How to collaborate successfully in construction in 2024

Pinsent Masons has been privileged to work on some of the UK’s most successful examples of collaboration in practice. Three well-known projects are used by the NEC as case studies: the Lee tunnel project, the A14 road upgrade and the Sellafield PPP framework. What we have learned is that successful collaboration is always underpinned by the right behaviour and culture as well as the right contract model. Here are eight things we have learned which can help industry successfully collaborate in 2024.

Organisational readiness

Collaborative contracting focuses on shared project goals, open communication and problem-solving, and continuous improvement. So, it depends on commitment to these values. Organisations should assess their current collaborative behavioural skillsets and implement targeted education of senior leadership, procurement and contract delivery teams. That philosophy can be embedded culturally – before pursuing any particular project.

Risk sharing and incentivisation

When suppliers are “incentivised” only to avoid the punitive outcomes that arise from harsh risk allocation, this can drive defensive behaviour. Collaborative models should identify common goals and require more balanced risk sharing, enabling project delivery rather than just protecting liability positions. The personal can be powerful too: even cascading contractual KPIs through individual employee appraisal processes.

The right contract model selection

At its most simple, a collaborative contracting model might involve a simple target cost mechanism, underpinned by real-time contract management.  At its most sophisticated, the model might involve a full alliance with an integrated delivery team, working under a single, multi-party contract. In between the two extremes is a range of more bespoke models, utilising various collaborative tools, positive incentivisation and partnering models. The right model will depend on many factors and one size will not fit all.

The benefit of early contractor involvement

Collaborative contracting is often combined with a period of early contractor involvement (ECI), getting parties working together while there is still considerable opportunity to influence the strategy and direction of the project. Trust built during an ECI period can pave the way for increased collaboration and risk management during construction.

Effective ECI is not without its risks, however. It is not a substitute for clear procurement guardrails. Experience suggests it won’t bail an unprepared procurer out of an incomplete understanding of what it wants and how it wants to get there. In the context of public procurement, it is also a model that can become highly politicised.

Planning your negotiation phase

A longer period of negotiation may be needed, as a collaborative approach is likely to include numerous bespoke elements, ideally with key suppliers who have been assessed for behavioural – as well as financial and technical – competence. The negotiation phase signifies the start of the parties’ relationship and the first opportunity to work together and prepare for a long-term partnership.

Culture and behaviour

Successful implementation needs ongoing commitment to integrate systems, processes and culture to enable “best-for-project” outcomes. Success will be based on strong leadership and a sense of psychological safety for team members, enabling them to speak up and make the right decisions.  Co-located teams, ongoing education and strong leadership support will enable these key people to function and communicate well together.

Governance

The governance structures underpinning the way that the stakeholders work together are of vital importance as they provide the foundations for information sharing and decision making. Collaborative governance is likely to require decisions on shared risks to be made unanimously, by integrated project teams made up of client and supplier organisations, based on high quality and reliable project information.  

Resource management

Contemporaneous management in real time is vital to successful collaborative contracts. This requires a more intensive approach to contract management, and insufficient resourcing will impact decision-making and jeopardise the achievement of the “best-for-project” outcomes. A collaborative contracting arrangement is only as good as its people.

Looking ahead

The adoption of contractual models goes through cycles. In the late 1990s and early 2000s, there was a relatively short-lived spike in interest in “partnering”. The current enthusiasm for collaborative contracting is different. In the UK, the use of target cost mechanics, often using agreements from the NEC suite, is firmly embedded. We expect that to continue to be the pricing mechanism of choice for most major procurements, particularly for civil engineering schemes. Many of the major procurements due to come to market in 2024 are likely to follow this approach.

Other NEC cousins from the suite will continue to be used and adopted for the first time in other sectors – particularly the hinterland between building services and both ‘hard’ and ‘soft’ facilities management. 

Alliancing and enterprises continue to be buzz words, and indeed have become reasonably well established in certain sectors for the right kind of multi-party projects. In 2023, the use of long-term programme-wide collaborative models in both the transport and power transmission sectors was popular, based on the ICE’s enterprise model. The contracting partners agree how projects are to be allocated to smooth turnover and manage risk. Call-off contracts are let on either a cost reimbursable basis or target basis, but incentives are ‘promoted’ to operate at the wider enterprise level. Value for money can be achieved by the authority and contractors contracting on a cost-based model incentivised so that savings are reinvested in further projects.

It is important to get behind labels. Collaboration and inequitable risk allocation or poor project preparation do not make happy bedfellows. As with so many other aspects of contracting, it is a question of ‘walking the walk’ and ‘talking the talk’.

Every project will need to navigate political and economic headwinds, and concerns around affordability and prioritisation of spend is likely to continue to be an issue in the UK as we get nearer to the next general election. However, for strategic projects, collaborative contracting has the potential to deliver great benefits compared to traditional approaches. But it takes skill, commitment, and the right mindset. We wish you the best of luck in delivering projects successfully in 2024.

A longer article containing these themes was first published in the July 2023 issue of Construction Law magazine.