Rewiring contracts for collaboration

Too many construction projects are traditionally founded on risk, not collaboration—a root cause of the sector’s low productivity. At the 2017 GII Summit, McKinsey partner Michael Della Rocca joined leaders from Atkins, Bentley Systems, and King Abdullah Economic City to discuss how relational contracting and shared incentives can create better outcomes for infrastructure and capital projects.

Interview transcript

Uwe Krueger, CEO, Atkins: I think one of the most important lessons in the industry is that projects are most successful if there’s a cooperative approach from the very beginning. The way, in the London Olympics, there was the design that the supply chain is aligning on the same side of the table than the Olympics authority. And this spirit, from the very beginning has made sure that at the end, this project came below budget and ahead of time.

Michael Della Rocca, partner, McKinsey: Generally speaking, what does not work is this “we, they” relationship or structure where there’s no aligned incentive around how to actually construct and build the project.

The flip side of that is much more relationally based contracting, where there’s a shared incentive for success and all of the participants contribute to the success or failure of the project, and economically share in the outcome according to their contribution towards the outcome.

Greg Bentley, CEO, Bentley Systems: CrossRail explicitly made it its goal to have an innovation agenda. It was facilitated actually by the contractual format that shared incentives across what was effectively every tier one contractor in the UK, normally competitors, [they] had to work together.

Fahd Al-Rasheed, King Abdullah Economic City: Define the risks and area of risks that you are trying to manage. And then to talk with three or four partners just so you can understand their perspectives and how they would go about it. That would allow you to create then a framework and a contractual relationship that works for all.

Michael Della Rocca: And when you look at the track record at the conclusion of those projects, they generally have been delivered quicker, they’ve cost less, and the walkaway experience from everyone who’s been a part of it has been much more positive.

Read the best ideas that emerged during the 2017 GII Summit in the Summit outcomes report.

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