Pertti Lahdenperä

Making sense of the multi-party contractual arrangements of project partnering, project alliancing and integrated project delivery

Collaborative construction project arrangements have been the subject of many development efforts owing to the frustration felt toward the opportunism inherent in traditional contracting. Globally, three approaches have stood out: project partnering, project alliancing and integrated project delivery. These so-called relational project delivery arrangements have much in common. This study aims to clarify the similarities and differences between the arrangements by examining their key concepts and features one by one and in relation to each other; the motivation behind each is also examined. Early involvement of key parties, transparent financials, shared risk and reward, joint decision-making, and a collaborative multi-party agreement are some of the features incorporated in all the arrangements to a varying degree. Beyond the numerous details, divergent applications and constant evolution presented, the study also recognizes project alliancing as a project delivery system in its own right due to its contractual structure that integrated project delivery aims to imitate while introducing some management approaches not included in project alliancing. Project partnering, although developed in leaps and bounds since its introduction, takes a more conservative approach to work scope and liabilities. Similarly, project alliancing takes relational contracting to the extreme compared to the current forms of integrated project delivery and, especially, project partnering.

Conceptualizing a two‐stage target‐cost arrangement for competitive cooperation

The owner may involve design and construction service providers in a project at different stages of planning and design. Early involvement of the versatile know‐how of service providers places the owner at the services providers’ mercy as to pricing. Late involvement, when design is close to completion, allows using price competition to ensure reasonable pricing. Then, design usually does not involve interplay between the key parties to benefit the project. The aim of the conceptualization is to overcome the above‐mentioned problem by generating a novel type of two‐stage target‐cost contracting system which combines early selection and price containment. There the calculated tender price is based on both the owner’s estimates and the tenderers’ unit cost and overhead data while the project scope is not yet fully established. Selected service providers then develop the project and its designs in cooperation with the owner before the actual target‐cost is set. Incentives have been created to lower the target‐cost below the earlier calculated tender price. The idea is to spur actors to invest especially in the critical pre‐implementation development phase. Subsequent risk sharing is believed to increase the cooperation between parties further. The model offers a means, especially for European public owners, to enter into a cooperative relationship that is of value in the case of projects involving special challenges and a great deal of uncertainty. The European Procurement Act requires costs to be taken into account in the selection.

Phased Multi-Target Areal Development Competitions: Algorithms for Competitor Allocation

The prevailing practice in new areal real estate development is for public and private actors to perform their duties by turns. Yet, the planning process could benefit from simultaneous contributions from society and developers and their designers. That, again, requires that the municipality selects the private partner consortia prior to completion of the local detailed plan through a competition in order to find the most potential actors and the best ideas for implementation of an urban structure of high quality. Candidates will be attracted by offering them the right to implement a residential/business block as a developer. The several blocks involved in an areal development project, and the laboriousness of producing competitive solutions, require a well planned selection process. A novel multi-target competition process was developed which is presented in this paper with special emphasis on the allocation algorithms that allow selecting the most qualified competitors for parallel follow-up competitions from among a large group of registered candidates. The approach was tested in an actual real estate development project in the municipal district of Vuores which was the original reason for launching the study.

Preparing a framework for two-stage target-cost arrangement formulation

Purpose – Early involvement of the project team with the construction resources seems to be gaining popularity as it aims to improve the cost efficiency of a project as there is significantly more potential to influence the project solution at that point in time. The missing price during early involvement/selection and the principal-agent setting, however, tend to leave the project owner in doubt of the reasonableness of pricing when it is fixed only later after the joint design phase involving the service provider and the owner. The purpose of this paper is to find a solution for this challenge. Design/methodology/approach – A two-stage target-cost (2STC) arrangement has been proposed as the solution. In this model the service provider earns a bonus by suggesting a lower target cost than the reference set at the time of the involvement of the provider. The amount of bonus also impacts the cost over-run risk transferred to the service provider to avoid overly optimistic promises. The proposition encompass...

The Beauty of Incentivised capability-and-fee Competition Based Target-cost Contracting

Abstract The early involvement of a construction team is increasingly utilised in demanding projects to incorporate versatile expertise in their planning and to avoid the problems resulting from the low bid practice. Often a solution is to strive for an open process where the target-cost of a project is set later after a joint development phase involving an owner and a selected team. Parties enter into a target-cost contract which means risk sharing and leads to taking each others views into account better than normally. Cost transparency is expected to ensure efficiency in direct costs. Yet, the same approach may not be applicable to service providers’ fees, i.e. overhead and profit. That is why some public owners have resorted to competition where fees are tendered and used in team selection along with capability. In that case, the structuring of fees may have a decisive impact on incentivising the service providers to strive for an efficient target-cost and, eventually, a successful project. This paper aims at examining the appropriateness and feasibility of such an approach in ensuring the efficiency of a project based on the experiences drawn from a unique road tunnel construction project in Finland that adheres to the practice.

Determining ‘the most economically advantageous tender’ based on capability and fee-percentage criteria

Early involvement of the construction team is increasingly utilized in demanding projects to incorporate versatile expertise in their planning. For public owners this is a challenge since they are obliged to use competitive, transparent team selection based on the ‘most economically advantageous’ criterion which ensures that both price and quality viewpoints are taken into account. In the case of early involvement, the price component naturally does not include the total price, but may consist only of the fee-percentages of competing service providers. This study examines such a selection situation in project alliancing in the European context and seeks to find a way to integrate the fee component in a multi-criteria selection system and determine reasonable fees for different levels of capabilities. The study builds on the performance difference between different capabilities, derived from a survey of practitioners, and determines an indifference curve arithmetically for the planning of a selection method. The influence of the owner‘s risk attitude and risk premiums are also considered exploratively based on the pricing methods of the theory of finance.

Project Delivery Systems in Finnish New Building Construction – A Review of the Last Quarter Century☆

Abstract The project delivery system (PDS) is the key means by which the owner creates preconditions for successful realization of a project. Thus, it is worthwhile finding out which systems are used in different instances. This paper aims to increase general knowledge in this area first by introducing the results of an analysis of data on more than forty thousand new building construction projects launched in Finland between 1989 and 2013.Annual shares of different PDSs are determined separately for residential, industrial and business premises, as well asother buildings – mainly public service buildings. The paper also sheds light on changes in the market structureto the extent that they influence the use of different PDSs in order to discoverthe key factors which could possibly hamper making conclusions about general trends in,and the impact of the economic situation on, the selection a PDS for a project.As to the results, the study shows that the separate contracts method is used the most while the share of construction management is the smallest. In-house construction, design-build and the traditional comprehensive contract are other systems used whose shares fall between theabove two extremes.Changes in market structure over time most likely influence the use of different PDSs in housing construction.

Rationalising Public Procurement of Complex Construction Projects by the Price Component Selection

It has long been the custom in construction to select service providers, especially contractors, solely on the basis of the lowest bid. The practice has led to risk taking and adversarial relations and created problems in the sector, thereby, impeding its development. Pressures to renew the implementer selection come also from a broader cultural change: a value-added strategy is now being pursued also in construction and more collaborative, relational project practices are increasingly applied in various forms. A collaborative approach often also means early involvement of the key parties to the process since traditional, sequential involvement of the parties does not allow mutual exchange of information and collaboration for the benefit of the project. Therefore, early involvement of the construction team is increasingly utilised especially in demanding projects to incorporate versatile expertise in their planning. Early involvement has also become part of governments’ strategies.

Key features of a project alliance and their impact on the success of an apartment renovation: a case study

ABSTRACT With a view to becoming more efficient and cost-effective, the construction sector has been focusing more and more on developing new delivery and collaborative procurement procedures, such as project alliances. Until now, project alliances have focused mostly on large-scale road, rail and water infrastructure projects. Despite the positive results achieved in these projects, the building and real estate sector has been rather reluctant to use this delivery method. The objective of this study was to find out whether it makes sense to use project alliancing in more everyday projects. The chosen case study is a renovation construction project in Finland that was contracted using the project alliance approach. In order to have a comprehensive understanding of the issues involved, a literature review was conducted and case project-specific documentation analysed. Subsequently, several interviews were conducted with project participants, paying particular attention to the experiences and feedback obtained from developer, contractor and designer sides. In terms of the project participants’ perspectives, the alliance was unanimously seen as an asset which contributed to high levels of collaboration between participants and made it possible to achieve positive results.

Formularising two-stage target-cost arrangements for use in practice

Purpose – Early involvement of the project team with the construction resources seems to be gaining popularity as it aims to improve the cost efficiency of a project as there is significantly more potential to influence the project solution at that point in time. The missing price during early involvement/selection and the principal-agent setting, however, tend to leave the project owner in doubt of the reasonableness of pricing when it is fixed only later after the joint design phase involving the service provider and the owner. The purpose of this paper is to find a solution for this challenge. Design/methodology/approach – A two-stage target-cost (2STC) arrangement has been proposed as the solution. In this model the service provider earns a bonus by suggesting a lower target cost than the reference set at the time of the involvement of the provider. The amount of bonus also impacts the cost over-run risk transferred to the service provider to avoid overly optimistic promises. Besides the initial conce...