The document discusses integrated project delivery (IPD) and how project development risk and cost of capital influence the choice between IPD and traditional delivery models. It notes that while IPD can create value through early design decisions as shown in the MacLearny curve, investing early in development carries high risk that the value may not be realized due to market, entitlement, financing and other risks. This makes the cost of capital steeper in early development stages. Owners with higher development risk tolerance due to their business model or financing approach will prefer IPD, while others facing steeper cost of capital slopes will prefer traditional models. The key is understanding how development risk and value drivers shape the cost of capital over time for any given project

1. Keynote #2
The Business of Project Development; Risk, Returns,
and Integrated Project Delivery (IPD)
Bob Springer, P.E., MBA
Sr. Principal
Concurrent Technologies Corporation
springer@ctc.com
814-269-2508
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2. Why does this Matter?
The industry is moving;
Technology is leading/enabling;
Competition is relentless;
Leaders will adapt, improve, profit.
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3. Outline/Agenda
• IPD Fundamentals
• Project Development Fundamentals
• Making the choice: To IPD or not to IPD
• Implications on choosing IPD or IPD-”like”
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4. IPD
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The fundamentals of the MacLearny curve
are right; but this shift impacts cash flows and
risks in a development environment.

5. IPD
• Shifting of effort is a rational response to the
environment, as shown.
• This value proposition is an important one; but it is not
complete; there are financial implications and when
placed in a risk environment this can influence things a
great deal.
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6. Project Development Environment
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Project Development Risk Capital
Construction
Finance
Asset Finance
Risk
$
Time
Entitlements Financial Close Substantial
Completion
Site
Control
Rising risk curve
a result of
increasing
“funds at risk”
A
B
C

7. Project Development
• Developer/Owner is managing exposure to to “Project
Development Risk”
– Risk that a project’s value cannot be realized from delay or
inability to fund project and/or start construction, resulting in a full
or partial loss of invested development resources.
• Risk Curve shown rising from Point A to Point B because
the cumulative value invested is often very illiquid and
100% at risk until financial close at Point B.
• completion.
• This illustrates the point; investments in development
differ from rest of lifecycle; Owner can lose development
investment if disaster strikes two days before point B….
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8. Project Development
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Project Development Risk Capital
Construction
Finance
Asset Finance$
Time
Entitlements Financial Close Substantial
Completion
Site
Control
Site
Acquisition
A
B
CThis environment drives preference to invest later in
development, after key milestones achieved, which
is counter to the design-driven shift driven by the
cost/impact dynamics shown by MacLearny curve.

9. Cost of Capital & Timing
Investopedia: “The required return necessary to make a capital budgeting project, such as
building a new factory, worthwhile. Cost of capital includes the cost of debt and the cost of equity.”
• Value: does the investment produce value after paying
for the cost of capital?
• Timing: preference is to invest at lower cost of capital,
later in the lifecycle.
• Uncertainty: source of risk, also declining in later stages
of development, which is intuitive.
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10. Putting it Together
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Project Development Risk Capital
Construction
Finance
Asset Finance$
Time
Entitlements Financial Close Substantial
Completion
Site
Control

11. Arguments…
• Institutional/government/corporate owners not
“developers” ….no development risk.
Really? Risk may be there even if not “core business”.
• Cost of capital “constant” for projects which are balance-
sheet financed…timing doesn’t matter.
Really? “Cheap” money that doesn’t value the risks may lead to bad
investment decisions; hurdle is artificially low.
Truth is there is a sliding scale; things are more or less
amplified under different project business models, owners,
objectives, and funding.
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12. Value Propositions for the Owner
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Strategic Site?
Opportunistic?
First Mover in
Market?
Low Overall Cost?
Accelerated
Schedule?
Financing Requirements??
Delayed Investment?
“GUARANTEE”
Delivery Date?
Net Operating
Income?
Lifecycle Cost?
Revenue?
Market
Requirements?

13. Business Models
A commercial developer with 3rd party investors utilizing
project-specific debt for construction financing…
Will likely prefer more traditional models.
An institutional user embarking capital construction
program using balance sheet financing...
Will likely prefer more integrated models.
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14. Makes sense, but why?
• All projects have competing forces, what drives decision
on IPD?
• What are the levers that affect the balance of choosing a
delivery model?
• Consider the integrated IPD model and MacLearny
Curve cast in a development context…
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15. IPD & Cost of Capital
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The slope of the cost of capital curve
(green) is a key determinate in choosing a
delivery system. Steeper slopes tends to
dampen affect of Cost/Impact relationship,
driving preference for more traditional
delivery models.

16. Makes sense, but why?
• Remember, investing in earliest stages must consider the risk that
value created in increased predesign MAY NEVER be realized.
• This drives the risk of early stage expenditures way up and also
drives return requirements – making the cost of capital line
“steeper”.
• Early design decisions might create value, but this is only “on
paper”; value has to be monetized, and that path may not be certain
because of other factors driving development risk; market risks,
entitlement risks, financing risks, etc.
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17. IPD & Cost of Capital
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Flatter slope in cost of capital line
(green) drives preference for an
integrated model to leverage the
value of design cost/impact curves.

18. What determines cost of capital “slope”?
• Drivers of value; what is driving fundamental project
value?
• Components of development risk;
Market? Entitlement? Permits? Financing? Environmental?
• When are returns realized? Through long term asset, or
through short term conditions?
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19. Implications
• From a development risk management perspective, MacLearny
curve is compelling, but incomplete;
• Because of the uncertainty of outcomes, the cost of capital in a
development environment is high;
• This cost of money drives up the true cost of a dollar (from a
risk/return perspective) in early stages;
• MacLearny may be comparing dollars to dollars without regard to
risk/return multipliers; every dollar is not the same in a project, and
front-loading costs that may not be recoverable because of
entitlement or market risks can heavily influence decisions.
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20. Closing
• Industry needs numbers to make the business case, and make
informed decisions!
• IPD may be written off as aspirational; or taken as directional – this
is a trend and we should embrace that trend vs. take it as
prescriptive.
• The attitude of collaboration and teamwork that underwrites IPD-
that alone may be worth it!
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21. Bibliography
• IPD graphic, original concept by Patrick MacLearny, FAIA, CEO, HOK Group, © HOK Group, Inc.,
2009 all rights reserved.
• Project development concepts are adapted from SROPTTC
TM
, which is a trademark of the
Alliance for Sustainable Energy, LLC, the operator of the National Renewable Energy Laboratory.
• http://www.nrel.gov/docs/fy13osti/57963.pdf
• www.Investopedia.com, accessed June 21, 2013.
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22. Questions?
Bob Springer
Springer@ctc.com
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