Over the last five years, Southland Industries has participated in a Target Value Design Research Group facilitated by University of California, Berkeley’s Project Production Sciences Laboratory (P2SL). This research group was composed of practitioners from the architectural, structural, mechanical, and electrical design community, as well as, a general contractor and numerous “trade partners” from the mechanical, electrical, and structural sub-trades.
Five projects were studied, both public and private, with the intent of identifying how better to perform Target Value Design. All of these projects used a contract model that was based on shared risk and reward, except the public project which had legislative constraints on the contract format. This type of contract is often referred to as an Integrated Form of Agreement (IFOA), multi-party, or poly-party contract. It is largely behavioral-based and where key stakeholders place their profits into one common “pool” and work together to maximize the value for the client. The stakeholders share in the risk, and also the potential reward, as a common entity.
The research took a bit of a scary turn when it was noted that out of 26 shared risk and reward style projects performed by research group members, four did not return any profits to the project teams, resulting in a 15 percent failure rate. While the owner(s) still received value, the design and build teams made zero profit.
This is obviously not a sustainable model and we felt that we should identify common pitfalls and suggest countermeasures around them. Listed below are the issues and countermeasures as presented by a small subset of the group at the Lean Design Forum at University of California, Berkeley in January of 2015, the Global Lean Construction Conference in July of 2015 in Perth, Australia, and at the 17th Annual LCI Congress in October of 2015 in Boston, Massachusetts:
1. Don’t be greedy/don’t be foolish
- Ensure that the entire project team is committed to delivering what the owner needs, within their constraints, with a fair profit to the risk pool members. Owners and suppliers alike need to commit to the continuous improvement and economic success of each other, in order to achieve set goals.
2. Don’t skip the rigorous validation phase
- Treat validation as the first and primary assumption of risk by both owner and risk pool members, not as a mere cost estimating exercise.
- Re-validate after substantial scope changes.
3. Require the same level of evidence for reductions in cost forecasts as for increases
- Owners: don’t ask risk pool members to reduce cost forecasts without specifying the changes in what is to be built or how it is to be built so that cost is taken out of the project. Require the same level of evidence for cost reductions as for cost increases.
- Risk pool members: don’t reduce cost forecasts without specifying the changes.
4. Shared governance: owner and all risk pool members decide who joins and who leaves the project
- Owner and risk pool members should decide what companies and individuals to add to the project team and also whom to remove from the project team. Timing is critical – not too soon and not too late.
5. Move money across boundaries
- We must be able to move monies and scope across traditional trade boundaries in order to maximize value and minimize cost and waste.
6. Involve the right people at the right time
- Involve the right people at the “earliest responsible moment” to maximize the impact on design and constructibility.
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