Sutter Health Shares Risks and Rewards
Dissatisfied with traditional project delivery, Sutter Health began experimenting with lean practices and integrated project delivery nearly a decade ago. Today, the nonprofit health care provider continues to deepen its commitment to processes that meld diverse design firms and contractors into highly aligned teams that can deliver quality projects on time and at the lowest possible cost.
"Sutter Health realized that conventional delivery was not going to give them the results they are looking for," says Dave Kievet, president of California operations with Boldt Co. "As a result, they look for creative and innovative ways to deliver their projects to get the results that they need to have."
Boldt—part of the HerreroBOLDT joint venture—is constructing Sutter's $2-billion California Pacific Medical Center Van Ness and Geary Campus as well as the $540-million CPMC St. Luke's Hospital, which will replace an outdated hospital with a 120-bed, 215,000-sq-ft acute care facility.
The campuses are located a few miles apart in two of San Francisco's busiest districts. For both facilities, Sutter selected integrated lean project delivery (ILPD) under separate integrated forms of agreement. The contract for the Van Ness and Geary project was signed by 16 firms, which all share the same risk-reward pool and have 100% of their profit at risk. The smaller St. Luke's project has 12 risk-reward members.
ILPD makes sense for Sutter because California health care construction is highly regulated by the Office of Statewide Health Planning and Development (OSHPD), largely because of the risk of earthquakes and because the cost of construction is "so significant," says Bob Mitsch, Sutter's vice president of facility and property service. "We are essentially buying down course-of-construction risk with early investment in a collaborative design so we don't have change that we have to endure and pay for during construction," he says.
The health network currently includes 24 hospitals and 33 ambulatory surgery centers throughout Northern California. According to its annual report, Sutter Health spent more than $11 billion on new facilities or upgrades since 2000, and $983 million during 2014 alone. During the past year, Sutter opened a $385-million facility in Oakland, a $284-million medical center in Santa Rosa and a 192,000-sq-ft outpatient care center in Palo Alto.
With so much infrastructure investment at stake, facilities managers began exploring ILPD 10 years ago as a way to take a more proactive role in project management. "The real impetus of moving down this very different path was the lack of reliability with regard to some of our bigger construction projects that we were experiencing—changes midconstruction were devastating to our organization," Mitsch says. Whenever budgets or schedules would change rapidly, they became "big surprises to the organization and it felt like a lack of control," he adds.
At first, the nonprofit struggled to find vendors willing to participate fully in an integrated project delivery environment. "We dove in head first but without really checking the depth of the water in the pool," Mitsch says. "It wasn't until we changed the contractual terms and changed the business agreement so that the parties were actually contracting and putting important things at risk that we got the behaviors to align."