over Open Tender Thresholds

Three-Quote Zone Below Open Tender Threshold

(Typically Under $25,000 - $100,000)

P-Card and PO Zone - (Typically Below $10,000)

Large Projects

($100 million+)

Open Tender Threshold

P-Card Limit

Complexity/Novelty Threshold

Major Budget Threshold

RFX Design and Drafting

Whatisthe

TenderingFormat?

HowDoWe

AssembletheFinalContract?

WhatAreWe

Buying?

Whatisthe

PricingFormat?

Whatisthe

Evalua@onPlan?

Initial Mapping Statement

Material Disclosures

Eligibility Requirements

Ranking & Selection Criteria

Legal Agreement

Horizontal Integration Aligning Requirements, Ranking Criteria and Pricing Form


Detailing Requirements

Pricing Form


Vertical Integration Aligning Legal Agreement,

Requirements and Pricing Form

1

2

3

4

5 6

7

Core Project Elements

Blue Zone = Project-Specific Evaluation Criteria

Green Zone = Project-Specific Purchase and Pricing Elements

©PaulEmanuelli,2016

RFX Table of Elements

SubmissionDeadlineRule

Pre-DeadlineSubmissionAmendment

Rule

SubmissionWithdrawal

Rule

Evalua@onofMandatory

Requirements

BidIrrevocability

Rule(ITT/RFB,RFP)

SubmissionDeadlineDate(ITT/RFB,RFP)

NoAmendmenttoFormsRule(ITT/RFB,RFP)

SubmissionofFormsRule

PricingFormSubmission(ITT/RFB,RFP,RFQs,NRFPs)

BidSecurityRule

(ITT/RFB,RFP)

Evalua@onofRatedCriteria(HighCoreRFQ,RFP,NRFPs,RFSQs)

Evalua@onofPricing

(ITT/RFB,RFP,RFQs,NRFPs)

ConcurrentShort-ListedNego@a@ons(BAFONRFP)

BAFOEvalua@onsandRankings(BAFONRFP)

BAFOBy-PassRule

(BAFONRFP)

LowBidSelec@onRule(ITT/RFB,RFP,RFQs,NRFPs)

HighScoreSelec@onRule(IRFP,RFQs,NRFPs,RFSQs)

ContractAward

Nego@a@ons(NRFPs)

ContractNego@a@on

Period(NRFPs)

RFXRulesIncorporated

intoSubmissions

RespondentstoFollow

Instruc@ons

SubmissionsinEnglish

NoIncorpora@onbyReference

PrivilegeClauses

(ITT/RFB,RFP)

TermsofReference(RFI,RFQs,

NRFP,RFSQs)

Informa@onEs@mateOnly,NoVolumeGuarantees

RespondentsBearTheirOwnCosts

SubmissionsRetainedbyIns@tu@on

TradeTreatyClauses

RespondentstoReviewand

MakeInquiries

ChangesandNew

Informa@onbyAddenda

Rec@fica@onRule

(NRFPs)

Verify,Clarifyand

SupplementRule

No@fica@onofResultandDebriefing

Rules

BidProtestProcedures

ConflictofInterestandProhibitedConduct

VariableProcessElements

RFXSubmissionInstruc@ons

RFXTimetable(KeyDates)

Op@onalPre-BidMee@ng

Format-SpecificStandardProcess

Elements

UniversalStandardProcess

Elements

BidBond(ITT/RFB,RFP)

Seven Core Project Elements

Ini@alMappingStatement

DetailedSpecifica@onsPricingForm

EligibilityRequirements

MaterialDisclosures

RankingandSelec@onCriteria

LegalAgreement

Format Selection Complex projects require an advanced understanding of tendering templates to select the appropriate format for each project:

Procurement Playbook Menu

q  Invitation to Tender q No-Negotiation RFP q Consecutive Negotiation/Rank-and-Run RFP q Concurrent Negotiation/BAFO RFP q  Invitational Request for Quotation q Open Request for Quotation q Request for Information q Request for Supplier Qualifications – Prequalification Version q Request for Supplier Qualifications – Master Framework Version

The more complex your project and the larger your team, the more critical the need to establish a clear game plan at the outset. While the pressure of pending deadlines may tempt you to rush headlong into the drafting process, you need to exercise discipline at the initial stages in order to prevent significant inefficiencies later on in the process.

The Initial Mapping Statement

Initial Mapping Statement 1



1


2

Detailed Self-

Contained Schedules & Appendices

Detailed Self-


Detailed Self-


To meet transparency standards and fulfill your disclosure duties, you need to incorporate into your procurement documents two discrete but related streams of information: (a) information relevant to contract performance, and (b) information relevant to the competitive bidding stage.

Material Disclosures Material

Disclosures 3

Most tender competitions include a threshold screening stage where competing suppliers are assessed to determine whether their submissions are eligible for consideration in subsequent evaluation stages.

Eligibility Requirements Eligibility

Requirements 4

The norms of open and transparent procurement call for the thorough disclosure of bidder ranking and s e l e c t i o n c r i t e r i a . T h e s e transparency principles are a c o r n e r s t o n e o f t h e o p e n procurement process. They prohibit the use of hidden ranking criteria.

Ranking and Selection Criteria Ranking &

Selection Criteria 5

Improperly structured pricing can cause significant problems in both the evaluation of tenders and in the performance of contracts. Given the core significance of price to the procurement process, purchasing institutions should integrate pricing into their procurement documents in a coherent and thorough fashion so that the evaluation of price is clearly connected to the required goods and services and to how payments will be made under the contract.

The Pricing Form Pricing Form 6





Legal Agreement




Pricing Form




2

3

4

5 6

7

6. The Pricing Form focuses on achieving horizontal document integration by aligning your requirements and evaluation criteria with your pricing structure.

1

The proper final assembly of a procurement document requires the vertical integration of the statement of requirements and the pricing structure with the terms and conditions of the legal agreement. Purchasing institutions should ensure that they properly integrate all of the document components together with a legal agreement that i n c o r p o r a t e s t h e b u s i n e s s requirements and payment terms of the contract.

The Legal Agreement Legal

Agreement



Pricing Form

7



Integrating a Legal Agreement (Vertical Integration)

Typical Commercial Terms

Business and Technical

Requirements

Industry Specific Terms

Project Specific Adaptations

Pricing Form

Procurement Formats Dashboard Invitational

RFQ Open RFQ Invitation to

Tender RFP NRFP BAFO NRFP

Traditional Contract Law


Contract A Tendering Law

Contract A Tendering Law



Screening Typically in Pre-

Selection

Mandatory Requirements

(Flexible)


(Duty to Reject)


(Duty to Reject)


(Flexible)


(Flexible)

Typically Low Bid

Low Bid or High Score

Low Bid

High Score High Score High Score on final offers after short-listing and dialogue stage

Low Risk on Cancellation

Low Risk on Cancellation

High Risk on Cancellation

High Risk on Cancellation

Lower Risk on Cancellation

Lower Risk on Cancellation

Price Binding on Award


Price Binding on Bid Close

Price Binding on Bid Close



Negotiations Typically Not

Required

Negotiations Typically Not

Required

Negotiations Not Permitted

Negotiations Not Permitted

Negotiations with Top-Ranked

Proponent

Negotiations with Top-Ranked

Proponent

DQ/Barring For Rescinded

Offer


Offer

Bid Security Common

Bid Security Not Common


Offer


Offer

Paul Emanuelli © 2014





Legal Agreement




Pricing Form




1

2

3

4

5 6

7

Fixed-Bid Tendering

7. Contract Assembly occurs prior to going to market. Evaluated bid price is incorporated into final awarded contract.





Legal Agreement




Pricing Form




1

2

3

4

5 6

7

Negotiated RFP Formats

7. Contract Design occurs prior to going to market. Final contract assembly occurs after selecting the top-ranked proponent and incorporating the bid price and other performance related content from the evaluated proposal.

Integrated Project Delivery (IPD): Moving Beyond Traditional Project Delivery

By Sarah Alexander, Procurement Law Office When did project failure become the new status

quo? Across the globe traditional project delivery has been plagued with delays and costs overruns. Driven by self-interest, contracting parties lack the motivation and incentive to work together to achieve project success. As this article explains, by embracing collaborative project design principles, Integrated Project Delivery (IPD) leverages contractor expertise to increase value, maximize efficiency and reduce project waste.

This article by Sarah Alexander was previously published on the Procurement Office Blog in the fall of 2015.

Traditional project delivery, otherwise known as design-bid-build, has become the most dominant project delivery method worldwide. This method of project delivery consists of three phases. In the first phase, the purchasing institution retains a designer to develop a project design. In the second phase the purchasing institution runs a tendering process to award a contract based on the predetermined design, and, in the last phase, the selected contractor completes the project based on that design.

Integrated Project Delivery The Problem With the Status Quo

Design-error risk remains with the purchasing institution while the contractor is responsible only for performing to design. In this traditional model, the contractor is inhibited from contributing design ideas, which restricts risk sharing and effective project coordination, and promotes an adversarial relationship that often results in poor collaboration and conflict. This form of project delivery has contributed to an epidemic of project delays and costs overruns.


From the Grande Prairie Regional Hospital in Alberta which was $89 million over budget and delayed two years, to the delayed Department of Veterans Affairs hospital in Colorado which was $1 billion over budget, to England’s Norwich Northern Distributor Road which clocked in at £30 million pounds over budget, the project failure examples are global in scale and epic in proportion. By embracing a more collaborative approach to project delivery, IPD offers purchasing institutions the opportunity to change this dismal status quo.


The American Institute of Architects (AIA) defines IPD as “a project delivery approach that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to optimize project results, increase value to the owner, reduce waste, and maximize efficiency through all phases of design, fabrication, and construction.”

Integrated Project Delivery A Collaborative Approach

The key components of IPD include a multiparty agreement, a budget established based on fiscal transparency of the parties, a team created for design work, a facilitator to guide parties through IPD, shared financial risk and rewards based on the project outcome with an incentive for parties to perform on time and under budget, liability waivers to mitigate litigation fears, and building information modeling to help project design and construction. IPD contractually requires project collaboration between the parties such that risk and project delivery are managed and shared to increase value, maximize efficiency and reduce waste.


Relationship building is a focus and a commitment to satisfying the purchasing institution becomes a priority. Although IPD may require more upfront resources, overall it reduces wasteful spending. Since parties are involved in the planning and design phase this creates the opportunity and environment for parties to identify problems and propose innovative solutions. As the American Association of Architects notes, IPD allows for market advantage, cost predictability, schedule predictability and shared risk. With IPD, purchasing institutions can successfully complete complex projects involving multiple parties ahead of schedule and under budget.


In the US, the first IPD construction, Sutter Health Cathedral Hill Hospital in California, was built for a total cost that was 18 percent under budget. Since then, IPD has been used in construction projects in over 24 states. Canada has also seen the adoption of IPD projects. Moose Jaw Hospital was the first IPD project in Canada, and was completed on time and $30 million under budget. As these examples indicate, IPD offers purchasing institutions a proven alternative to the perils of traditional project delivery.


Selected Construction Contract Formats Key Factors Design-Bid-

Build (CCDC-2)

Construction Management – Owner at Risk (CCDC-5A+17)

Construction Management –

CM at Risk (CCDC-5B)

Design-Build (CCDC-14)

Integrated Project Delivery

Design Responsibility

Owner’s Consultant

Owner’s Consultant (Input

from CM)

Owner’s Consultant (Input

from CM)

Design-Builder Entire Project Team Including

Trades

Contract Management

Burden

Prime Manages Trades (Owner Manages Prime Plus Consultant)

Owner Manages CM, Trades, and

Consultant

CM Manages Trades (Owner Manages CM

and Consultant)

DB Manages Project Team

(Owner Manages DB)

Owner Manages Entire Project

Team

Pricing Format Stipulated Sum in Advance of Project Start

Time and Materials for CM, Stipulated Sum for Trades on Rolling Basis

Time and Materials Default,

Stipulated Sum Lock in Option

Stipulated Sum (Based on General

Statement of Requirements)

Cost-Plus Open Book With Fixed

Price and Agreed Profit Percentage

Innovation Incentive

Low (Based on Pre-Design)

Low (Work Starts Before Final Design)

Low (Work Starts Before Final Design)

Medium (Work Often Starts Before Final Design)

High (Pre-Build Off-Ramp Plus Performance Incentives)

Timing Incentive

Medium (No Default Incentives)

Low (Owner Carries Delay

Risk)

Medium (Owner/CM Share Risk)

Medium (Early Start vs. Final

Design)

High (Based on Shared Reward)

Cost Saving Incentive

Medium (No Built-In Incentives)

Low (Owner Carries Cost

Risk)

Medium (Owner/CM Share Risk)

Medium (No Built-In

Incentives)

High (Based on Shared Reward)


Design-Bid-Build Construction Management (Owner at Risk)

Design-Build Integrated

Project Delivery

Owner


Prime Contractor

Trades

Owner


Construction Manager

Trades

Owner


Construction Manager

Trades

Construction Management (CM at Risk)

Owner

DB’s Consultant

Design Builder

Trades

Owner

Design Consultant

Main Contractor

Trades

Build Starts After Design Finished

Build Starts Before Design Finished Build Starts After Design Finished

Full Project Team Involved in Design

Pre-Build Off-Ramp

Shared Performance Incentives

Build Starts Before Design Finished Build Starts Before Design Finished

Procurement Formats Worksheet Invitational

RFQ Open RFQ Invitation to

Tender RFP NRFP BAFO NRFP

Low Value Commodities,

Goods and Services

Standard Recurring

Above Threshold Goods and Services

Standard Recurring

Above Threshold

Construction

Standard Recurring

Above Threshold Goods and Services

Unique, Complex or High Risk

Procurements

Unique, Complex or High Risk

Procurements Requiring

Concurrent Dialogue

Discuss with your working group and insert examples

of each above

Legal Agreement Worksheet Provision Simple

Commodity One Time Delivery

Consulting Services

Construction Technology Major Project

Interpretive Provisions

Nature of Relationship

Performance Provisions

Payment Provisions

Confidentiality

Intellectual Property

Indemnity and Insurance

Termination


Project Design Worksheet Deliverables

and Evaluation Categories

Evaluation Percentage

Evaluation Threshold

Payment Mechanism

Format Selection

Contract Formation


www.procurementoffice.com

For more information please contact:

Paul Emanuelli Managing Director and General Counsel

Procurement Office [email protected]

416-700-8528

Marilyn Brown Senior Counsel


416-700-8531

Jennifer Marston Legal Counsel


416-700-8537

Heather Baker Executive Assistant and Procurement Advisor


416-700-8535

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