Virtual Academy 2020: Collaborative contracting for senior executives

With an annual global spend of ~US$10 trillion (13 percent of global GDP), the decades-long lag in productivity improvement has created a $US1.6 trillion opportunity for improvement. Among the many opportunities to revolutionize productivity, a McKinsey survey showed collaborative contracting and technology to be among those levers with the greatest potential impact.

The relationship between owners and contractors is structurally challenged, often resulting in contentious projects that run over time and over budget. In a GII poll of industry leaders, 33 percent identified poor stakeholder alignment as the biggest cause of project failure and 46 percent said that win-win incentives have the largest impact on building trust and improving performance. Increased collaboration can help align stakeholders, optimize risk-sharing, inspire innovation, transparency and establish results-based measures of progress.

In October 2020, GII hosted a series of collaborative contract trainings with senior leaders from across multiple industries. The goal was to help owners, contractors and investors expand their knowledge on how to successfully deploy collaborative contracting agreements that drive value on major capital projects. The key themes that surfaced from the participant discussions are summarized below:

  • Align collaborative contracts with current legal frameworks. Certain elements of a full collaborative agreement would need to be clarified and designed to be in alignment with local, state and federal legal statues. For example, no fault clauses might need to be revisited if there are restrictions by law regarding indemnification.
  • Make a case for change with public agencies. Some public agencies may not permit alternative contracting methods to be used when contracting with them directly, or when public grants are used to support projects developed by private entities. Similar to historical championing of Design-Build contracts, the private industry might need to make a case for change to collaborative agreements with public owners.
  • Use the contract as a tool to enable a collaborative operating model, not just to solve problems when in trouble. Many stakeholders see the use of a contract as way to sort out disagreements; while a good contract does indeed bring clarity when issues arise, stakeholders in a collaborative contract should view it as a tool to enable an efficient and cost effective operating model.
  • Bring into the governing structure project stakeholder across different tiers where it makes sense. In a collaborative framework, the top tier parties are typically involved in the collaborative governance structure as either voting (e.g. owners) or non-voting participants. However, where applicable bring lower tiers parties as well (e.g. specialty subcontractors and suppliers covering a large portion of the project scope).