February 14, 2022
The adoption of collaborative contracting is increasingly seeing wider use within the Australian infrastructure sphere. This growing trend has seen support for such approaches grow as parties seek to address the deficiencies seen within traditional contracting approaches. This shift represents a significant departure from traditional contracting models and suggests principals, contractors, subcontracts, consultants, owners, and financiers should familiarise themselves with the potential changes.
Collaborative Contracting
Collaborative contracting departs from typical contracting approaches by attempting to align the interests of parties to the benefit of the project.
Traditional contracting models have historically been preferred given their ability to provide certainty and simplicity. Furthermore, risk transfer can occur effectively and be managed through contract documents as required. However, the nature of such contract places parties’ interests in opposition, which is ultimately to the detriment of the project.
Importantly, where a traditional lump sum contracting approach is adopted, it can serve to incentivise parties to do the minimum required, even though doing more could result in better project outcomes and delivery success. Hence, where the parties can develop a model which incentivises improved project outcomes and delivery success, it can serve as a significant boost to the project and ensuring its successful completion.
Collaborative approaches seek to change the approach seen within traditional contracting methods. Through alignment of parties interest it can ensure the effective and efficient delivery of a project through establishing a collaborative culture from the start of a project and enshrining such principles in the contract documents. This can include documenting the ways which the parties will work together to achieve an aligned set of project objectives.
When to Collaboratively Contract
Departing from a traditional contracting model can often prove a challenging decision but understanding the difficulty underpinning this decision can be critical to identifying collaborative contracting benefits.
While collaborative contracting is normally associated with large scale projects or during periods of industry boom, this is often a function of necessity instead of preferred approaches.
On larger projects the need for financial strength and capability, coupled with potential project complexities can restrict the number of participants who can bid and compete for the works. This limits a principal’s ability to transfer risk and realise value, as contractors have significantly more power because of the reduced competition.
Similarly, where the construction industry is booming contractors can again be placed in stronger negotiation positions, resulting in a deferral to cooperative contracting in an attempt for principals to transfer risk and maximise value.
However, cooperative contracting is not, and should not, be restricted to when the principal determines that traditional contracting is not appropriate.
Collaboratively contracting has the potential to allow parties to realise increased productivity, while decreasing cost and incentivising innovation. Hence, it is important that parties turn their mind to whether a project is likely to benefit from collaborative contracting, instead of deferring to it when they are unable to reach agreement using traditional contracting approaches.
When considering if a collaborative contract is best for your project, it is important to analyse the key benefits, and limitations, which are likely to influence the utility of collaborative contracting with respect to a specific project.
Key Benefits
Collaborative contracting is often present within relationship-style contract models which seek to facilitate cooperation between the parties. This may be reflected in enshrined principles within contract documents and represented by the parties during the early stages of a project.
Each collaborative contracting approach offers different benefits that parties should consider before determining which avenue is best for both the parties, and the project.
Despite this, collaborative contracting generally assists in developing and facilitating teamwork between the parties and their project teams, including through means such as:
- open communication;
- esprit de corps;
- shared goals; and
- cooperation.
Each of these aspects represent a significant departure from the typical adversarial nature seen between parties under traditional contracting approaches. Notwithstanding that project teams may develop a sense of teamwork to reach practical completion, the adversarial undertones of traditional contracting are not forgotten, especially where a dispute arises.
Hence, it can represent a significant long-term benefit to the parties to utilise a collaborative contracting approach, though it is not without its potential limitations.
Key Limitations
A key limitation seen across collaborative contracting models is the propensity for the parties to continue to collaborate despite issues arising.
Where projects experience difficulties, the parties are left to determine if the benefits of blaming the other side outweighs any breach which might be alleged for failing to cooperate. Where parties commence blaming each other, the project can descend into long-running disputes which interrupt and delay the project further, erasing the benefits which may have been realised as a result of any early collaborative processes.
Hence, despite contractual drafting imposing collaborative obligations on the party, it will not eliminate the potential for projects to be subject to disputes.
Importance of Drafting
Notwithstanding potential limitations, certain contractual drafting approaches may be adopted to mitigate issues prior to them being realised on a project. Through enshrining collaborative values and obligations collectively in contract documents, and project teams acting cooperatively from commencement, it can assist in easing potential stresses moving forward.
Further, the tailoring of collaborative principles to the project in question can ensure long term success through specifically identifying certain processes or obligations which are identified as of particular importance to the project.
Lamont Project and Construction Lawyers
Lamont Project and Construction Lawyers have extensive experience drafting and advising clients on collaborative contracting models and approaches. If you require assistance with your current or future projects, please contact us.
The content of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding y our specific circumstances.
Contact: Peter Lamont or Ryan Bryett
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