With unprecedented investment going into global infrastructure, and projects becoming more complex, larger and cross-border – we speak with procurement expert Kiri Parr (KP), a consultant and academic in Australia, about why FIDIC 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?
KP: “There are a lot of elements to the construction industry that tend to hold participants to traditional procurement models. And there are a lot of assumptions about how they work, especially about how much certainty they give the participants as to outcomes that will be achieved. And in some circumstances the traditional model does give the participants that certainty. But the growing demand for collaborative models is thanks to parties shifting away from thinking about a project as a transaction- something you can simply put in a box and hand across to the contractor.”
“A different process is needed where you bring skills together from different organisations to solve the problems and seize opportunities that emerge across the whole journey of a project. The more you can build the relationships inside the tent, the more likely you are to solve problems and get to the solutions that that project is really about.”
“What we’re trying to do with the collaborative model is to start to align motivations” KIRI PArr
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?
KP: “I think that’s spot on. What we’re trying to do with a collaborative model more than the traditional contracts is align all parties’ interests, so they become motivated to achieve the same thing. In a traditional model, the contractor’s motivations can end up being quite different from the owners’ motivations. A contractor is fundamentally motivated to make a profit out of every job they work on. When risks emerge on projects, the Contractor must look for solutions that do not jeopardise its profit. That can lead parties into dispute pathways that damage the overall project outcomes.”
“What we’re trying to do with the collaborative model is to start to align motivations. What it is designed to do is allow parties to come together and jointly understand and manage the project, and its risks, to build realistic costs and time frames, to design effective strategies and contingencies – and then motivate everyone to achieve the project aims. And if there’s an unforeseen challenge that emerges outside of that regime, the parties have a structure that enables them to come together and solve it as a project.”
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?
KP: “The industry has for a long time has really struggled to improve productivity and the only way this wave of infrastructure is going to be achieved is if it reforms itself.”
“We’re in a phase where we’ve got a lot of changes happening all at once, technology changes, the environmental changes, the social changes and the projects themselves are becoming larger more complex, more multi-jurisdictional. That means the problems we need to solve to deliver these projects and to realise their value, will have to be done using different and collaborative tools that reflect these more complex scenarios.
“when people trust each other, they can solve problems rather than adopt defensive positions” Kiri PARR
The practicalities of collaborative contracts
IG: So what is the practical difference with a collaborative contract?
KP: “The process is important. Getting a wider group of participants together earlier matters because the relationship is one of the core tools we use as human beings to solve problems and we want that stretched as widely as possible to respond throughout the project. It’s not like that in a constrained tender process and more rigid contract models where people are always balancing relationship pathways with their commercial drivers.”
IG: So can a collaborative contract really reduce disputes and avoid defensive behaviours?
KP: “The collaborative relationship allows people to work together more closely and for longer to better understand and co-design the project and solutions – that is problems are found and solved earlier. The financial model makes, and especially the development of a target outturn costs gives greater visibility and develops more realistic expectations earlier in the project lifecycle as to actual costs. Combine this with higher levels of transparency and good governance mechanisms, and yes you reduce the likelihood of disputes. You have people who can start to build trust in their relationships and when people trust each other, they can solve problems rather than adopt defensive positions.”
“If you’re going to succeed in a traditional model, being open – solving problems fast – may not always serve you well, contractually” KIRI Parr
Technology and transparency
IG: So, does the increased information flow thanks to technology like BIM, require a contractual evolution to reflect a new reality?
KP: “Partly, yes. In traditional models, information doesn’t flow freely. You only have to hand across the information strictly required by the contract and there isn’t as much transparency in that as some people might think. In particular, when people or companies become distressed, you often see that exchange of information reduce because they protect information as a way of defending positions, to muddy the waters. There’s a lot of things you can do if you’re in a distressed position to slow and defer the exchange of information.”
“An effective collaborative model doesn’t let people do that. For me, the pivot is really that we’re creating a quite different framework where the strategies that help you ‘win’ are very different from the strategies that work the traditional model. If you’re going to succeed in a traditional model, being open – solving problems fast – may not always serve you well, contractually. In a collaborative model, you succeed by working out how to do something more efficiently, by being much clearer and open about costs and programme Everybody can see and analyse everything and that openness improves the likelihood of success.”
“We need to help investors understand that collaborative models can help assess the cost more accurately” KIRI PARR
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?
KP: “We are very good at making people feel very safe in the traditional models but the evidence that the current model is actually achieving good outcomes is not there. So if the evidence is that current norms are not achieving the productivity improvements that industry say they want, then we can’t continue to sit in the current paradigm.”
“We need to help investors understand that collaborative models can help assess the cost more accurately. There’s a mistaken view that collaborative models are an open chequebook, but they are anything but. In some respects they apply more transparency and more rigour around the establishment of project budgets and the management of those budgets. That shifts people into risk management instead of risk transfer, which is something we want to see.
IG: You are part of team 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?
KP: “We need a wide range of industry voices to feed in. People who have worked in collaborative models – whether they are owners, clients, suppliers, or the designers. Their lived experience of barriers or challenges to collaboration is really important because we need to hear what our contract model will need to include.”
To share your insights with the team developing the new collaborative contract, you can start by taking part in their survey by clicking here.