Collaborative contracts in construction

8 rowers and a coxswain rowing on a calm lake at sunrise

Government agencies and major resource companies initiate projects based on an assessment of needs. The decision-making process requires investigations and feasibility studies leading to business case proposals assessed on a value assessment that compares cost and benefits.

Benefits may be objective in that the constructed asset fulfils a measurable purpose or subjective, e.g., political or community benefit. Complex and risky projects see optimism bias expressed in project cost, time, and benefit forecasts, which can lead to front-page headlines as cost and time escalate. The cost blowouts may not be the predictable cost escalation or project refinement but optimism in the budgeting or a misunderstanding of the project’s complexity.

The extent of the divergence from initial expectations may appear at any of the project stages.

  • Business case costing
  • Receipt of tender prices
  • Post award design development
  • Post award investigations
  • During construction
  • Construction completion, commissioning, and handover

The further into the project that divergence from the desired outcomes become apparent, the higher the reputation, cost and time penalty will be.

All of this is well known to industry participants, yet the industry relies on adversarial competitive procurement processes that create barriers to the flow of information. Decisions without access to all the knowledge and experience available are less likely to be optimal.

In contrast, collaborative procurement and engagement not only minimises or eliminates information barriers but actively promotes collaboration and knowledge sharing throughout the project lifecycle.

Forecasting outcomes of large complex projects is tricky enough with the uncertainty inherent in multiple project factors. However, why limit sharing collective knowledge and experience through restrictive procurement and execution processes when proven collaborative models are available?

Interestingly, the US model of Integrated Project Delivery, similar to the Alliance Model, arose not from the dispute minimisation origins of Alliances but from recognising that fragmented contracting models led to lower productivity in project delivery.

We, the construction industry can only benefit from coordination action to embrace collaborative contracts as the contracting norm.

Michael Ward

Michael, Principal of Alchimie Pty Ltd, is a consultant who specialises in guiding project teams to achieve high performance outcomes. Michael’s background is in project management and as a certified coach he is an advocate for the benefits of applying lean construction practice to improve outcomes. International experience has demonstrated that collaborative contracts with aligned commercial interests is the optimum platform for the effective implementation of a lean construction philosophy. Michael is Alliance coach for two major infrastructure program Alliances and provides advisory services and coaching to a wide range of public and private sector organisations and individual clients. He is Chair of Lean Construction Australia and New Zealand.

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