Essential tips for optimal success with Lean IPD

Lean IPD is a relatively new but highly efficient method for delivering large construction and infrastructure projects within time and budget. Lean IPD combines principles from Lean Management with intelligent contracts between different builders.

Lean IPD contracts ensure that all builders benefit from a quick and cost-effective project. The more risk the partners take and the faster and more economical they deliver, the more profit they can make.

Sounds good, of course, and the following Lean IPD tips will give increase the chances of a successful project even further. 

6 tips for successfully applying Lean IPD

1. Select the right partners

Lean IPD depends on good cooperation between all partners in the construction or infrastructure project. All partners must be reliable, willing and able to cooperate optimally. Otherwise, a Lean IPD project becomes loss-making for all parties involved. Everybody wins or everybody loses.

Therefore, think carefully in advance about the criteria that will be used to choose potential partners.

2. Start on time

Lean IPD expects you to make clear agreements with all partners early in the project. Each party must think carefully and disclose their costs, the lead time of the works and the risks they can take.

Only when everyone has put their cards on the table, the Lean IPD contract is drawn up and the project can begin. The sooner there is clarity, the better.

3. Involve all parties from the beginning

Lean IPD assumes that you come to good agreements with all builders early in the process. After all, all partners sign the same common contract. The information and choices of one builder can influence the choices of another.

Therefore, involve all parties from the start in determining timelines and risk appetite. Adding parties to the contract at a later date is usually less easy.

4. Make sure everyone understands the benefits of Lean IPD

Lean IPD is only successful when all parties are committed to the project in the best possible way. To achieve this, all parties must understand the benefits of Lean IPD, both for the project (fast and budget-friendly delivery) and for their own company (increased profits).

The added value of Lean IPD is determined by the risk all stakeholders are willing to take. If they are sure of their delivery capabilities and cooperation, then they can put more money at risk for the chance to make more profit from the project.

5. Provide good change management and people management skills

Since a lot is decided beforehand and the interests of all parties are fixed in one common contract, changes during the project are often extra sensitive.

Provide a project manager with good change management and people management skills who uses open communication to get all partners to accept and comply with necessary changes during the project.

6. Make use of external experts

When different parties need to be aligned, it can be useful to call on an external party who can stand back and objectively view and reconcile different points of view.

External experts can also play different roles in the different phases of Lean IPD projects:

• during the preparation phase, an external expert can help with risk simulations and contract negotiations.
• during the project, an external expert can help align (the external interests of) the various parties.
• after the project is completed, an external party can objectively look back on the project and collect lessons learned. Towards future projects, this can be particularly useful.

More Lean IPD tips?

Are you interested in Lean IPD? Do you want to make your construction or infrastructure projects more efficient? Contact us without obligation. Our Lean IPD experts are happy to help you.

What are the benefits of Lean IPD?

Lean IPD offers many advantages for clients, builders and designers of large construction and infrastructure projects. The reason is simple: every party sits at the table from day 1. When all parties communicate openly about their project costs and the desired profit they want to make, 1 contract can be drawn up that unites the interests of the whole project team.

In this article, we discuss the specific benefits of Lean IPD for owners, builders and designers during large construction and infrastructure projects. 

Why should you choose Lean IPD?

General benefits of Lean IPD

In the United States, Lean IPD has already proven that it can make large construction and infrastructure projects run more efficiently. By uniting the interests of owners, builders and designers into 1 contract, everyone works towards the same goal.

If the project goes well, everyone makes a profit. If something goes wrong, all parties share in the extra costs. The exact amounts are laid down in the risk/reward plan, which is an integral part of the contract that all parties sign.

Wondering if Lean IPD would benefit your projects too? Let’s find out!

Advanages of Lean IPD for the construction team

Lean IPD offers several benefits to construction partners.

First, more thought is given to each step of the process, as all parties constantly consult with each other. As a result, everyone works together more efficiently, saving time and resources. That gives builders the opportunity to deliver the project earlier and/or under budget. We’ve said it before: this allows the partners to make additional profits.

Moreover, the builders will never make a loss. How is that possible? The client always continues to pay the necessary costs, even if they were not initially included in the budget. So as a builder, you will always at least break even. Lean IPD therefore offers you unprecedented certainty.

As an owner, that cost guarantee probably seems like an unpleasant prospect. But don’t forget that you only have to start using your own funds as a last resort. For the first unforeseen costs, you can call on the contingency, and later on the profit at risk. You will only have to pay extra yourself when these funds are exhausted, which is extremely rare in practice.

Advantages of Lean IPD for the owner

There are many disadvantages to traditional working methods for owners. Uncertainty about the final cost and effective completion date, possible penalty clauses in contracts….

These disadvantages are resolved by Lean IPD, where most projects are realized faster and for a lower budget. The builders communicate transparently about costs and profits, and work together more closely. As a result, there are fewer unexpected costs, and you have a better idea in advance about the final price of your project.

By the way, did you know that Lean IPD projects are delivered 19% faster on average? As a result, your factory can go into production sooner, for example, and therefore start generating profit sooner.

Conclusion

The benefits of Lean IPD are clear for each party. By motivating the team, a Lean IPD project runs smoother and more efficiently, allowing everyone to make more profit.

Want to learn more about Lean IPD ? Find out here if Lean IPD would benefit your projects. Want to delve into the risk/reward plan? You can do so in this blog post. In our next article, we will take a look at the pitfalls of Lean IPD, and present possible solutions. Stay tuned!

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Are you interested in Lean IPD? Contact us. Our experts will gladly help you run your next construction or infrastructure project much more efficiently.

How do you create a Lean IPD contract?

To implement Lean IPD, your construction or infrastructure project and working methods must meet a number of conditions. Here’s how to draw up a conclusive Lean IPD contract, and what you need to do so.

The basics of Lean IPD

Lean IPD aims to make construction and infrastructure projects more efficient. The methodology can be boiled down to 3 basic pillars: an aligned contract, lean construction and a project culture that focuses on collaboration.

If each party follows this philosophy, everyone can reap the benefits. Otherwise, every party involved experiences disadvantage. With Lean IPD, you win together, or you lose together.

The ground rules of Lean IPD are established in a Lean IPD multiparty contract between all parties involved.

Lean IPD multiparty contract

A Lean IPD multiparty contract, as the name suggests, is a contract with multiple parties. In traditional construction projects, the client signs a contract with the designers, and another contract with the builders. Those parties then often subcontract with other companies, which again have separate contracts.

With Lean IPD, the client, the designers and the builders all sign the same contract: an ‘integrated form of agreement’. Other parties involved join the project as subcontractors or co-sign the original contract.

When the builders or designers hire other parties, they get to choose whether they sign a traditional contract, or have the subcontractors join the Lean IPD contract.

Risk and reward

In a unified Lean IPD contract, a maximum price is set for the entire project. That maximum price consists of all costs and overhead, the profit all the partners want to make, and a contingency for unforeseen costs.

In Lean IPD contracts, the construction team puts their profit ‘at risk’. If everything goes according to plan, then the construction partners can increase their profit. If the project misses the deadline or costs more, the construction partners break even. Unforeseen (overhead) costs are always guaranteed to be paid by the owner, even if they were not planned in advance.

Risk/reward plan

Those risks and rewards are moulded into a risk/reward plan. This is a crucial part of a Lean IPD contract. 

Profit at risk

As mentioned above, construction partners put their intended profit at risk at the start of the project. All partners report their profit amount, and those amounts are added up to 1 large lump sum amount. The entire team agrees to put (part of) that amount ‘at risk’.

Ideally, each party should put their target profit 100% at risk. Why? Because then they can also get the biggest bonus. If they put only 75% at risk, the parties also get only a maximum of 75% of the bonus to which they would otherwise be entitled.

What if things go well?

If all goes well, then all parties receive their requested profit in full at the end of a project.

If things go even better and a project is delivered too early and/or (way) under budget? Is the contingency not fully utilized? Were smart cost savings made during the project? Then the amount saved is distributed as additional profit to all contractors and the owner.

A nice bonus, and a very good incentive to work together even better and more efficiently.

What if things go wrong?

When unexpected costs come up, the owner initially uses the contingency to pay for those extra costs. Has that amount been used up as well? Then he draws on the combined profit lump sum – made up from the ‘profit at risk’ of all parties – to pay the costs.

It does not matter which party spends more than expected: all parties lose part of their profit if the owner has to use the lump sum to pay for unexpected costs.

This encourages all parties to work well together to avoid problems. This is completely different from traditional projects, where blame is often placed on each other to avoid penalties.

Contingency  

So how do you determine the contingency amount? 

Current uncertainties

At the beginning of a project, your view of the total cost is not yet clear. At that point, you will set the contingency higher than when you are further advanced in the design phase of the project.  

You also need to look at the budgets and cost proposals of all parties. Is one partner setting their costs too high so they can ‘save’ later and get more profit? Then you can set the contingency lower to keep the cost from spiralling out of control.  

Future uncertainties

Do you know in advance that certain things will need to be figured out on the spot? Or do you anticipate a problem with your building application? Then you can set your contingency higher to absorb those costs.  

However, try to avoid this. Find out in advance what the problem is and foresee a solution. Otherwise, you will probably provide too much or too little money. In that case, you as the client will have to pay more anyway.  

Can you really not solve the problem or uncertainties at the beginning of the project? Then provide a larger amount for the contingency, but be specific in the contract. What do you (not) expect from the solution, and what do you (not) want to pay for? This way, you already prepare the change order (modification of the contract), and you will have fewer big surprises and/or time-consuming discussions later. 

Reward  

What if the parties are entitled to additional profit? In a Lean IPD contract, you specify how any extra profit will be divided between the owner and the construction parties.  

For example, you can take into account the contingency amount. The smaller the contingency, the more risk the project team has of losing their profit. In that case, they earn a larger share of the extra profit. Is the contingency relatively large? Then the owner can claim a larger piece of the extra profit for themselves.  

You can also choose to work with tranches. The first 2% savings go to the owner, the next 3% extra profit is shared among everyone else, and so on….  

Finally, you can also opt that profits from savings are shared among all parties up to a certain limit. Often owners choose to pay everyone until they have made 50% or 100% more profit than they first intended. After that, the remaining amount goes to the owner anyway. 

Change orders

Of course, things can still change when the contract is already signed. That is why we have change orders. These are changes to a project that will lead to changed results, delivery terms or costs. Change orders are only later included in the contract.

There are 3 changes that can lead to a change order:

• Problems with the government: An institution is being difficult regarding a permit, legislation is changing….
• Unexpected obstacles: Sometimes the team does enough preliminary research and still run into unexpected problems. This leads to a change order only if they really could not discover or research the problem beforehand. Otherwise, the responsibility is borne by all parties in the project, and the owner can pay for those unexpected costs with the contingency or the profit lump sum amount.
• Assignment changes: The owner can change the assignment when the project is already underway.

Errors, coordination problems, wrong resources and methods, equipment replacement… do not trigger a change order. These problems are all solved in Lean IPD with money from the contingency and profit at risk. 

Conclusion

A Lean IPD contract is very different from traditional construction and infrastructure contracts. The owner, designers and builders sign the same contract, communicating openly about their (expected) net costs and desired profits. That information is put into a risk/reward plan.

In a limited number of cases, that contract can be modified with change orders, but usually the costs for unforeseen challenges in the project are paid for with the contingency and profit at risk lump sum amount.

Is the contingency amount not (fully) used? Then the project team and the project owner are paid additional profit. This encourages everyone to make the project as economical as possible, thus increasing the profit for everyone.

Are the contingency and the profit at risk used up, and will additional costs be required to complete the project? Then the owner will continue paying the costs of the construction team, so the project partners will always break even.

Want to know more?  

In our next article, we will elaborate on the benefits of Lean IPD in construction projects. Then we will discuss possible problems and their solutions, and give tips on how to apply Lean IPD successfully. 

Do you want to know more about Lean IPD or utilize Lean IPD in your next construction or infrastructure project? Contact us. Our Lean IPD project team is happy to think along with you.  

What is Lean IPD?

Most industries are becoming more productive. Except for the construction industry, where productivity has actually been declining in recent years. This shows a clear need for a new way of working to make construction projects more efficient. Enter Lean IPD.

Lean IPD stands for Lean Integrated Project Delivery. This way of working is based on 3 components:

• Aligned contract: The client, the design team and the builders of a (construction) project sign a single contract together. Within this contract, they can increase their profit margin when they cooperate efficiently, but also lose their profit when the construction project is delayed. In this way, all parties are encouraged to finish the project on time and within budget. Everyone wins, or everyone loses. 
• Lean Construction: All parties work with streamlined processes and strive to continually improve these processes. The workflow should be as efficient as possible.
• Collaborative culture: It is crucial that all parties work together as effectively as possible and keep one goal in mind: the project.

So all parties work together to achieve the same goal. This efficiency generally improves project results and makes projects more cost-effective, as there are fewer delays or budget overruns.

Is Lean IPD useful for you? 

Do you need Lean IPD for every project? No. Lean IPD is especially useful for projects: 

• that will cost more than €750,000 due to their complexity,
• that involve multiple parties,
• that operate with multiple delivery schedules.

In short, Lean IPD is especially useful for large, complex projects.

Where is Lean IPD being used? 

In the United States, Lean IPD has been well established for a decade, as most large construction projects (for example hospitals) there use Lean IPD by default. Meanwhile in Europe, Lean IPD is already well established in Great Britain and Poland. The rest of Europe is soon to follow.

An increasing number of large projects are also carried out in Belgium using the Lean IPD methodology. And when large companies start implementing it, smaller companies that are working on the same project have to follow. This way, the methodology becomes more and more widespread. A well-known example of a Belgian Lean IPD project is the Oosterweel Link.

However, there is still much room for improvement. In 2022, Lean IPD is still not the standard way of working in Europe. This is unfortunate, because it offers advantages for all parties involved directly and indirectly. For example, the faster an infrastructure project is completed, the sooner road detour and traffic jams are over and traffic can flow optimally again.

What are the benefits of Lean IPD? 

Lean IPD ensures that the various parties are better aligned. This leads to more reliable projects that are completed faster and where all parties are better rewarded. 

This allows construction partners to potentially make some extra profit. Additionally, the risk/reward plan gives them extra security as they will never lose money when the project doesn’t go according to plan. 

End clients will see their project finalized faster, and probably with less costs.

What are the pitfalls of Lean IPD? 

Of course, the benefits are there only when Lean IPD is done right. But things can also go wrong.

1. Wrong partners: A project completely depends on the quality and reliability of the partners. A bad BVOA (Best Value Option Analysis) may throw a spanner in the works in this regard.
2. No overview: As an owner, you need to map out in advance what your project would cost if you went for the traditional way of working. That way, you can better assess whether your Lean IPD partners are asking a correct price.
3. Immediate cost: As the owner, you pay for design costs from day 1, long before the construction phase can begin. This has a positive effect on the group dynamic between the different construction partners, but a negative effect on your cash flow.

Tips & tricks

Are you interested in implementing Lean IPD? The following tips will help you get started:

1. Start on time. It takes time to find the right partners and to draw up a good Lean IPD contract.
2. Involve all parties in this new philosophy from the beginning and make sure everyone understands the benefits of Lean IPD.
3. Change management and people skills are crucial in this process. After all, every decision affects a lot of parties. Everyone must feel comfortable with the decisions in order to continue to work well together.
4. Consider hiring an outside party to manage the Lean IPD process. This person can look at different points of view objectively and unite them more easily compared to someone who is or appears biased.

Conclusion  

Are you interested in Lean IPD and do you want to run your next project more efficiently? Contact us! We are happy to guide you through the entire process.