In their national CPD seminar, ‘Collaborative Contracting A Risk Worth Sharing?’, Adam Spitz and Jeremy Thom compared the collaborative contracting model to the more traditional adversarial contracting model, discussing some of the benefits that could be unlocked using the collaborative model, such as fast-tracking infrastructure projects and reducing the occurrence of insolvency.
In traditional forms of construction contract, the risks and rewards are often allocated so that the parties are incentivised to act as adversaries. Because a party ‘wins’ if it deflects costs or liability onto the other party, time and effort can be spent on disputes that would be better spent on delivering best-for-project outcomes. Often risk is simply passed as far down the supply chain as possible with little regard to which entity is actually best placed to manage the risk.
In contrast, collaborative contracting encourages a commitment to risk sharing, good faith and transparency. Together with remuneration models such as KPIs and gain share / pain share, the parties’ incentives are aligned in seeking best-for-project outcomes. Deflecting costs or liability is removed as a strategy for ‘winning’. Instead, the mutual incentives are to overcome issues and risks in a way that maximises the contractor’s entitlement to KPI and gain share payments.
For principals, collaborative contracting can lead to better project outcomes, fewer disputes, fewer delays, project innovation, costs savings and a reliable and stable supply chain.
For contractors, collaborative contracting can lead to a fairer allocation of risk, fewer disputes and, consequently, a lower risk of insolvency.
Since their inception in the early 1990s, collaborative contracting models have fallen in popularity, in part because of the complexity of some of the available forms of contract. There is still some collaborative contracting at the upper end of infrastructure spending at a government level. But it is a negligible presence in the private sector. Experience from overseas shows that if governments lead on collaborative contracting, the private sector will follow once there is a sufficient body of experience and track record of success.
Across Australia, governments are using fiscal stimulus to boost the economy and to try to ease some of the economic suffering COVID-19 is causing. A significant slice of that stimulus will be in the form of investment in infrastructure, which is seen as an investment with strong short-term social and economic benefits as well as generating long-term improvements in productivity.
In Western Australia, the State Government has released its WA Recovery Plan, with investment in infrastructure ranking highly on its list of priorities.
The current wave of fiscal stimulus and surge in construction activity is a good opportunity for governments to demonstrate the benefits of a more collaborative and less adversarial approach to construction contracting. It is an opportunity to leave not just a physical legacy but to drive practices that will lead to a more stable, sustainable construction sector.
If you have any questions about collaborative contracting, please contact a member of our national Construction and Infastructure team.
Adam Spitz | Special Counsel | WA | + 61 8 9404 9131 | [email protected]
Jeremy Thom | Special Counsel | WA | +61 8 9404 9132 | [email protected]