Integrated Project Insurance: a new approach to project management

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Dudley College is the first project to use the new Integrated Project Insurance (IPI) initiative, one of three alternative procurement models outlined in the Government Construction Strategy 2011–2015. Dave Howell asks whether IPI offers a new, sustainable and cost effective future for project delivery.

For decades, one of the core traits of the construction industry has been to insure against loss and failure, and to also apportion blame. The Government Construction Strategy (2011) sets out to achieve at least a 20% saving on construction procurement costs. More importantly, the strategy sets out to change the culture that has underpinned construction for decades across the public sector. The new models included Cost Led Procurement, IPI and Two-Stage Open Book. One of the most promising is IPI.

IPI aims to make a fundamental shift in how construction projects are planned and executed and how, with integrated collaboration, costs can be reduced. Also, more importantly, in this system each of the vested interests in the project work towards the same goal and don’t attempt to protect their corner. It’s a shift in attitude that is being welcomed by many across the construction industry.

Developed by Integrated Project Initiatives Ltd in conjunction with insurance brokers Griffiths and Armour, the NBS describes the system as follows:

“Under the IPI model a virtual company is created. Each organisation taking part in the project nominates a staff to take a seat at the Alliance Board, the Board collectively appoints the Alliance Manager. All staff from the various firms and companies that will work on the project are seconded to form an Integrated Project Team (IPT) which will report to the Alliance Manager and Board. The Alliance Manager and Board are supported by an Independent Facilitator (IF). Also, appointed to assist the Alliance is the Technical Independent Risk Assuror (TIRA) and the Financial Independent Risk Assurer (FIRA), these two roles will be novated to the insurer when the IPI is in place.”

The insurance component of IPI is where the most striking innovation can be seen. As IPI-based projects are fully collaborative and based on mutual trust, the insurance that is used protects against risk and not liability. The blame culture that often disables projects is removed. In general, IPI is held to be the only mechanism that can deliver the requirements of BIM Level 3.

Dwight Patten, Legal and Compliance Director, ACE, says: “In ACE’s view, the IPI initiative has introduced a fresh review and perspective of the efficiency and equitableness of risk allocation in construction. We agree with several commentators that this insurance product has the potential to significantly cut insurance and risk costs by removing the silo mentality and promoting collaboration among the project team without the fear of prejudicing their commercial or liability position.”

Tried and tested

Clearly, across the construction industry, IPI is an unknown factor. All eyes are, therefore, on the Centre for Advanced Building Technologies (CABTech) at Dudley College, which will be the first project to use IPI.

Due to be completed for the autumn term of 2017, how the alliance at the heart of the new IPI approach to project management and delivery will perform remains to be seen. As the consultants, contractors and subcontractors are all co-signatories for the insurance policy, the level of collaboration and openness needed for the alliance to deliver on its promises is also of great interest.

Stuart Heeks, Risk Director, Construction at Nucleus Commercial Finance, states: “All Alliance members will understand that the IPI model is a true pain/gain sharing mechanism and if a project goes seriously wrong then all parties will share their pre-agreed share of the pain share maximum. It is in all parties’ interests to work collaboratively to work any situation through and to minimise further pain even after the pain share maximum has been reached. As with all contracts, if a party signs up to an agreement then they are bound to its terms and conditions.”

As the approach to the Dudley project is so different to existing methods, the reality of whether IPI has delivered a complete project with much more than just cost savings will come under scrutiny. ACE’s Dwight Patten commented: “ACE supports the various initiatives in the Government’s Construction 2025 Strategy which are geared toward minimising waste in the procurement process and encouraging better and more transparent engagement between the client and the whole supply chain at an early stage in the process. IPI is an important contribution, which needs to be piloted more widely to enable us all to understand when and how it can work best in practice. Of course, the Dudley project will be an important early indicator and ACE awaits the results with much interest.”

A brave new world

Croner-i Construction spoke with Louise Lado-Byrnes, Director at IPI Ltd, to gain an insight into how IPI could transform project management across the construction industry.

Is IPI a major step forward in reducing costs and shifting all stakeholders into a more collaborative relationship?

“Absolutely,” Louise stated succinctly. “The cost is built from the top down and suppliers are involved prior to any design being complete, ie the earliest involvement. Some of them are even signed into the Alliance Contract. Intriguingly on our trial project at Dudley College, Advance II, the team even through adversity have remained totally focused on the ‘best for project’ solution. This is in direct contrast with 2 stage D&B and other forms of contract, where adversity sees people defending their own positions (usually due to the contract and their PI) the IPI model is already showing that the theory of being under one umbrella of contract and project insurance has made the team pull together to find solutions. Collaboration is natural and producing the results it should.”

IPI aims to prevent parties from acting defensively and in their own self-interests at the expense of the project. Supporters suggest it is the missing piece of the puzzle which will finally allow the project team to fully enter into collaborative working relationships, thus increasing efficiency and generating greater profits on the project. Do you agree?

“I have heard designers waxing lyrical about IPI they are desperate to find a true solution to BIM Level 2 and 3. Currently the Alliance contract and IPI model are the only solution to having the design specialists and whole supply chain acting as an equal part of the IPT (integrated project team) the ‘management group’ that run the project under the alliance board.”

Will the technical and cost assessors be covered by the policy? How will the cap work?

“The TIRA, FIRA and IF technical and financial risk assurers and independent facilitators are all covered within the premium of the project insurance. We anticipate this will improve in terms of fee earning for bodies that have this capability as IPI grows in the industry. IPI fits best with complex projects.”

Is it realistic to expect the project team to continue to work collaboratively even after a project has gone seriously wrong and the members of the integrated team have incurred their maximum liability?

“One has to consider how the IPI model incentivises that — the pain is shared by all the partners so all parties have an ongoing interest in solving matters quickly and efficiently. Remember that under the contract and policy it doesn’t matter who is to blame so there is little point in wasting energy in arguing one’s corner. Our experience on our trial is that any team member who spots a concern or issue has raised it openly without recrimination. Problems are being solved in spite of the fact that they may result in pain for the alliance members.”

Is the UK construction industry ready for IPI?

“A phrase coined by my partner, Kevin Thomas is — ‘Not all of the industry is ready for IPI and equally IPI is not ready for all of the industry.’ Clients need to understand and want to work with a new alliance-based contract. That puts them on an even par with those key businesses constructing for them. Equally as the IPI model is new to the insurance market as well as the construction industry our financial loss cover is currently restricted to a level of £2–3 million that means that to affect behaviours projects can currently only sit from about £10 to £30 million. As our case is proved on our trial we expect that to increase so larger projects will be viable.”

Does BIM Level 3 needs IPI to deliver truly open collaborative projects where liability isn’t underpinning every aspect of a project’s development and delivery?

“We believe so yes the IPI model fully supports BIM. Please see following link to YouTube to equate the IPI model stages to BIM Level 2.”

Is it too early to conclude that IPI is the way forward? Are all eyes on the Dudley College project?

“No — we believe it already shows itself to be the way forward. We know the model works — we are evidencing this at Dudley. We never expected our first project to deliver all that IPI can and resource levels have been higher than they should as the team have learnt how to manage the IPI model and put in the correct processes to enable the best solutions. Equally the understanding of the process by the supply chain has been difficult. They are unused to being part of the team so early and often ‘revert to type’ and wait for details of instructions failing to understand that if its agreed and in the model that is all that is needed.”

Conclusion

IPI is an ambitious attempt to overhaul a construction system and mindset that has existed for decades. The sharing of pain and gain places an onus on all alliance members to be more open and ensure they are first and foremost thinking about the project with every action they take. Time will tell whether this new methodology can work and revolutionise construction project management and delivery.

Last reviewed 27 January 2017