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Project delivery systems for nZEB projects Mikko Kantola and Arto Saari Department of Civil and Structural Engineering, Aalto University, Espoo, Finland Abstract Purpose – The paper aims to reveal the most functioning project delivery systems for nearly zero-energy building (nZEB) projects. The focus is set to reveal the qualities of the systems that support the nZEB goals and sustainability. Design/methodology/approach – Research method used in this paper is inductive reasoning. The reasoning is based on existing literature, and conclusions are drawn by combining pieces of that literature. Findings – The state-of-the-art heating, ventilation and air conditioning (HVAC) and insulation requirements of nZEB technology and the lack of experience in the industry regarding nZEB projects suggest that modern collaboration-based project delivery systems should be favoured. The authors found that the most suitable project delivery system for a standard nZEB project is the integrated project delivery (IPD), which binds the financial goals of the main parties together via a reimbursement solution: target pricing. The authors also found the construction management (CM) at-risk system a suitable solution, especially if it is modified by adding the tools utilised in the IPD approach, thereby making it an IPD lite system. Originality/value – The paper has value for the entire construction industry in Finland and European Union (EU). The owners and construction companies can use the findings in their development efforts towards nZEB construction. The EU 2020 nZEB degree makes all the findings concerning practicalities of nZEB projects valuable due to the lack of time and the lack of experience in the industry. Keywords Project management, Construction industry, Building materials, Construction works, Construction management, Building life cycle Paper type Research paper 1. Introduction The European Union (EU) has passed a regulation requiring that all buildings built after the year 2020 will be nearly zero-energy buildings (nZEBs) and that all public buildings built after the year 2018 will be nZEB (Official Journal of the European Union, 2010). The regulation is a part of an ambitious goal by the EU to cut CO2 emissions by 60 per cent from their 1990 levels in all Member States by the year 2050 (Commission of the European Communities, 2007; Portal of European Union, 2007). This means that the practicalities of achieving this need to be resolved at the grassroots level relatively quickly. The situation at the moment varies quite a bit in the different EU Member States. Only five Member States have completed a study concerning national application of the nZEB definition, which is the basis for national regulations. In addition, only ten countries have started the study (Erhorn and Erhorn-Kluttig, 2012). It is self-evident that The authors gratefully acknowledge the interviewees for sharing their insights on the topic. The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/0263-2772.htm Project delivery systems 85 Received 10 March 2014 Revised 16 July 2014 15 September 2014 Accepted 6 November 2014 Facilities Vol. 34 No. 1/2, 2016 pp. 85-100 © Emerald Group Publishing Limited 0263-2772 DOI 10.1108/F-03-2014-0025 http://dx.doi.org/10.1108/F-03-2014-0025 if the work of standardising methods is not started soon everywhere and done consistently, then the goals will not be reached by the year 2020. Finland is one of the most ambitious countries when it comes to reducing CO2 levels, and it has made it a goal to reach the 2020 CO2 goals already by the year 2017. The ERA17 action plan emphasises energy-smart solutions, and one cornerstone of the action plan is research (ERA17, 2012). This paper is a part of that development, and provides important information concerning how to combine energy efficiency and the practicalities of project management and procurement. The low-energy construction industry is new in Finland, and thus far, only two nZEB projects have been carried out, if single-family houses are not taken into consideration (Nollaenrgia.fi, 2012a, 2012b). There are many things to consider when undertaking a nZEB project that contains state-of-the-art heating, ventilation and air conditioning (HVAC) technology and insulation solutions. The most important thing for the owner when building a low-energy building is to be committed to the sustainability goals, but right after this quite obvious statement comes the selection of project delivery system, followed by choosing the procurement method and the basis for reimbursement (Korkmaz et al., 2010). Each project needs a project delivery system that is best suited for it, and the characteristics of a particular project determine the right choice (Adetokunbo et al., 2006). Those characteristics or project attributes include complexity, size, schedule and the amount of innovation (Peltonen and Kiiras, 1998). Also, the site characteristics and the expertise of the owner might have an effect on the selection of project delivery system. After finding the system that is best suited for a particular project, it is time to find the best procurement method and reimbursement solution according to the characteristics of the project and the chosen project delivery system. This paper investigates multiple project delivery systems, procurement methods and reimbursement options, and reveals the characteristics of the construction projects that best support each of them. We have structured the paper so that, first, we compared a number of project delivery systems, with some differing fundamentally and others differing only slightly from one another. We then divided each of the project delivery systems into one of four categories. Second, we discussed the characteristics found in a nZEB building and, based on the findings, determined the three best project delivery systems to use in the low-energy construction industry. Third, we tested our findings and made additional findings through interviews dealing with a specific case project. 2. Research methods We used an inductive reasoning method to find the three most suitable project delivery systems for nZEB projects. Inductive reasoning is based on the assumption that within a certain degree of probability, the conclusion is true (Niiniluoto, 1983). The probability should be high for the reasoning to be valid. A review of the literature revealed the strengths and special characteristics of each project delivery system in a theoretical context. By comparing these features to the features and challenges that distinguish nZEB projects from standard construction projects, we can point out the most suitable systems. We first review the existing literature to evaluate the suitability of each system to a low-energy building; then, we further test the reasoning by means of several interviews. The interviewees evaluate the reasoning presented in the literature based on their F 34,1/2 86 experiences in a case project. The case project is a 15,000 m2 university housing building project consisting of seven buildings and a budget of €18 million. It was a renovation project, and the houses were originally built in 1968. An additional 1,000 m2 apartment building was also constructed. Furthermore, 50 additional apartments were built on the basement floors of the buildings. The IPD project delivery system and target pricing reimbursement method were used in the case project. The procurement method was a competitive procedure with negotiations taking the form of a reverse procurement model, in which the owner has set the price of the project in advance, and the bidder teams, consisting of a designer and a constructor, have to come up with a design for the project. After an initial round for bidders to state their interest in participating, the owner chose three bidders for the negotiations. They paid the design fee for those three bidders as a way of sharing the expenses during the bidding process. 3. Project delivery systems divided into four categories There are dozens of project delivery systems and variations on these systems in the global construction industry. The subject of delivery systems has been undergoing constant change during the past decade, and only in recent years has the vocabulary evolved towards a closer consensus (Kenig, 2011). The reason for the change and the increasing number of project delivery systems has to do with increased competition in the construction business in general. Intense competition shortens the time reserved for the whole construction project, and construction companies and owners in the sector, in turn, seek new ways to reduce the project overall time wherever possible. Many of the varying project delivery systems are still quite similar to one another, with only the names and certain cosmetic features differing from one another. To provide structure to this pool of systems, we created four categories. The classification only brings traditional systems that are similar to one another into the debate, and points out the most obvious advantages and disadvantages of each system. In Section 4, we more closely consider three systems from the standpoint of a nZEB. 3.1 Category 1: the traditional delivery systems The most traditional and commonly used project delivery system worldwide is the design– bid– build system. It is the most popular because of its simplicity. Separating the designing and building phases makes it possible for the bidders to have a perfect understanding of the scope of the project. This will result in well-defined bids that have similar content and the lowest possible price for the desired design (Dorsey, 1997). The lower price results in minimal risk buffers; the buffers might be larger if some of the issues about the scope of the project were unclear. However, the restricted design leaves the bidders with no room for innovation. Multiple prime is a sub-classification of the design– bid– build system, in which the owner has multiple contractual relationships with more than one prime contractor (Col Debella and Ries, 2006). The procurement method most commonly used with the design– bid– build system is the low-bid method (Kenig, 2011). However, it is also possible to use the Best value: Total cost method, where the actual cost of construction is just one factor among several. Although the lowest bid usually wins, it might be wise to use pre-qualifications to ensure that all bidders have the appropriate creditability for the size of the project. When 87 Project delivery systems it comes to reimbursement, the design– bid– build system is connected to the most basic payment option: a lump sum. 3.2 Category 2: fast-tracking-orientated delivery systems Today, delivery systems based on fast-tracking are well known, and used in 40 per cent of construction projects. Fast-tracking was first introduced in the 1960s when there was a need for faster completion times for construction projects (O’Brien, 2007). If simplified, then fast-tracking refers to the overlapping design and construction phases of the project, so that the early stages of the construction work are started before the whole design has been completed. Construction management (CM) at-risk and design– build are the two traditional ways to complete a building quickly (Dorsey, 1997). Although they are fundamentally different, they are categorised into the same group because the collaboration between the owner and the other parties is not based on a multi-party contract. The design– build system saves time not only because of its suitability to fast-tracking, but also because only one bidding competition has to be organised instead of requiring the designer and