Integrated project delivery (IPD) is a US delivery method in which the Client, designer and Main Contractor sign a single agreement, share the risks and rewards, and have part of their profit linked to how the project performs overall. The aim is to remove the incentive for each party to protect itself at the others' expense.
Worked example
A team agrees a target cost of £10,000,000. The parties' fees are £800,000 in total, with half paid as the project goes and half at risk against the result.
| Outcome | Final cost | Result for the at-risk fee (£400,000) |
|---|---|---|
| Under target | £9,600,000 | Full £400,000 plus a share of the £400,000 saving, say 50% = £200,000 |
| On target | £10,000,000 | £400,000 paid |
| Over target | £10,250,000 | £250,000 overrun reduces the at-risk fee to £150,000 |
The contractor's share of any pot is its agreed percentage of the team's share. The key point is that the whole team wins or loses on the same number.
Open-book costs and the cost report
IPD runs on open-book cost reporting. Each party sees the actual costs, forecast and contingency, and disagreements are settled on evidence. A contractor needs to be able to report, at any time, the cost to date, committed cost and cost to complete for each package. Rough forecasts do not work when the pain or gain is shared.
Keep a clear log of risk and contingency draw-down, and make sure subcontractors are paid against orders that match the budget.
In the UK
IPD is not a UK standard form. Similar collaborative arrangements include the NEC4 Alliance Contract, PPC2000 project partnering and target cost contracts with a pain/gain share. They share overruns and savings by a formula, and they rely on the same open-book discipline.
Related terms
Target Cost Contract, Guaranteed Maximum Price (GMP) Contract, Construction Management at Risk (CMAR), Framework Agreement, Main Contractor.
Planyard's cost value reconciliation gives contractors a current cost, value and forecast margin on every package, the open-book numbers a shared-risk contract needs.
