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Integrated Project Insurance: sharing the pain – and the gain

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Following Carillion’s collapse, many have pointed to the Integrated Project Insurance model as a way of reducing procurement risk. Antony Oliver looks at the benefits via a case study of IPI in practice

The Integrated Project Insurance (IPI) model was included in the government’s 2011 Construction Strategy as one of a series of new, more effective procurement models designed to remove process and operational inefficiency, and thus drive down construction costs. 

The aim was to move away from siloed, adversarial behaviour towards a more collaborative environment, one in which costs are controlled and outcomes enhanced – reducing cost without cutting quality.

The Technology Strategy Board – later Innovate UK – funded a four-year project to demonstrate and test the model between 2013 and 2017 under the scrutiny of leading construction practitioners and Reading University’s School of Construction Management and Engineering.

Advance II, a further education training facility by Metz Architects for Dudley College was identified in 2014 as the first pilot project and was paid for, in part, with Local Enterprise Partnership funding. The challenge was to deliver for the client an outstanding project and also ensure the new procurement route drove a co-ordinated approach towards collaboration, best practice solutions and long-term value outcomes.

The project was accepted as part of the Cabinet Office Trial Projects Delivery Programme and became the nominated project under the Technology Strategy Board grant to monitor, assess and report back on the procurement route. 

Advance 2 42

Advance 2 42

The IPI model 

The IPI model is underpinned by an innovative form of single project insurance and a new alliance contract. This covers an alliance where the client sits alongside the design and construction teams – the Integrated Project Team – for all risks, including third party liability, delay in project completion, cost overrun and latent defects for 12 years.

This unique arrangement relies on the alliance – established via a commercial agreement between the client and the project delivery team – adopting collective sharing of project opportunities and risks, with a commitment to ‘no blame, no dispute’ between alliance participants. Such collaboration also includes joint objectives for achieving project target cost and delivery date and to seek ways of driving down costs associated with wastage and inefficiency, maximising the potential for ‘gain-share’.

A key role in the delivery under the IPI model is that of the independent facilitator, who works to help provide an environment of collaborative working and a ‘no-blame culture’. That extends to the early management of potential conflict and dispute, management of the contract and its related mechanisms (such as gain/pain share) and operational policies. 

Active management of the contract played an important role in helping the alliance understand the key provisions of the contract and the supporting insurance arrangements. Thus, when challenges came along, the independent facilitator had a clear contract and structure to help the team members understand their responsibilities, necessarily different from – and unfamiliar when compared with – traditional construction contracts. 

Advance 2 37

Advance 2 37

Dudley College Advance II outcomes

The project team operated on a 100 per cent open book basis, each charging an agreed sum for the cost of actual resource used for their input to the project including an agreed allowance for corporate overheads and a normal level of profit. A gain/pain share agreement based around target cost provided further performance incentive. 

On Advance II, this target cost was agreed in January 2016 at £9.99 million, including a risk allowance of £552,000 and opportunities totalling £555,000 against an overall investment target of £11.685 million, including land and fees. Under the IPI contract the delivery team collectively agreed to meet the first £390,000 of any overspend beyond this target cost, with IPI insurers providing £2 million in financial loss cover in excess of this amount. In addition, the delivery team co-insured 10 per cent of the £2 million financial loss cover, thus providing incentive and reward for the necessary collaborative approach to problem solving.

The driver for the success of IPI at Dudley is described by the team as being less about insurance and more about culture, collaboration, effective procurement, and trust. The formation of a delivery alliance underpinned by a single insurance policy has been a critical link to pull these elements together.  

Certainly, the prospect of potential pain-share was not ideal for alliance members. However, it is clear that the IPI process has enabled all parties to understand their roles and responsibilities and work together to find appropriate engineering solutions to engineering problems as they arose.

Taking each of the client’s measures of success for the project in turn, this was the outcome: 

Time Completion was achieved on 11 August 2017, compared with an original completion date of 2 June 2017, assuming a 56-week contract. Delays were experienced with the inception of the project policy, due to its complexity, insurer understanding and ultimate decision to ‘go ahead’ by the alliance. 

Cost The project target cost was revised from £9.99 million to £9.83 million with the omission of underground drainage works funded outside the contract.  

Advance 2 36

Advance 2 36

Quality For the client, the project outcome met and exceeded quality and performance expectations, as follows:

• The facility was designed to accommodate 20 per cent more students.
• Improvements in thermal performance, energy efficiency and CO2 emissions were achieved, owing to the use of natural ventilation.
• Performance benefits were achieved through a higher-quality façade.
• More flexible teaching spaces were delivered, including a ‘show and tell’ prefabricated plant room.
• IPI, project management and BIM implementation processes have been able to be used as teaching aids.

The outcomes achieved at Dudley College Advance II, across time, cost and quality were, according to Ian Dacre, partner at risk assurer Rider Levett Bucknall, noticeably enhanced by the IPI procurement and delivery process. He says: ‘The new college facility was built within the tendered programme period and a very high level of quality achieved. We feel that other, more traditional approaches would have led to a lower-quality outcome or a longer, more contentious period on-site. As the IPI route becomes more common and delivery teams don’t need to go through a learning curve, the benefits will become even more pronounced.’

According to Kevin Thomas, one of the project’s independent facilitators, the most important benefit from consolidating under a single alliance insurance policy is that individual parties no longer have to refer back to their individual brokers or underwriters when they’ve got a problem for fear of admitting liability. ‘In effect,’ he says, ‘that means the team is free to talk about problems, rather than position for the best legal solution.’ 

Advance 2 29 crop

Advance 2 29 crop

Demonstrating the value of BIM

The use of BIM to Level 2 was fundamental to the successful collaboration and effective information management on the Dudley College Advance II project. In fact, the IPI model and its focus on promoting collective responsibility and liability, is the only insurance product capable of supporting the use of BIM through to Level 3. Mark Bew, who chairs the government’s BIM working group, has stated that IPI offers the only insurance model that complements BIM, especially when it moves to Level 3.  

The use and teaching of BIM is a fundamental element of the training facilities in Advance ll. As part of the design, the college has included a purpose-built BIM studio with each student’s work station equipped with twin screens and access to virtual reality demonstration areas. The students will use this equipment to learn BIM applications and be given access to the BIM data generated during the project.

As Steve Johnston, executive director of estates and capital projects at Dudley College explains: ‘We’re developing an advanced construction training facility using an advanced procurement methodology: the two go hand in hand.’ 

Could IPI work elsewhere?

Johnston puts it thus: ‘I’d be able to go into it a second time with some of the uncertainties already well known, so we’d know what to try and sort out from the beginning. As a whole, the process ought to work. The more difficult people to convince are likely to be the consultants.’

However, the fact that the team faced a potential, if small, pain share as a result of cost overruns underlines the reality that the financial loss cover provided by the IPI policy does not obviate the team from its constant responsibility to achieve and beat the project target cost.

It is a view shared by Steve Bamforth, chief executive of insurance broker Griffiths & Armour. He says: ‘My view is that [the IPI model] will be driven by quality: quality clients, with quality teams.

‘As insurers get more experience of looking at quality teams, I think it will sort itself out. I’d expect them to be going out to potential clients and saying, “as a team, this is what we can do for you”. And if there’s a consistent supply team that has done good work, then the cost of IPI would come down. That is good for our clients and the industry as a whole.’

Antony Oliver is an editorial consultant and writer on civil engineering and infrastructure

Dudley advance 2 revit model

Dudley advance 2 revit model

Combined Revit Model with H&S risk markers

Project data

Architect Metz Architects (part of the Fulcro Group)
Client Dudley College
Cost £9.83 million
Completion August 2017
Alliance members Dudley College; Derry Building Services (services engineering specialists – design and installation); Fulcro Group (services engineering specialists – principal and detailed design), information manager and project co-ordinator; Metz Architects; Pick Everard (structural engineer); Speller Metcalfe (contractor)
Insurance broker Griffiths & Armour
Independent facilitator IP Initiatives 
Technical independent risk assurer SECO (Belgium)/BLP
Financial independent risk assurer Rider Levett Bucknall

This case study appears in the March issue of AJ Specification

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