“It’s on the rise because these projects that are coming to market now are so big. In many cases, it’s probably not possible to do those under the traditional contracting models,” says Van Deurzen, who advises clients on commercial agreements for the design, construction, financing, operation, and maintenance of infrastructure and public-private partnership projects (P3s) in Canada and the US.
Collaborative contracting is best suited for the biggest and riskiest projects. In contrast, he says that contracting models such as P3s and design-build-finance-operate-maintain (DBFOM) are more appropriate for smaller and less risky projects.
“This isn’t the solution to every project. It’s one tool in the toolkit for procuring major infrastructure projects. There is still scope for other contracting models.”
The collaborative process’s joint governance structure involves multiple management teams to decide by consensus on day-to-day issues, strategic matters, and to troubleshoot the problems as they arise, according to an article Van Deurzen wrote with Torys colleague Krista Hill. When consensus is impossible, a vote of the executive board or senior management team decide the matter, and there are certain issues on which the owner will retain the power to decide or override a vote, said the authors.
Van Deurzen and Hill write that parties will devise a “risk/reward-based payment mechanism” in collaborative contracting to incentivize a collaborative spirit and “cost and schedule discipline.” Parties receive base costs, but a portion of the contract price goes into “risk/reward pools” to fund arising issues. At the project’s completion, the remainder of the pools are divided among the project delivery partners.