February 26, 2024
Australian projects are increasingly turning to collaborative contracting models, shifting away from the traditional approaches that have underpinned the construction industry. This change in the market highlights the need for principals, contractors, subcontractors, consultants, owners, and financiers, to be aware of these models and the key factors that might impact the outcome of a project.
Why Collaborate
Collaborative contracting departs from typical approaches by seeking to align parties’ interests for the benefit of the project.
Traditional contracting models have historically been preferred given their ability to provide certainty and simplicity. They allow for effective risk transfer, managed through contract documents as frameworks implemented by the parties. However, the nature of such contract places parties’ interests in opposition, which can be to the detriment of the project.
Notably, if a traditional lump sum contracting approach is utilised, parties can be incentivised to do the minimum work required, forgoing better project outcomes and delivery success in certain circumstances.
When to Collaborate
While parties may be initially reluctant to depart from tried-and-tested traditional contracting models, the potential upside to all parties involved is often a key driver in the shift towards collaboration.
Some principals may opt for collaborative contracting out of necessity. Namely, during industrial booms contractors can seek to leverage the limited market supply to negotiate a more favourable contracting approach. Similarly, on large scale projects contractors may be unwilling to enter into traditional contracting models, especially where there are certain complexities and there are a limited number of contractors willing or able to undertake the works.
Ultimately, the above scenarios are instances where increased negotiating power on behalf of the contractor allows them to drive the contracting approach, and therefore select a model which best aligns with their commercial interests.
However, these situations should not serve to be the only instances where collaborative contracting models are utilised. Given, collaboratively contracting offers wide ranging benefits, while potentially decreasing cost and incentivising innovation, parties should always turn their mind to if collaborating could provide greater project success.
Collaborating for Success
Relationship-style contract models often involve collaboration, facilitating cooperation between the parties. Specific drafting may be included in contracts or early-stage project documents, outlining the “collaboration principles” which the parties agree to follow throughout the 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.
Generally the benefits that parties may derive from a collaborative approach revolve around developing and facilitating teamwork between the parties and their project teams, including through:
- open communication;
- shared goals; and
- collaborative engagement.
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 is important that clear goals and strategies are established early in collaborative models, to seek to shift traditional mindsets and ensure parties do not revert to adversarial dispute processes, which the parties may be familiar with.
Hence, while it can represent a significant long-term benefit to the parties to utilise a collaborative contracting approach, there are potential factors that may limit the utility of such.
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.
As discussed above, this may stem from the parties’ respective projects team historical experience with traditional contracting models, where adversarial disputes are common place. In these circumstances, parties must work to proactively address these issues, to ensure they do not take away from the benefits which collaborative contracting provides.
Hence, despite contractual drafting imposing collaborative obligations on the party, it will not eliminate the potential for projects to be subject to disputes, and parties need to be proactive in how they seek to address these issues.
Collaborative Contracting
If you think collaborative contracting might be right for your next project, the team at LPC Lawyers have the experience and expertise necessary to assist. With experience across a variety of collaborative contracting models, LPC Lawyers can assist you with your next project.
If you would like to discuss any matters raised in this article as it relates to your specific circumstances, please contact LPC Lawyers.
The content of this article is for information purposes only and 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 your specific circumstances.
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