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
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
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
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
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
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
• Collaboration Guide:
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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
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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.
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
Why Relational Contracting?
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Cost
Waste
Complexity
Coordination
Value
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
Hospital Construction Costs ~ High and
Going Higher
Source: Davis Langdon OSHPD Report 2006
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
“Typical Organization”
Source: McDonough Holland & Allen PC
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
“Buildings Leak at the Intersection of
Contracts”
Source: McDonough Holland & Allen PC
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
Traditional Project Delivery
Level of Common Understanding
Source: McDonough Holland & Allen PC
Courtesy of McDonough Holland & Allen PC
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
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)
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
What to do?
Change the Organization
 Change the Design Process
 Change the Construction Process
 Change the Commercial Relationships
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
History of Relational Contracting
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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
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
Foundations of Success ~ CII Study
“Projects are built by people. Research into
successful projects has shown that there are
several critical keys to success.
 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.”
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
The Toyota Way ~ Jeffery Liker
Problem
Solving
People &
Partners
Process
Philosophy
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
What Underlies a Relational Contract?
~Ian MacNeil
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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
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
Lean Project Delivery Paradigm
Sutter Health Lean Initiative
Dynamic
Stodgy
Physics of Work
Organizations
Contracts
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
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
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
Integrated Team Concepts
Source: McDonough Holland & Allen PC
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
Executive Involvement
Source: McDonough Holland & Allen PC
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
The 5 Big Ideas ~ Emergent Outcomes
Collaborate;
Really Collaborate
Increase
Relatedness
Innovation
Build
Trust
Projects as
Networks of
Commitment
Competitive
Optimize
The Whole
Continuous
Improvement
Reliability
Tightly Couple
Learning w/ Action
Source: Sutter Health
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
Integrated Project Delivery
Level of Common Understanding
Source: McDonough Holland & Allen PC
Courtesy of McDonough Holland & Allen PC
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
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
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
What to do?
Change the Organization
 Change the Design Process
 Change the Construction Process
 Change the Commercial Relationships
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
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.)
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
What to do?
Change the Organization
 Change the Design Process
 Change the Construction Process
 Change the Commercial Relationships
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
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)
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
What to do?
Change the Organization
 Change the Design Process
 Change the Construction Process
 Change the Commercial Relationships
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
Restructuring Contracting & Finance
 IFOA signed by all major stakeholders (A–C–E–S)
 Alliance-like multi-part compensation model for “profitparticipants” (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”
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
How to share?
 Project Risk?
 Project Innovation Benefit?
 Project Production Success?
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
Sharing Project Risk
Source: McDonough Holland & Allen PC
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
Sharing Project’s Innovation Benefits
Source: McDonough Holland & Allen PC
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
Sharing Project’s Production Successes
Source: McDonough Holland & Allen PC
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
Dispute Resolution
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Notice
Negotiations
Core Group
Senior Management of Core Group
Independent Expert
Mediation
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
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
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
Resources
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IFOA ~ LCI
ConsensusDocs 300
AIA-IPD
NBBJ – Integrated Delivery contract template
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
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:
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wlichtig@mhalaw.com
GHowell@Leanconstruction.org
GBallard@Leanconstruction.org
RBlakey@LeanConstruction.org
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
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
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
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
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
– 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
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008
Questions and Answers?
 Presenter:
 E-mail: sleight@ac-lawyers.com
 Phone: 206-287-9900
 LCI
 GHowell@Leanconstruction.org
 GBallard@Leanconstruction.org
 RBlakey@Leanconstruction.org
© 2009 ~ Lean Construction Institute
Introduction to Lean Construction / Vancouver, BC
January 22-23, 2008