Contract documents

December 7, 2022

IPD contracts were created to solve the efficiency challenges the industry was facing during the late 1960s and early 1970s. The principle behind them is simple: rather than working in disparate silos as they had done historically, participants collaborate. This leads to better results for all parties.

IPD contracts come with risks, hence the need for collaboration. There’s no room for finger-pointing or buck-passing with an IPD because, under this agreement, everyone either wins or everyone loses.

Five Things you Should Know …

IPDs are unique contracts. Before entering one, there are five things you should know:

1. They’re not for every project: Every project can’t support the demands of an IPD contract. Typically, projects that are more than $5 million are good matches. Certain types of builds are also best suited for an IPD contract. Projects like schools, stadiums, hospitals, shopping centers, and other large-scale builds can typically support an IPD.
2. Consider the size of your organization: The size of your organization should be considered before signing off on an IPD contract. Larger organizations with higher headcounts are less likely to default. Smaller operations typically don’t work well under an IPD. The margins for error are slim and with their limited resources, they’re far more likely to fail and in the process jeopardize the entire project.
3. IPDs require trust: Under any contract there’s the semblance of a partnership. But when you commit to an IPD, the semblance increases exponentially. Therefore, parties who choose to use this type of agreement are encouraged to only do so with those they can trust.
4. IPDs thrive on synergies: Just because they’re a large operation with a lot of head count and resources, doesn’t mean they’re a fit for you. Take time to research and decide if both parties are moving in the right direction with synergies that will result in a successful build.
5. IPDs are great growth tools: Successfully completing a project under the covenant of an IPD can position you for other projects down the line. This is an important point to consider given the historical dollar value of the projects where IPDs are used.

Conclusion

IPDs are great tools that drive efficiency, productivity, and foster relationships. While they can be complicated, when used properly, the benefits of an IPD far outweigh the risks. They’re not for every project so it’s important to keep scope and scale in mind and use an IPD only where it fits. Understanding how and where to apply will help drive your success and add another instrument to your contract and document arsenal.

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AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.