Incentives are an essential part of a successful Integrated Project Delivery (IPD) program. Incentive programs reward the successful IPD Team for exceeding the owner’s expectations and benchmarks and achieving superior performance. The incentive programs unify and motivate IPD Team members to eliminate waste while preserving quality.
A leading IPD contract provides an incentive program to be funded with project savings. The contract also calls for continual monitoring and review of the project team’s performance to ensure greater work quality and to notify the parties of the quality of their performance. The program should consider performance in the following areas: cost, quality, safety, schedule, planning system reliability, innovative design, construction processes, and teamwork. The contract leaves the precise formatting of the program to the individual project. Following are summaries of incentive programs from three different construction projects, which exemplify different methods of incentives that IPD teams have used.
• The Pentagon design renovation had a two part incentive program. The first part involved a cost-sharing incentive, in which the design-builder and the owner shared in the savings of the project based on a negotiated ratio (e.g. 60/40, 70/30). The second part of the incentive program was the performance incentive program, based on an award fee. An award fee is a pool of money reserved for the performer to earn by achieving or exceeding the owner’s expectations. Whether the performer earned portions from the award fee was based on periodic evaluations of the design-builder’s performance by the owner. The “catch” was that, if the design-builder received poor performance ratings, it earned neither the savings of the cost incentive nor the money from the award fee pool.
• The IPD Team on the construction of Cardinal-Glennon medical center in St. Louis designated the difference between the actual cost and the estimated cost as the construction contingency. At final completion, the construction contingency was distributed as a bonus, after being used to pay for items that were not included in the estimates, i.e. design errors, omissions, etc. The owner, architect, GC/CM, and specific lean contractors shared the bonus according to a pre-negotiated formula.
• Finally, the construction team of another major medical center developed an incentive program for its project. The parties determined the amount of savings by subtracting the actual cost of the project from the estimated project cost and the change order value. The parties capped their savings at $2,000,000, with the owner receiving any excess. The owner also received the first $200,000 of any savings as reimbursement for money used to facilitate communication. An additional amount was reserved to reimburse the owner for the salary of the lean construction consultant. The parties split the remaining savings among the architect, engineer, GC/CM, mechanical contractor, electrical contractor, and owner according to previously negotiated percentages.
The incentive programs of these three projects demonstrate the flexibility given by the incentive program concept. These incentive programs helped to unify the parties’ goals and resulted in satisfied owners with under-budget, on-schedule construction projects.
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