Using Integrated Project Delivery and Commitment-based Management to Cut Intel’s Fab Construction Costs in Ireland

This Intel case is the clearest proof of how Vision can combine Commitment-based Management with Integrated Project Delivery on a highly technical mega-project to increase collaboration, erase political friction, and cut costs

Strategic Challenge

Intel’s current CEO is driving a major turn-around of Intel which has struggled to face international competition in the production of silicon chips. In the 2010s, management even considered leaving the chip business as too unprofitable because in large part of the cost of silicon chip fabrication plants (fabs). To achieve a competitive rate of return, Intel sought to cut the cost of fab construction (not including the tools installed in the fab) by 30% from $1 billion to $700 million. 

With a partner, Vision pioneered a case of combining the principles of Integrated Project Delivery and Commitment-based Management at a plant in Arizona. In 2016, Intel sought to prove it could transport the heroically achieved (risk-taking) savings techniques to Ireland, a lower tax geography, and do so with lower levels of risk-taking.

Technical Challenge

The design of a new semi-conductor manufacturing facility is a work in progress throughout the tool install process.  The tool designers will only know how many tools and precisely how to configure them for needed yields after they run tests, which occur during installation. They do this testing and configuring on a background of changing market demand where there are continual changes in the instructions about which tools are to be installed and in what configurations. The build in Ireland involved the installation of a total of 700 tools. These tools cost between $25 million and $100 million each and are installed by teams of highly skilled electrical and mechanical contractors who can also handle the hundreds of caustic chemicals moved through the pipes to make the equipment operate.

The project did not look for ways to reduce the cost of tools. It focused on the costs of construction including installation of tools.

Design and Implementation

Integrated Project Delivery rests on a risk-reward sharing contract signed by all the suppliers. The basic design is the budget holder covers basic costs and the suppliers share on a pro rata basis the savings generated over the course of the engagement. The suppliers’ overall revenue decreases as does the gameplaying around change orders, but, as they help each other, the suppliers’ profit margins increase. It all starts with building enough trust through facilitated assessment sharing sessions of what is admired and what is disliked to reveal to the budget holder—Intel—their cost structures. To build trust, these sessions focus on reducing the internal costs that come with working with the budget holder and with each other. As a technical matter, Vision replaces the micro-practices that drive the negative mood of resentment with those that drive the positive moods of hope, admiration, or zeal (whichever they are must susceptible to). Thus we reduce political friction due to shared moods and start raising collaboration maturity at the beginning.

VISION implemented a three tiered management structure. (1) Intel invited a senior manager from each the eight mechanical and electrical contractors, the Trade Partners, to meet monthly and sit on the highest decision-making body. They would meet monthly to look out over the next six months to resolve conflicts and revise the plan to cut waste. to join them in constructing the Integrated Project Delivery project. (2) We created a second-level, monthly time-horizon meeting with project managers from the budget-holder and all relevant suppliers and departmental discipline specialists (like finance, real estate, engineering design, procurement, and so forth) each week to look out a month ahead. (3) Last, we set up a third-level, with managers to meet daily and look out a week ahead. This group consulted with the people doing the work on the ground to make sure they were not overlooking hidden blockers. Thus, it followed the principle of the “last worker” planning. 

All of these meetings had agendas that focused on finding ways to do things faster or cheaper or with a better-than-expected benefit at current costs and times. The teams looked for ways to do work in parallel with others, do work ahead of the normal schedule (for instance, surveyors doing a technical piece of work as they conduct the survey), do work for multiple others (as in getting permits for all the work that can be done over a certain period of time), and do work that another team is nominally responsible for but where that other team is, for one reason or another, unavailable. These are the basics of pull planning.

To build trust and ensure that everyone took part in the rapid cadence of decision making, we rotated the chair at each meeting. Decisions get made by consensus and quickly escalated if a decision cannot be made within two meetings. Ultimately, the budget holder can make a decision if consensus is not reached, but that never happened.

In all meetings, Vision facilitators focused on achieving clear personal commitments for the work of the week and for overcoming challenges by a specified time and cost. VISION also coached on listening and frank discussion (no holding back to see if a challenge might take care of itself).

Achievements

With the implementation of the new form of construction contract and the implementation of Integrated Project Delivery and Commitment-based Management, we achieved the target of reducing the overall construction costs of 30%. Additionally—and as a measure of the increase in trusted collaboration—value-added work rose 17% to 57%.

Better yet, the collaboration we built lasted beyond the project. The collaboration techniques built something approaching a community. When Mark Dickson, Capital Projects Director at Scottish Water, interviewed the Trade Partners after the project had been completed, he said, “I had to keep pinching myself to remember that I was talking to Intel and a group of its suppliers and not one team from one single company.” 

Building that kind of spirit where each supplier as well as the budget holder looks for opportunities to help the other move the program forward has become a benchmark for our work since. That simple opportunity-seeking practice encouraged in each meeting and by the overall contract is the main ingredient of operationally and financially successful collaboration.