How to Make Shared Risk and Reward Sustainable

Glenn Ballard1, Blake Dilsworth2, Doanh Do3, Wayne Low4, James Mobley5, Philip Phillips6, Dean Reed7, Zach Sargent8, Patricia Tillmann9 & Nathan Wood10

1Research Director, Project Production Systems Laboratory, University of California, Berkeley, ballard@ce.berkeley.edu,+1 415-710-5531
2Principal, KPFF Structural Engineers, Blake.Dilsworth@kpff.com
3PhD student, Civil & Environmental Engineering, University of California, Berkeley, doanhqdo@gmail.com, +1 714-622-9754
4Principal, Degenkolb Engineering, walow@degenkolb.com
5Principal, Devenney Group, jmobley@devenneygroup.com, +1 602-343-0074
6VP/Operations, Southland Industries, pphillips@southlandind.com, +1 510-477-3300
7Director for Lean Construction, DPR Construction, deanr@dprinc.com, +1 650-207-3486
8Vice President, Superior Air Handling, zach.sargent@superiorairhandling.com
9Lean Integration Specialist, Superior Air Handling, patricia.tillmann@superiorairhandling.com, +1 408-630-1320
10BIM Integration Specialist, DPR Construction, nathanw@dpr.com, +1 650-454-5334

Abstract

This paper is about restoring confidence in shared risk and reward. In such projects, characterized by multiparty contracts, clients bear the risk of costs exceeding budgets and the project’s design professionals and constructors risk doing the work for no profits. A small chance of either occurring might dissuade the parties from embracing shared risk and reward contracts. In a recent study by the authors, of four shared risk and reward projects, one exceeded budget. The client paid 6.4% more than expected and the risk pool members made no profit. Adding other shared risk and reward projects on which the authors companies have worked, the failure rate was 15%. Compared to traditional practice, clients may have received value for money even on these failed projects and so want to continue shared risk and reward, but may be unable to attract more experienced companies in the face of this probability of profit failure. The objective of this paper is to identify the factors that contributed to the failures and to propose counter measures to prevent reoccurrence. Failure to follow target value design principles is found to be a primary contributor to cost overruns on shared risk and reward projects.

Keywords

Countermeasures, integrated project delivery, shared risk and reward, sustainability, target value design

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Reference

Ballard, G. , Dilsworth, B. , Do, D. , Low, W. , Mobley, J. , Phillips, P. , Reed, D. , Sargent, Z. , Tillmann, P. & Wood, N. 2015, 'How to Make Shared Risk and Reward Sustainable' In:, Seppänen, O., González, V.A. & Arroyo, P., 23rd Annual Conference of the International Group for Lean Construction. Perth, Australia, 29-31 Jul 2015. pp 257-266

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