Challenges in collaborative contracting
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.
How to engage in successful collaborative contracting
- Use it for the “right” projects by conducting a thorough procurement options analysis and market testing, and assessing organizational readiness
- Commit to it once the decision has been made to proceed by investing in the right team with the relevant expertise and experience, and tailoring a delivery framework that effectively aligns incentives
- Set the right expectations between owner and contractor as early as possible, as well as including appropriate off-ramps to provide owners with the flexibility to pursue another delivery strategy if appropriate
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.