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[Notes from LCI's 7th Annual Lean Construction Congress]

utter has moved to a relational contract to support a shift in how their projects are delivered. Sutter concluded:

• Industry is steeped in isolation and self-protection
• Current system encourages local optimization
• Current system fails to align participants in collectively exploring concerns and developing solutions
• Effort to develop commercial strategy that supports the five big ideas

Contrast relational contracting with transactional contracting. Buying a glass doesn't require knowing anything about the people in the process who produced that glass. Ian Macneil identified issues that require the use of a relational agreement:

• Relations of significant duration
• Objects of "value" are not all easily measurable
• Many individuals, collective poles of interest
• Future cooperation andticipates
• Benefits and burdens are shared
• Trouble is expected
• Relations will vary as unforeseeable future unfolds

The Construction Industry Institute (CII) did a study that indicated that the success of AEC projects "requires a knowledgeable, trustworthy, and decisive facility owner/developer along with a team with relevant experience and chemistry assembled as early as possible."

"Reorganizing who's in charge will not restructure the project agreement." Sutter's relational contract deals directly with the above challenges and CII's findings.

A relational contract is one agreement by the owner architect and contractor that is later "joined" by sub consultants and sub contractors. There are no "general conditions". It provides for the formation of a core group, and integrated project delivery (IPD) team, and a senior manager team. The core groups is responsible for the overall management and success of the project. Members of the IPD Team can join the core group as needed based on the challenges and the phase of the project. Counting on the senior management team to keep the groups focussed on learning and innovating so the project can learn and other projects will benefit.

The relational agreement sets out the "business case" as basic design criteria for performing target value design (TVD). Sutter is counting on real-time estimates as small batches of design are performed through TVD. The agreement also describes attributes of lean project delivery, incorporates the language of reliable promising and empowers action by the core group.

The core group is responsible for establishing communication protocols rather than simply stated what systems and tools will be employed. The group is also required to provide a validated budget as a basis for performing target value design and the plan for doing TVD.

One innovation in the relational agreement is the requirement to plan and manage the project in clusters of specialists according to systems and phases of the project. Sutter is also establishing a joint IPD Team contingency.

There are new provisions in the construction phase: a 5S plan and a goal of zero RFIs. Sutter expects that conversations with reliable promising with RFIs written to confirm the solution. They recognize the RFI is not the best way to ask the question. The current situation where service agreements are established for RFIs to be responded within 15 days doesn't allow the contractor to plan the work. Getting a promise for an answer shifts that so planning can continue.

CII suggests that 10% of construction cost is "rework". Sutter is calling for a "Built-in Quality Plan" the seeks to directly attack the root causes of quality failures. Want to make sure the workers in the workplace understand the conditions of satisfaction for the work they will put in place. This implies that standardized work is necessary along with QC feedback to the workers along with regular interaction with the design staff to understand their standards for accepting the work.

What Did You Hear?

• Zero RFIs
• The relational contracting vs transactional
• Requiring the contractor to have a 5S plan is remarkable
• Sharing the gains on the project
• The idea that the industry is steeped in isolation and self protection including the owners
• Joint contingency is interesting
• The core group helps others see the big picture
• The IPD Team integrates lessons learned as they happen
• Senior management is the conduit between projecfts
• Real time estimating provides value to the project
• A methodology for timely payment
• One contract without general conditions signed by the owner, architect and owner
• The overlapping signatures venn diagram on the agreement
• If we change how we will build we have to change the relationships
• Gee, this looks like a collective master-builder

Questions Provoked

• Curious about having the subcontractors and consultants joining by way of signing the original agreement.
• How do the relational elements flow down to the subcontractor agreements for prequalification process and bid documents?
• Curious about having the design team over spending the shared contingency before construction has started.
• What tools are being used to establish real time feedback?
• What tools are used by the IPD Team?
• What is the form of the integrated agreement?
• Are there any insurance issues with this contract?
• Are some core group members more equal than others?
• When does command-control take over from a shared approach?
• What is the basis of selection of designer, CM/GC, and subcontractors?
• Is the payment process tied into the CPM schedule? What is the basis of payment?
• What happens when the CM/GC laughs at the budget?
• Was the relational contract able to tackle any shared responsiility for the schedule?
• Are you eliminating or transferring risk?
• What's the relationship between the subcontractors' contract and the relational contract?
• How is indemnification handled?

Will's Closing Comments

I'm comfortable with the group's summary. The sub layer does sign a joining agreement which bounds them to the terms of the relational contract. But there may be things that need to be addressed more specifically to the subcontractor. There are commercial aspects of the relationship among some members of the team that is not covered in the main agreement. The joining of the prime agreement produces coherence among the whole delivery organization.

I didn't cover how sharing risk while focussing on lean project delivery will cause risk to fall out. We are contemplating on eliminating damages for certain aspects. We are also contemplating different ways of sharing gains when a project goes extremely well.

Sutter doesn't require that payments are made in accordance with a CPM schedule. When people use LPS they will get paid for the work they complete. We are ready to experiment with cost-based payments.