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In brief
With the North American infrastructure contract bidding process at an inflection point due to costly changes and delays on complex projects, collaborative contracting is an important avenue for project owners and contractors.
Competitive hard-bid contracting models, which typically involve the owner planning and scoping a large project without meaningful input from a contractor, historically have been the foundation of most public procurements.
However, across all sectors, pervasive cost overruns, schedule delays and high-profile contractual disputes are defining the relationship between public-sector project owners and contractors.
The increasing scale, scope and complexity of capital projects and programs has greatly intensified the risk and reward from the fixed-price, date-certain nature of these contracting models. Intense competition from local and international contractors and developers has driven contractors to bid low to win, with major project risks often being ignored, misunderstood or underestimated in bids. Contractors have been left striving to restore profitability through claims or change orders during the delivery phase.
In response to the challenges, one key practice that is gaining momentum is adopting a more collaborative approach to project planning and delivery, including harnessing collaborative contracting methods.
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Collaborative contracting methods can provide early contractor involvement for the benefit of technical and commercial planning of a project.
Early contractor involvement can improve project outcomes by harnessing a contractor’s input in the overall scoping of the project, including managing and mitigating project risk and uncertainty. It facilitates identifying cost and schedule challenges early, analyzing potential design and scope adjustments, and carefully considering the role of third-party stakeholders, all supported by open-book cost estimates and construction experience. Early contractor involvement enabled by collaborative contracting can reduce guesswork to improve confidence and predictability for all parties.
Two forms of collaborative contracting may be part of the solution for the owner and the contractor:
Across North America, Ernst & Young LLP (EY) is seeing a growing trend in the use of collaborative contracting models on complex public infrastructure projects. These include the long-standing use of CMAR in vertical infrastructure (such as urban, high-rise buildings and the aviation sector), the use of the CM-GC model in US transit and the use of the P-DB model in the US water sector, to the newer PDA models being seen in the US transportation space, as well as the introduction of alliances in the Canadian market.
A range of factors may affect whether collaborative contracting is used on a given project.
From the contractor’s perspective, a long preconstruction period with potentially uncertain future conversion to a design and/or construction contract may not be the highest and best use for “A-team” resources, open-book pricing can be uncomfortable and conflict with an entity’s broader strategic interests, and there may be concerns with respect to owner commitment to the process.
From the owner’s perspective, a lack of experience with collaborative contracting and a lack of a precedent or delivery framework may make the shift daunting. In addition, the capacity, capability and culture of the owner entity and its governance structure, combined with legislative constraints, may preclude the process altogether.
An important concern of owners is that collaborative contracting can reduce competitiveness and value for money as a result of selecting a contractor team based largely on non-price criteria. While this is a function of the early stage of engagement before scope and risk are well defined, there are tools that can help owners drive competitiveness and value. These may include enhancing the initial competitive procurement process by evaluating financial parameters, such as unit rates and management fees; evaluating open-book estimates throughout the process; and maintaining a degree of competition at the subcontractor level.
EY teams are supporting public owners on over $30 billion of live collaborative contracting procurements in the US and Canada. Leveraging insights and lessons learned from these projects, whether you are an owner or a contractor, EY can advise on model selection and deployment for your project, and lead or support you through planning, procurement and delivery.
Earlier contractor involvement and strong collaboration between owner and contractor, enabled by collaborative contracting, can benefit large, complex projects. Collaborative contracting can reduce inefficient pricing, improve risk allocation and reduce adversarial situations, and ultimately enhance value and improve the chances of project success.
