Where there is construction, there are contracts. Typically, these contracts are obtained through a competitive, hard-bid process, which is often criticized for causing adversarial relationships and driving continuous change orders and disputes. In response, collaborative project delivery models have been developed to optimize owner-contractor collaboration and focus on dispute prevention and early resolution.
Once considered a niche model, collaborative contracting has recently experienced an increase in demand due to market forces and global trends. Mega projects require close collaboration. Major contractors are growing more reluctant to enter hard-bid contract environments, preferring instead to participate in procurements with owners and stakeholders with whom they have established relationships.
Because collaborative contracting differs substantially from traditional contracting, questions frequently arise concerning its use.
Collaborative contracting requires mutual trust and cooperation throughout a project’s life cycle, especially for complex construction projects and long-term development programs that demand close collaboration. Frequently, a single contract may offer incentives for various cooperative practices and behaviors, rewarding the unique strengths and capabilities that owners and contractors each bring to a successful project. Collaborative models can be placed on a continuum between full-on project alliancing and Integrated Project Delivery (IPD) on the one end and traditional contracts with specific collaboration elements on the other.
Collaborative approaches were first used in the offshore oil and gas industry to expedite construction and avoid delay. Similar forms appeared in retail, healthcare and the financial sector. The models got introduced on construction projects in the ’90s after reports were published in the U.K. concluding that the prevailing adversarial process, which prioritized individual company gain, was undermining the industry.
Increased discontent with the adversarial process and the greater need for collaboration in many fields have spurred experimentation with collaborative contracts. Consider the following:
Collaborative models are becoming the dominant choice for many large private construction markets in North America, notably commercial real estate and oil and gas. Australia, the Netherlands and the U.K. also recognize the strategic advantage of this model in the development of complex road, rail, dike, waterway and LPG (liquefied petroleum gas) infrastructure.
Research and project reviews confirm that collaborative practices improve project performance, and anecdotal evidence corroborates this.
Early experiences with collaborative contracting in the Netherlands reportedly yielded significant cost savings and better relationships. These benefits have increased the demand for collaboration and have influenced the selection of contractors for a major dike reinforcement and a riverbed renovation program.
Factors driving project success include the following:
For major-project owners to successfully bring diverse interests together under the umbrella of collaborative contracts keep the following in mind:
Because this model is relatively new, its novelty brings several challenges:
Collaborative contracts can improve coordination, prevent miscommunication, encourage early warning, foster a team attitude and trust, and make it likely that frictions are detected and resolved before they evolve into legal disputes. Yet disputes are not prevented by a contract alone; a collaborative culture must be cultivated and maintained by the parties.
The success of a collaborative approach also depends on carefully crafted dispute resolution provisions, such as a layered system of negotiation, followed by mediation and, if needed, arbitration. Alternatively, for example, on a tunneling project in the Netherlands, the French contractor and Dutch project owner agreed to appoint a dispute resolution board (DRB) to resolve disputes by mediation, providing expert opinions or arbitration, depending on the issue.
Collaborative contracting is an effective and profitable approach to overcoming delivery challenges. Owners in Australia, Asia, the U.S., and Europe are increasingly seeing value in openness and shared risks and costs. Reaping these benefits requires thorough preparation, implementation and maintenance. As this contractual model outgrows its niche status, the industry should see more usage, particularly internationally. Thus, attorneys should be prepared to negotiate, draft and resolve disputes arising in this context, nationally and globally. Similarly, neutrals will play increasingly important roles in implementation, dispute avoidance and conflict resolution under these contractual models.
Peter Kamminga is a JAMS neutral and GEC member with 20 years of experience resolving construction disputes, among others, as mediator and arbitrator and dispute board member. He also advises owners and contractors on contracting and collaboration approaches for construction and engineering projects worldwide.
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