Team members chorus: Don't try this with strangers. Expect lengthy contract negotiations and endless meetings. Get ready to open your books. Be patient. Prepare for culture change and new work flows. Be vigilant about communicating.

Hospital development has long been risky in California, due to meticulous state reviews because of the quake threat. In the early 2000s, faced with a $5.5-billion capital program, Sutter sought a better delivery system (ENR 11/26/07 p. 80). By 2005, it had adopted LPD and written its own relational contract, called the integrated form of agreement, or IFOA (see p. 43).

When Christian joined the Castro Valley job in July 2007, the team was mostly formed. The plan had been to deliver the hospital under a triparty IFOA. “We would have had to have made sure all the subconsultants and subcontractors were in alignment with the IFOA,” says Christian. “I didn't see that as being any less of a headache than getting more signatories.”

Christian wanted direct access to the IFOA's “gainshare/painshare” partners to prevent a return to traditional behaviors, especially the way the architect deals with its subconsultants and the contractor its subcontractors. He also needed to explain the counterintuitive idea that, with a shared risk pool, an individual firm can make more money even if its costs go up. On the other hand, if its costs are cut in a way that doesn't help the project overall, a firm can lose money.

Adding 11th Partner

To aid with the process change, especially regarding building information modeling (BIM), Christian added Ghafari Associates LLC, a Dearborn, Mich., multidisciplinary designer, as the 11th partner.

At contract talks, each signatory had to have a lawyer present. The IFOA was signed on Aug. 26, 2009, after 15 months of negotiation. But even in late 2007, the collective thinking was, “ Yes, it's going to be a great experiment—let's do it,” says Devenney's Mobley.

For DPR, a veteran LPD contractor with non-Sutter IPD experience and 20 finished Sutter projects, IPD-on-steroids was a natural next step. Mobley says Devenney was ready for change. And under a triparty contract, design subconsultants participate through joining agreements, so Castro Valley was not that big of a jolt for Capital, TMAD and the electrical engineer, The Engineering Enterprise (TEE), Alameda, Calif.

For the trade subs, the expanded IFOA represents a seismic shift. “I was skeptical at first because I didn't understand the contract and the process,” says T. J. McClenahan, president of plumbing and heating partner J.W. McClenahan Co., San Mateo, Calif. “I'm all for it because it brings the team members together in a trusting environment, working for the project.”

Mechanical trade partner Superior Air Handling, Clearfield, Utah, endorses the expanded IFOA—if it is done with the right partners. “We [are achieving] the best result for the owner at the lowest overall cost and with more predictable earnings for the IFOA companies,” says Randy W. Richter, Superior's president.

Under the Castro Valley IFOA, each non-Sutter signatory gets paid its costs based on audits. Profit percentage for each signatory is determined through group discussions. Sutter pays out 50% of the profit pool at agreed-upon project milestones. Designers typically receive profit earlier than contractors. Sutter pays the other 50% at completion, assuming it has not overspent the contingency fund. In that event, profits cover overage. If necessary, partners are required to return profit already dispensed. Any money left in the contingency fund is split 50-50 between Sutter and its partners, according to their share of risk.

LPD relies on collocating the implementation team in a “big room” and other tools that foster collaboration and minimize repeat work. There is also an oversight team, called a core group, of principals of partner firms. The group meets every two weeks to manage strategies, behaviors, the time line and risk. Decisions are made via consensus, but the owner can prevail.

Members of Core Group

Castro Valley's core group consists of two representatives of the owner: Christian for Sutter and Bryan Daylor, vice president of ancillary and support services, for the user, Eden Medical Center. Other members are DPR's project executive, George J. Hurley; Devenney's Mobley; McClenahan, who also represents Morrow-Meadows and Transbay, and Capital's Bryan Johnson, who also represents TMAD and TEE.

The core group also tackles problems. For example, early on, the design team lacked “engagement,” says Christian. “I do not believe the at-risk contract drives behavior in the design room,” he adds. The solution was to get Mobley to step up the design team.