Jun 18, 2007

An innovation in value stream integration

To paraphrase Graham Richard, mayor of Fort Wayne, Indiana, 95% of what you need to know is outside your usual field of experience. I say that because last week I attended a portion of a conference on lean construction, at the invitation of Greg Howell of the Lean Construction Institute (LCI). Since I usually hang out with manufacturing people, this was new stuff to me.

Lean construction is not just the Toyota Production System applied to installing mechanical systems or hanging drywall. Construction as a whole – the system composed of the building owner, the architects, engineers, contractors, subcontractors, project managers, superintendents, and workers – involves a different lean approach. In construction, the work tends to stay put while the processes move in and out, whereas in manufacturing the work moves according to the physical locations of the process steps.

Those with a high-level understanding of the Toyota Management System will already see the big picture the lean construction people are painting. A product starts with an idea, becomes a concept defined according to the value the customer is ready to pay for, is transformed through collaborative product and process design and validation, goes through a preproduction phase where the production system is laid out, and only then do all the plans culminate in what people usually think about when they encounter lean manufacturing.

Project-based work, such as product design and construction, happens through transactions – accepting work, performing it, and handing it off. Any of us who have worked on projects know how that simple idea fails when a large project involves a massive number of such transactions. They all have to take place at the right time and the work performed correctly, or you might as well forget about your budget and project completion date.

The Project Management Institute (PMI) model uses a highly developed cascade of projects and sub-projects with work broken down into whatever units the manager deems proper, the duration of the work and dependencies analyzed, and resources assigned. This can all be done now in something like Microsoft Project that will render you a set of planning charts in living color and great detail. Somehow, life never works out like it should. Thus you get chaos, finger-pointing, replanning, negotiating for more time and money, and sometimes, financial liability pushed onto whoever loses the argument that lands the parties in in court and makes lawyers wealthy.

LCI and the construction professionals who participate in its activities have evolved a number of tried and tested tools to rethink the way projects are done. These include what they call the “Last Planner” system, conversations, reliable promises and self-assembling teams. More about those later. First, let’s visit the real foundation of a building’s construction – the contract.

Both lean manufacturing and lean construction are best seen as extended value streams with a series of suppliers and the suppliers’ suppliers and so on. Between the upstream and downstream entities are contracts of some form or another. Think about it – the number of contracts must rise exponentially with the complexity of the project. Furthermore, it means that various downstream entities have no idea what entities in other streams are going to be doing.

Some poor soul is going to have to keep all these activities aligned. Which is impossible, so you have the electrical guys standing around because the plumbing guys aren’t finished because a supplier was late delivering parts of the water system. Then the electrical guys are guessing at where to install outlets, so that during the final walkthroughs, the drywall guys are cutting holes to let the electricians can engage in rework. Then the painters have to repaint where the drywall guys had to cut and patch the holes. Ad infinitum.

Here’s where the construction industry has come up with an innovation I have not heard mentioned in manufacturing – the integrated relational contract. That was the subject of the two-day LCI conference I attended, led by Will Lichtig, the attorney who was a key partner with the construction business leaders involved in LCI.

OK – my disclaimer – the following description is going to be as flimsy as the description of lean construction I just gave you. You’re welcome to clarify and elaborate, but don’t jump in and gleefully point out blatant stupidities in my explanation. One keyword I learned was “conversation.” Players in the game have conversations, they don’t need to argue, negotiate toughly, or belittle. The conversations probably become lively or even heated at times, but they are among people who want to solve a problem or satisfy an “underlying concern,” another phrase that Will used. Let’s move on…

What the LCI has developed is a proposed standard called the “Integrated Agreement for Lean Project Delivery between Owner, Architect & CM/GC” (CM/GC is basically the general contractor). This is meant to be one contract that lays out the agreement among all the key parties for how the building will be designed, built and paid for, as well as how risk and reward will be apportioned. It’s 40-some pages long, so obviously I’m condensing greatly.

In addition to starting off with shared knowledge and understanding among the players, the contract itself is meant to support the lean construction philosophy. (Various architecture and contracting associations are developing integrated contracts too, but not with any basis in lean.)


An empowered core group – a team – makes all the necessary decisions throughout the project. An executive group oversees the core group, but does not get in and run the project.

The agreement describes things like the participant roles in weekly planning meetings, how communication will be conducted, and how trade subcontractors and suppliers will be selected and added to the project.

The budgeting phase includes the target value design and a cost model. The idea is to design to a detailed estimate – starting with what the owner can afford and really needs, instead of architects blue-skying a bunch of nifty technical features.

A whole section of the contract sets out a shared understanding of what collaboration means, and how it will be used to integrate preconstruction services.

The engineering phase includes provisions for value analysis, value engineering and constructability.

The construction phase includes requirements for 5S plans, safety plans, a definition of excusable and inexcusable delays, how change orders will be handled, how quality will be assured, and so on.

The conversation that leads to the document tends to identify where “contingency” money – some call it “padding,” which we have all done to protect ourselves from screaming fights with our accounting people and managers. The pockets of contingency, if added together, are likely to exceed any reasonable estimates for the system as a whole. The whole contingency is then apportioned by agreement among the key parties, with the owner retaining some significant part of the risk. Agreements are reached on the amount and type of insurance the parties will purchase to cover adverse events. This is completely unlike the typical contract, where the owner’s goal is to push all the risk on the contracting partners, to the point of frequent and lengthy litigation after the project itself is over.

Surfacing the underlying concerns that caused parties to include unrevealed contingencies in their bids requires and helps develops trust, the basis for a successful project.

Among the leaders in lean construction that have been testing the relational contract is Sutter Health, which is rapidly expanding medical services in California and investing in new hospitals and medical centers. DPR and Turner Healthcare are firms that have executed a number of the projects, with Skanska coming in to handle some others. Will Lichtig has helped guide the process as special counsel to Sutter Health.

These companies, along with many subcontractors and suppliers, have learned how to trust each other and genuinely collaborate. Little wonder that those firms who have become good collaborators want to work together on later engagements. This is leading to “self-assembled teams” that collectively bid on a major project in the offing. Experience with the relational contract is another piece of knowledge that enhances the competitiveness of their teams.

Many thanks to Greg Howell, and to his partner Glenn Ballard of LCI, for allowing me the chance to learn what’s happening in this field that’s outside my general scope of experience, and to Hal Macomber, author of the Reforming Project Management blog, who got me started.


Joe said...

Karen, great post.

Do not sell yourself short. Do not, either, sell short the concept of "the conversation." Hal and I have talked about this for years and I continue to apply it in manufacturing (as I did in construction). It is a singularly powerful concept and central to Lean. It illustrates the fundamental TPS concept of "respect for people." If I listen you, I demonstrate respect for you.

Project management simply has more tradition of non-conversations; also known as arguments and lawsuits. Conversations, agreements, promises, requests; all are central to delivering on time and on budget. The tools for stimulating conversation thus become central.

Glad you connected with Greg and Glenn...first class guys.

Unknown said...

I'm a peaceful kind of girl and think the elevation of the "conversation" is long overdue. Manufacturing not so long ago was populated with the "If you can't stand the heat, get out of the kitchen" kind of guys, and I suspect construction was the same. The new thinking represented in the LCI model keeps the focus on what we as a team need to deliver to the customer and takes away the bullying and defensiveness we've all witnessed from time to time. It is explicitly made off-limits, adding emotional safety to the physical safety a lean job ensures.

Lean in Construction said...

The Lean Construction is an innovative concept.I like this concept this will definitely works.

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