“Construction is the last dinosaur,” says Steven Cockerham, vice president for planning, design, and construction at BJC HealthCare. “We still build hospitals the same way we did 50 years ago. Because BJC HealthCare has about 200 open projects and about $500 million on the table at any given time, we are eager to find ways to streamline the process and provide better service to our customers--the presidents of our 13 hospitals.”

Cockerham proposed applying lean management techniques to the design and construction of a new $28-million, 73,000-sf bed tower at St. Peter’s Hospital in St. Peter’s, Mo. Because about one-third of the building is being built over an existing hospital, the project is more complex than most, making it an attractive candidate for the lean approach. BJC HealthCare agreed to the experiment.

Rather than first choosing an architect and adding team members as the project progressed, BJC HealthCare decided to identify the entire project team at the outset and teach them how to use lean processes before the project commenced.

“We brought in a consultant who does lean training to teach the team members how to review all of their procedures and find ways to remove redundancies and waste,” says Cockerham. “Once they started doing that, their whole perspective changed.”

Interview as a Team, Hire as a Team

Before the training could take place, however, the project team had to be selected. Because BJC HealthCare wanted to train the entire team in lean processes at once, a new RFP process was devised that required architects to assemble their own teams, consisting of the architect, engineers, construction manager, MEP & plumbing contractor, and electrical contractor. The teams selected for interview were subsequently required to make their presentations as a team. This approach allowed the interviewers to ask the presenters multi-disciplinary questions.

“We could describe a hypothetical unforeseen condition in the field affecting two or three of the team members, and ask how they would handle the situation,” says Cockerham. “Watching the team think as a team let us see how much thought and effort they had put into their RFP process. It became very clear to us which team we wanted—we wanted the one who asked us to wait a minute while they huddled as a group, and then answered the question as a group.”

During the interview, teams were informed that, if selected, they would have to adhere to two rules: no change orders, unless they were owner-directed, and no fingerpointing.

“We wanted them to own the entire process,” says Cockerham. “Any problems they encountered along the way, they would have to resolve among themselves.”

The performance of other subcontractors, such as steel, glazing, masonry, and roofing, would also be governed by the lean approach. Additional subcontractors would be sponsored by individual team members, who would thereafter instruct, supervise, and contract them.

Sweet Incentive

It’s up to project owners to streamline the project delivery process, Cockerham maintains.

“The construction managers, architects, and engineers are happy with things the way they are. The only one who’s going to change it is the guy with the checkbook: the owner.”

To make the lean approach as attractive as possible to the project team, BJC HealthCare began by guaranteeing all team members a certain level of profit, based on a third-party estimate of the project cost. Then, if the team subsequently delivered the project at a cost lower than the estimate, the savings would be held in an incentive pool that would be evenly divided among team members at the project’s conclusion. For example, if the team completed the project in half the time—paying for only half of the estimated labor—the labor savings would go into the pool.

To sweeten things further, BJC HealthCare agreed to match the first $500,000 in savings, so that an initial savings of $500,000 would result in an incentive pool of $1 million. (The pool was capped at $2 million.) At the end of the project, the pool would be split six ways—15 percent for each team member in the design pool, including the owner—with the remaining 10 percent to be awarded at the owner’s discretion to star performers or outstanding second-tier subcontractors.

“This really got their attention,” says Cockerham. “Not only would they be guaranteed the profit they would ordinarily make, but they would also have a chance at 15 percent of up to $2 million. They also figured out that if the team worked well, then they would have a ready-made team to bid on the next project, with the option of changing out any bad performers beforehand.”

The incentive pool also provided capital against which team members could borrow in the short term to make alterations to the program sequence, if such alterations would increase the eventual savings.

“Their incentive is to remove all the waste they can,” says Cockerham. “Everything they can document as a savings goes in the incentive pool, and they all get a piece of it. Innovation is rewarded.”

The Six-Partner Contract

When construction documents were halfway to completion, BJC HealthCare obtained a hard estimate of project cost from its third-party estimator and locked in the final figures for team members’ guaranteed profits, and all six partners—the five team members and the owner—signed a single contract.

“Rather than saying what each one of them was going to do, the contract outlined what they as a team were going to do,” says Cockerham. “It basically said, here’s the project, here’s the scope, here are the drawings, and you have to deliver this. We don’t care how you do it.”

Convincing the lawyers, however, wasn’t easy.

“Getting the contractors’ lawyers to agree was our biggest hurdle, actually,” says Cockerham. “It was out of the realm of their typical contracts. We had to get them out of the room, get the principals to agree, and then let the lawyers back in the room to work through the final details before we could finally move forward.”

Rewarding Innovation

At 25 percent completion, the project has already seen impressive savings from the lean approach.

“The incentive pool is already up to about $1 million, and I’m sure we’ll get the $2 million out of it by the time we’re done. We’re also about six months ahead of schedule at this point.”

Empowerment of subcontractors, says Cockerham, has been central to this success.

“The subcontractors who are equal partners are a whole new life-form. They actually have a say in what goes into the building, choose the right equipment, and have it installed properly. For example, the steel contractor told the architect that if columns were moved over a little bit, standard steel could be used instead of custom steel. The glass contractor told the architect that if the glass were attached to the building a little differently, labor could be cut in half.”

Cockerham expects the lean approach to yield even greater savings in the future because it captures the “downstream knowledge” often lost in conventional project delivery. Because the project team works together as a unit throughout the process, solutions to unforeseen conditions in the field are shared with the entire team, and design teams can apply this knowledge in future projects.

In addition to the financial benefits, Cockerham emphasizes a more qualitative benefit of the new approach: a significant reduction in antipathy.

“In the conventional system, architects, engineers, and construction managers generally hate one another. Bad marriages are inherent in the conventional system. When they’re working as a team, sharing responsibility, risk, and reward, innovation is now rewarded instead of punished. We’re not making any more bad marriages.”

By Deborah Kreuze

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ISSN: 1096-4894