Good-bye “us” vs. “them”

Lean construction processes unite Florida contractors so they can deliver projects on time and at or below budget. Team members say it’s more fulfilling as well.

by Clair D. Urbain

Lean construction processes unite Florida contractors so they can deliver projects on time and at or below budget. Team members say it’s more fulfilling as well.

Imagine a project where trades don’t establish an “us vs. them” attitude or where, just once, project flow is orchestrated by logic instead of lengthy performance contracts. Then, imagine a project without contractor-initiated change orders, lengthy RFIs, and no rework.

Is this heaven? No, it’s Florida – Orlando, to be exact. It’s a group of contractors who have united in a way that allows them to test some new theories in Lean construction concepts.

Owen Matthews, CEO of Westbrook, a mechanical contractor and service company serving the Orlando area, says it’s a process that turns conventional construction practices on their ear and tests new waters in cooperation and partnering.

“An important Lean principle is that if you optimize one step of a process, you de-optimize the whole process. In the contractor world, everyone is attempting to optimize their part of the process,” Matthews says. “Traditional contracting methods encourage selfish behavior as each contractor strives to set up work so its tasks can be done in the most efficient way possible.”

ENTER INTEGRATED PROJECT DELIVERY
Westbrook and a consortium of other contractors and design professionals have banded together to form Integrated Project Delivery of Orlando Florida (IPD), a partnership where the contractors work and act as one for the client. While maintaining their own companies, projects built under the IPD umbrella present the contractors and design professionals as though they are one company.

“What if every member of the design-build team completely shared the responsibility for the entire project and set about correcting deficiencies or problems wherever they popped up, without regard to who caused the problem or who is going to pay for it?” asks Matthews. That’s the basis of the IPD concept and, by present measures, the concept can and will work.

The IPD concept started as a way to complete fast-track design-build projects. Matthews and a few other like-minded contractors and design professionals got together and brainstormed the concept five years ago. Their goal was to create a structure in which the owner would deal with one entity and the risk and reward would be shared fairly among participating team members.

“We started by going to breakfast twice a month and discussing the idea. It involved the design professionals and key contractors who became collectively referred to as the Primary Team Members (PTM). That evolved into the IPD process, where the PTMs are responsible for all provisions of the prime contract. The client and the PTMs share the risk and the profit for total project performance,” he says.

The prime contract spells out the commercial terms and defines the scope, schedule and cost of the project. Each PTM is jointly and severally bound to the others and to the fulfillment of all the terms, conditions and requirements of the prime contract.

“The team has one price, and that is the price to the client. The team has one scope, and that is the project scope as defined by the prime contract. There is no accounting among the PTMs for which contractor is over or under budget. This supports innovation and improvement within and between crafts. As a result, PTMs may shift work and cost across traditional boundaries to reduce total expenditures and to improve total project performance,” he says.

DOWNSIDES POSSIBLE
The downside potential to this “all for one, one for all” philosophy is if one PTM makes a mistake, each PTM suffers. “Under this type of pact, the PTMs are more like mountain climbers roped together. If one falters, the others pick up the slack, they don’t cut him loose. They don’t waste time laying guilt; instead they use the time to apply their talents to get the job done. All PTMs must realize that everyone makes mistakes and must be willing to jointly absorb the cost for honest mistakes,” explains Matthews.

The team decides which members of the PTMs’ present staffs will fill team positions such as project executive, director of design services, director of construction services, project manager, superintendent, accountant, information technology manager and systems manager.

Each month, the owner is billed for the percentage of the job completed. In turn, the PTMs are reimbursed for their verifiable direct job costs. “This requires open books from all PTMs, which are also open to the owner. At the end of the project, the gross profits are distributed to each PTM according to a mutually agreed-upon formula based on the incurred direct project costs for each PTM.

“The formula is weighted more toward direct labor than subcontracts and toward material purchases vs. major equipment purchases. The intent is to recognize the varying overhead associated with each type of job cost,” says Matthews. The contractors’ accountants figure the most equitable formula; it is revisited with each job and adjusted for the type of work the contractors must do.

The group is self-governed. From the client’s viewpoint, the central accounting and monthly review of each PTM billing provides a platform that encourages openness. “Most disputes are rooted in the financial interests of the disputing parties. Since they have the same financial interest, typical disputes don’t arise. We have used this process on five projects, and there have been no performance or pay disputes,” he says.

CAN AN INTEGRATED DESIGN PROCESS WORK FOR YOU?
Matthews readily admits that his company and other partners in the IPD effort are breaking new ground, and isn’t bashful about sharing some of the challenges such an endeavor presents.

“Selecting team members is key,” says Matthews. “We had significant history of working together on various projects, but there can be contractors who aren’t suitable for the IPD process.”

Team members must have top management commitment and involvement throughout the process and support at all ranks within the company. The IPD partners and employees must not be pressured by other areas of the company to use conventional design-build or design-bid-build processes.

“We had one project manager whose management team was on board, but he couldn’t get his mind wrapped around the concept. He could not let go of his traditional view of project manager and was often offended by group actions. Although everyone enjoyed working with him on traditional projects, he could not work effectively in the IPD environment,” says Matthews.

Details must be ironed out at the front end. “We have challenges that must be resolved on each project dealing with insurance, bonding, job costing, accounting, the formula for distributing gross profit, formation of the internal pact, project leadership, consolidated budgeting, warranty and communications, just to name a few. These must be addressed and solved,” Matthews says.

Another issue is economically rewarding the participants for their efforts. “Value engineering in this scenario happens early in the planning and conceptual phases and brings significant improvements and cost reductions to the project. We haven’t found an effective way to quantify these improvements and compensate the participants for the true value they bring to the table in the IPD process. As it stands today, IPD members only benefit from cost savings after the guaranteed maximum price is developed,” Matthews says.

Like any contract arrangement, there is risk that must be managed. Under traditional methods, it has been every contractor for himself. Under the IPD process, a joint risk assessment committee could review the project monthly examining the team’s performance, any problems, change orders or claims initiatives, payment history of the client or any other trends that may need attention.

Enlisting the services of specialty trade subcontractors has not been a problem under the IPD process. “It has been fairly easy to introduce a specialty contractor into a project as a member of the team to complete a certain portion of the job at a set price or to bring them on as a full team member,” says Matthews. As a full team member, that subcontractor can share the risk and reward with the rest of the team. “We have found that circumstances of each job helps determine which method might be employed,” he says.

PROJECTS PROVE IT CAN WORK
The most recent project where IPD used its modified Lean Project Delivery System was building the North Chiller Plant for the Orlando Utility Commission in 2005.

“This was a $64 million project that mechanically was very intense,” says Jim Roberts, executive vice president at Westbrook. “We applied Lean principles to the project and increased the involvement of all contractors on the design and engineering work of the project. There was no way to compare it to the traditional bid-build way of contracting.”

“There were significant cost savings on this project. We estimate that we saved at least 10 percent of the total job cost, plus the job was delivered on time, and we feel it was of a higher quality,” says Roberts.

“There are other intangibles,” adds Jon Thurman, Westbrook president. “The increased harmony across the team – because it truly is a team – reduces delays and the chance for litigation as the project gets completed. Owners like that. The building team represents a unified front. It’s not just spin.”

The chiller project is a 3,000-ton chiller facility, which can be quickly and easily expanded to 12,000-ton capacity. It was fast-track in design and completed in less than seven months. It involved demolishing some old downtown buildings and a warehouse, then building a chiller plant that is efficient and, in this area of renewal, met the design requirements of the Downtown Development Board to blend into the renovated downtown area.

“We were involved in the very beginning of the design, and we worked closely with the design engineer on developing final construction drawings,” says Roberts.

Other team members were involved at the beginning as well. Using the Lean Construction Institute’s Last Planner concept of job planning, the contractors worked together to identify ways to cut costs and streamline construction. The Last Planner process builds a production schedule based on the give-get principle. The planning process identifies what one contractor will give another contractor in the process, then the next contractor described what that firm will in turn give to the next contractor or discipline in the sequence.

The project postmortem identified several instances where partnering and planning at the front end yielded greater efficiency.

“We also found that planning for challenges at the front end was rewarding and rejuvenating, not draining as it is on conventional jobs when you are trying to solve problems as they pop up. It makes it much more rewarding to work on this type of job,” says Thurman.

The team identified many ways the process streamlined the job:

Planning averted steel shortage delays. At the time of construction, steel shortages loomed worldwide, so designers checked with suppliers to see what steel dimensions were readily available, then used those to build the structure.

“By involving the steel erector in the planning process, we were able to use the mill schedule to find out what types of columns would be available. This type of coordination would be next to impossible under traditional delivery systems,” says Matthews.

Column placement enhanced equipment installation. Because column placement can be somewhat arbitrary in the design phase, Westbrook designed the mechanical equipment placement in the space, then worked with the structural designers to find the best column spacing to accommodate the equipment. “One column, if placed only 18" away from its original location, worked best. It had no effect on the building structure. No other contracting system would have afforded us the opportunity to offset that column to accommodate mechanical work,” Matthews says.

Foundation work cut costs and streamlined installation. “The facility would have required more than a mile of conduit and wiring bundles if the runs were to drop down to the equipment from overhead,” says Roberts. “Instead, we went under the slab for a cleaner installation and shorter overall runs.”

The underground conduit installation, while more expensive for the site contractor, significantly cut labor and installation costs on the rest of the project. “We poured the footings and placed the column pads 30" below top of slab so all utilities could run, turn up and penetrate the finished floor without interference from the pads. We used a small front-end loader and fire hoses to wash the small aggregate into place over, under and around the conduit. A soils engineer verified proper compaction with every lift. It was a little more labor-intensive for the site contractor, but the project realized a 20-fold savings for the electrician because conduit runs didn’t have to be installed overhead. These types of savings aren’t usually realized in the traditional design-bid-build process. It was our field people who were brought into the planning process that came up with this innovative solution,” says Thurman.

“It was easy to handle the conduit. Once it was in place, it was done,” recalls Clay Harem, IPD field project manager. “We marked the survey spots based on the 3-D drawings and we were able to put everything in its place without extra excavation. After all, why backfill it, then dig it out again to lay in the conduit?

“I was a bit concerned about backfilling with the fire hose, but it worked great. We had to work our way in with smaller equipment than we would have normally used, but it helped us realize three weeks in time savings and tens of thousands of dollars in cost savings,” Clay says.

In total, more than a mile of conduit was laid in place. Also, with the conduit in place before backfilling, it was easier to check the runs to make sure they were in the proper locations.
Pipe hanger weldments pre-fabbed with the structural steel reduced installation time. Using object-based 3-D design, the mechanical contractor and the structural engineer worked together to design the column and roof beam layout. From there, all hanger locations were identified and added to the roof layout and the steel fabricator added the weldments from which hangers would be attached. Where no support existed but a need for a hanger was identified, the structural engineer added beams to carry the pipe hangers. “Everything was prefabricated off site and delivered in a just-in-time fashion to the project,” says Matthews.

Mechanical installation before roof installation. The IPD team also tackled the formidable job of installing the 24"- and 30"-diameter overhead chiller pipes in the facility. “We used a crane to position piping and get it mounted to the beams before the roof pan was installed. This approach allowed us to bring some prefabricated assemblies on-site that weighed more than 12,000 lbs. and to safely and quickly put them into position. We were able to install the pipe and connect the chillers in 10 calendar days. Everything fit perfectly,” Roberts says.

REWARDS OF THE PROCESS
On top of the facility being completed ahead of schedule and under budget, it has also garnered some awards for its innovative design and construction process.

The project was honored with a Golden Brick Award from the Downtown Orlando Partnership for its design and contribution to the changing look of downtown Orlando. It was also honored by the Florida ABC with the 2005 Eagle Award for mechanical projects costing more than $5 million for its distinctive approach to design, construction and customer satisfaction.

Published in the May/June 2006 issue of Contractor Tools and Supplies magazine.

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