With unprecedented investment into global infrastructure – and projects becoming more complex, larger and cross-border – we speak with legal expert Andrea Chao (AC), Partner at Bird & Bird in the Netherlands, about why she is developing an international collaborative contract.
IG: The infrastructure industry has talked for decades about the potential benefits of greater collaboration for major projects. So why is it that conventional linear approaches and contractual relationships have lasted so long?
AC: “With the conventional linear process, everything appears solved on paper. Everything is put in a box to say if ‘this’ happens, party ‘a’ is responsible and needs to solve it. And if ‘that’ happens the other party is in the lead to solve it. But in practise, it is not so black and white that such mechanisms always results in an actual solution. Sometimes linear contractual approaches can be absolutely perfect and can be very fitting. However, it is important that different approaches and more tools are available because no specific contract works on a one size fits all basis.”
“That means it’s not an either/or situation. Conventional contracts have their place still. There’s just a growing need to add an additional option that creates the circumstances for better solutions for a growing number of projects.”
“The confrontational approach that linear contracts can sometimes enable is wearing people out.” ANDREA CHAO
Aligning motivations
IG: What about the longstanding concern that conventional contracts sometimes misalign objectives and motivations across a project. Is that true, and is a more collaborative contract able to change it?
AC: “If you look at the issues around climate change, it’s not dissimilar to what we faced in the Netherlands in the mid-20th century. As a result of the Second World War, we had a major shortage of housing, resulting in an urgent need for additional living space on a short notice. That is when collaborative approaches became normalised here. That was the most appropriate way to decrease the preparation time of the projects, to mitigate the technical and organisational interfaces, and to ensure continuity in the building process.”
“That motivation drove the collective approach to the end result rather than the more linear approach, which often separates many parties from the major social motivation. It also meant each project was no longer approached as a separate project, but parties were rather focussing on a collaboration during multiple projects.”
A reshaping of industry
IG: So alongside social drivers like net zero, greater collaborative tools are now partly needed because of how the industry reshapes itself?
AC: “I’m hearing more and more from industry parties as well as journalists who look at the collaborative approach, that there is a desire to change how everyone behaves on a project. That is also what I notice as a recurring reason for why I am asked to advise on a project. The confrontational approach that linear contracts can sometimes enable – despite goodwill when the project starts – is wearing people out.”
“There is already a competition for talent but within a construction business, if I look at the sector and locations where I work, there is a lack of people and a lack of experienced people who are still willing to put up with the confrontation. It doesn’t add to their joy of working on their projects. So we really need to support collaborative behaviour, not only for the projects but also for the people involved.”
“You always need to go back to basics and understand what both parties want for a successful project.” Andrea Chao
The practicalities of collaborative contracts
IG: So what is the practical difference with a collaborative contract?
AC: “It’s about making it easier to deal with change and also to facilitate the conversation with each other early – meeting to overcome certain hurdles before you actually dare to start working in a new way. So, when you look at collaborative contracts, you could say you have the ‘hard’ elements to it alongside ‘soft’ elements to discuss what people do and don’t need to do. That is partly about the language but also about getting the right people onboard and stimulating everyone to act in collaborative manner.”
IG: So can a collaborative contract really reduce disputes and avoid defensive behaviours?
AC: “You always need to go back to basics and understand what both parties want for a successful project. That should mean getting it complete within budget, without delays, and in line with the specifications and without disputes. Any choice made regarding the contract and the procurement thereof is in my view a means to an end and not a goal as such.”
“Risks can be allocated to the other party, but if in the end the project is not completed in accordance with the specifications ,there is still a failed project” ANDREA Chao
“I used to have a traditional approach towards contracts, which is not uncommon. Traditional lawyers tend to see a contract as an end goal with the main purpose of de-risking a project for the client as much as possible. A traditional lawyer might also have the impression that all potential situations can be foreseen. Once the contract reflects a project that is de-risked on paper and where all potential future scenarios are dealt with, a traditional lawyer will feel they have been successful and the project is a success.”
“However, over the last few years I came to the conclusion that this is a too limited view on construction projects. A construction project is a process focussed on creating, which spans over quite a bit of time. A lot can change and a lot of new information on soil conditions etcetera can come up during that time. The fact is that the paper of which such a contract consist will not build anything. It doesn’t have arms and legs, it does not do anything to complete a project. Another fact is that nobody can fully describe all potential future events. Risks can be allocated to the other party, but if in the end the project is not completed in accordance with the specifications etcetera, there is still a failed project that impacts both parties – irrespective of who carries the risk from a formal legal perspective.”
IG: And how crucial is the contract project culture?
“My view that a contract is an important tool remains unaltered, whereby it is good to discuss risks and potential future events. However, I have also recognised that an appropriate level of flexibility can be required, and that a contract is just one of the tools available to help parties achieve the goal of a successful project. Parties who have the same considerations tend to have a common goal when looking at contracts and projects. And collaborative contracts help to do that.”
Investment growth and risk management
IG: There is a significant global investment right now in infrastructure as the world seeks to recover from the pandemic, tackle climate change and to meet SDGs. So how do we make the case for collaboration as a de-risking tool for that money?
AC: “We as lawyers effectively have a radar for risks, both actual major risks but our radar is so sensitive that we can also detect academic risks that very likely have never occurred and will never occur. Combine that with our verbal and negotiating skillset, and we are in a position to have a lot influence on projects. We can dictate a lot of the terms in contracts, in how parties work together. Combine that with very risk averse clients, investors etc, you get this this tendency for traditional linear relationships whereby available – and often well-balanced – model contracts are amended in a very one-sided manner.”
“We as lawyers can stimulate the process of people actually starting to look at things differently, and look at the major and actual risks. We can also break that process. That role and level of influence that we as lawyers have is something I’m becoming more and more aware of.”
IG: You are chair of the FIDIC task group developing a collaborative contract right now. How important is it to get a diverse insight into that development process and what does industry need to share with you to make sure it works?
AC: “Our collaborative contract will be a global tool applicable across as many places as possible, so we need to make it as inclusive of all regional challenges as possible. That means we need to hear from different jurisdictions about the experiences people have on the ground.”
To share your insights with the team developing the new collaborative contract, you can start by taking part in their survey by clicking here.
