Our approach is intentionally collaborative, because “bid/no-bid and tender/no-tender decisions are being made specifically on how flexible and collaborative the other party is willing to be.”
Integrated project delivery
One way to demonstrate flexibility is in the approach to delivery. It hasn't changed much in the modern history of construction, but integrated project delivery (IPD) is a new approach that makes sense for today's risk climate.
Three key differences distinguish IPD:
- Traditionally, both sides of a construction contract brought their own success metrics for inclusion in the contract. With an IPD approach, the parties create common definitions of success.
- Costs and profits traditionally negotiated by each independent entity would be, in the IPD approach, pooled together. This incentivizes project success over individual self-promotion.
- Rather than setting up the project schedule as sequential tasks being performed independently, the IPD approach unifies the project team as much as possible and creates the delivery schedule together.
These demonstrations of good faith on both sides help now and into the future. By aligning the interests of the two parties, the two sides prioritize the success of the project.
How collaboration is changing construction contracts
Good faith and a shared commitment to success are becoming important factors at the contracting stage.
Somewhere along the way, adversarial relationships between project owners and construction companies became more common or the expected norm. The current circumstances are steering the industry towards a huge win for collaboration and as a result successful project delivery.
Among other ways, contractual sharing of risks appears to be happening on two fronts: pricing and scheduling.
More and more construction companies are requiring contracts that provide more pricing flexibility to succeed in today's inflationary environment. This includes cost-plus contracts to ensure the project can absorb unanticipated cost increases, for example from supply chain issues and/or labour shortage issues.
“Committing to a fixed price when only 15% of the project has even been designed is extremely challenging in today's business climate,” says Chantal Cousineau, a Quebec-based BDO partner and Practice Leader, Real Estate & Construction.
“In retrospect, if it wasn't equally unreasonable before the pandemic, it was definitely unfair to construction companies, and stress-inducing for project owners who were compelled to tell their investors why they needed more capital.”
Accountability has never been more important than it is right now, and it's important for both sides of a contract to share it.
The practice of project owners and construction firms jointly defining and codifying the critical path of a project is something relatively new, and Ms. Cousineau is encouraged by it.
“We're seeing both sides of the contract make arguments for and against tasks that need to be part of the critical path—which is to say they're deciding as a group what could and won't endanger the target completion date. This is leading to more adaptability for delays caused by supply chains, weather events, and staff shortages.”
In today's construction dynamic, there are many unforeseen events that cannot be controlled, and it's important to have clarity between all stakeholders when managing construction delays. When both parties understand the critical path, unexpected delays can be mitigated, and timelines recovered.
Industry players adapting their approach to contracts
One interesting change that Sehgal has seen is the concerned parties collectively retaining a third party as a contract monitor.