Construction Columns: Collaborative building contracts to get what you want

Welcome to Construction Columns! In each edition of Check-In, we will touch upon a range of construction-related topics to help improve the success of your construction projects. 

Developing or redeveloping a hotel or other hospitality/leisure asset is becoming increasingly challenging. Just think of a redevelopment of a historical building in a busy city centre, dealing with a range of contractors and suppliers in an operational hotel, and the increasing relevance of having a ‘green’ & ‘tech-savvy’ building. The Hotel, Hospitality & Leisure sector works with closely monitored profit margins and strict deadlines. That means it is more important than ever that you get what you want. In this Construction Column we will look at how collaborative building contracts can help you with achieving your goal. 

In the Construction Column of November 2021, we looked at the definition of a successful (re)development project of a hotel or other hospitality/leisure asset. To be a success, a project must be completed:

• on time
  
  
• within budget
  
  
• in line with the specifications
  
  
• without disputes

The challenges mentioned in our introduction above illustrate some very specific challenges that can occur during the development or redevelopment of a hotel or leisure asset. 

Traditionally the focus with building contracts is to divide and allocate tasks and risks. Through such an approach the interface between parties is decreased and each party knows upfront what is expected from them. However, the challenges mentioned above are all characterised by the fact that neither the developer nor the contractor can successfully tackle these without the involvement of the other party, and that the solution may only be identified at a far advanced design phase. Adding to the complexity is that nowadays it is not uncommon with such assets to work with a multi-contractor approach. Rather than having one single contractor acting as general contractor and being the main point of contact, the developer may actively choose a multi contractor approach or be forced by the current market circumstances to do so. 

Consequently, for construction projects facing one or more of the challenges mentioned above, traditional contracts might not be the best route to help deliver a successful project. This is giving rise to the development of collaborative contracts: contracts that seek to improve the engagement, active communication and collaboration between the developer and the contractors. 

Collaborative contracts, sometimes also referred to as relational contracts, often include one or more of the following elements: 

1. Applying early contractor involvement (ECI) during the design stage:
   
   
   1. This will improve the knowledge of contractors & suppliers and allow them to do research before starting construction, therefore improving the chance of success.
      
      
   2. This can allow for further optimisations (i.e. from price, safety, sustainability, planning or technical perspectives).
      
      
   3.  This can ensure that the price finally agreed upon with the contractors & suppliers is a good reflection of the actual costs, rather than a ‘guesstimate’.
      
      
   4. This will allow the developer to weed out any contractors & suppliers who are not up for the job before having them starting the works (should they be uncooperative, not-proactive, unknowledgeable etc.).
      
      
2.  Applying a joint risk and decision-making process throughout the project.
   
   
3. Applying collaborative contracting throughout the project:
   
   
   1. A collaborative contractual model adopts the view that the contract not only needs to describe the goal but also needs to describe how that goal is to be achieved, thereby giving the developer a more active role. This is not only a legal tool but also a project management tool.
      
      
   2. It ensures that parties continuously communicate, align, are aware of the process, are on the lookout for issues & solutions (even if these do not relate to their own work package) and hold each other accountable (especially in a non-legal manner). Therefore, it is geared towards mitigating (interface) risks.
      
      
   3. Relevant partners (incl. parties responsible for operating the hotel, if these are not the developer) need to have an active role here.
      
      
   4. It ensures involvement of the chain of suppliers & contractors (as these are often the answer to problems, and sometimes also the cause thereof).

Bird & Bird have extensive experience with such contracts, and in drafting new model contracts. However, the thinking behind such collaborative contracts is still developing. Bird & Bird are contributing to the development of an international standard collaborative contract through our partner Andrea Chao’s role as chair of Task Group 17 of FIDIC: the Task Group tasked with the development of such contracts for the FIDIC Contract Suite. If you want to contribute and share your views on this topic from a hotel, hospitality & leisure sector perspective, please be invited to fill in this survey regarding such contracts as recently launched by FIDIC (deadline: 31 March 2022).

If there are any specific topics you would like to see discussed in this column, please do reach out to us.