ORLANDO, FLA. — Complicated projects such as hospitals can fall victim to delays, excessive changes and lawsuits. There is, however, a better way. Greg Fuller, president of North Mechanical Inc., Indianapolis, explained how his firm is using a collaborative method called Integrated Project Delivery (IPD) in its project for Riley Hospital for Children in Indianapolis.
The project involved a 10-story shell for an inpatient hospital that will include an NICU, stem cell unit and a burn unit. North Mechanical is performing full mechanical construction, including plumbing, medical gas and HVAC piping, Fuller told contractors attending the recent Mechanical Contractors Association of America convention here.
IU Health Services, a sophisticated buyer and owner of 19 other hospitals, owns Riley Hospital. IU Health Services conducted an eight-month study of best practices for productivity, value added, waste avoidance, cost and scheduling. The hospital found that there are better ways to build with less risk, less budget creep, and increased owner input into the design.
On that the last point, Fuller noted that typically a hospital is completed and then the contractor spends the next year fixing it to make the nurses happy. IPD avoids that.
IPD does away with the usual hierarchy on a project, both contractually and in the field. The project is run as a collaborative. The mechanical contractor is at the same level as all of the other parties to the contract, Fuller said. IPD is shared risk — everybody has some skin in the game — and that’s the unique piece. Fuller said he knows of only nine or 10 shared risk projects in existence right now in the U.S.
Most of the thinking and planning is upfront. The project starts with the concept design phase, a broad piece wherein the design options evolve and the team talks about how they will handle inevitable challenges. The team then refines the contract and gets into the detailed design phase where product is selected. Commodities are eliminated — everyone knows what 6-in. Schedule 40 looks like and they don’t need to see a submittal for it.
The BIM model is created next.
An executive team that includes everyone who is at risk, including the owner, runs the project. The executive team meets once a month. The team includes a lawyer, the project counsel, who is judged by project performance the same as everyone else.
The Project Management Team does all the heavy work running the day-to-day construction and documenting — often virtually — the progress of the project.
On the financial side, the executive team agrees upfront what the cost-plus budget will be. The team is not obligated to deliver the project at a guaranteed maximum price, but there’s a catch to that. The parties agree to a project reserve budget that will absorb contingencies such as errors, delays, insurance deductibles or bad weather. Finally, there’s a profit pool to which all the parties at risk own a percentage interest. The profit pool can be expanded if there’s money left in the project reserve budget or it can shrink if the team doesn’t meet the owner’s conditions of satisfaction. The team can end up owing the owner money if costs go drastically over budget. That’s the reason for extensive upfront planning.
The contractor’s insurance company will hate IPD because the contract prohibits the parties from suing each other. Fuller noted that IPD requires a custom-written insurance product.
Billings and cash flow can be terrible, Fuller said, so the contract has to be written to keep it at 60 days.
IPD allows the mechanical contractor to pick the best subs not the cheapest subs.
All of that upfront planning includes design consideration for constructability to make the pieces go together more smoothly. Shop fabrication can be done better. Trades can cooperate. For example, everyone on the job will need man-lifts, so they can be pooled to get a better price. The core driller can work for both the mechanical and the electrical contractor.
North Mechanical is now at 30% complete on Riley Hospital, so Fuller is starting to get some hard numbers. So far, the project is coming in at 9.8% less than the original budget. Construction management and trade fees are down 1%. They’ve saved $1 million on the owner’s construction and design standards compared to the other hospitals that IU Health Services has built. Energy savings are estimated at 29% in terms of per square foot per year compared with other hospitals. Change orders are only 0.25%. The owner’s conditions of satisfaction are tracking at 3.95 out of 5.0.
All in all, IPD creates better results and the long term is what matters. Fuller concluded by noting that construction of a hospital is only 3% of the costs. Eighty-five percent of the costs will be operations and 12% will be maintenance.