Large construction projects present unique contracting challenges, given the complex integration of technical scope, global supply chains, multiple stakeholders, and challenging site conditions, to name a few. While, in all cases, predictable outcomes require effective owner/contractor collaboration, this may be hindered by contract terms and conditions, preconceived mindsets and behaviors, and suboptimal work processes.
Among the many opportunities to revolutionize productivity, a McKinsey survey showed collaborative contracting and technology to be among the levers with the greatest potential impact. Research shows that early adopters of collaborative contracts are seeing improvements to project outcomes with an average of 15 percent schedule improvement and 18 percent cost improvement on a representative set of collaborative contracts. While increased collaboration has been the goal for years, the theory remains stronger than the practice.
On March 03rd, we hosted a peer-to-peer roundtable discussion with senior leaders serving as owners, contractors, and other professionals in the Gulf Cooperation Council (GCC) construction sector. The goal was to explore the latest research and identify tangible steps to increase collaboration across the eco system. The key themes that surfaced from the GII Dubai roundtable are summarized below:
- Collaborate to improve outcomes in a tough market. The GCC construction industry is in dire straits—contractors continue to struggle in a non-collaborative environment, budgets are constrained due to the drop in Oil & Gas revenues and COVID-19 which has resulted in many exits and liquidations. An unhealthy and uncollaborative contracting market will inadvertently translate into undesirable project outcomes for owners.
- Increase agility through deeper collaboration. To counter the rapid rate of change—evolving market dynamics, changing customer preferences, increasing stakeholder expectations, and technology—increased agility is essential to navigate projects, especially those with long project development lifecycles. Traditional contracting models do not cater well to dealing with change and often result in lose-lose situations. Only through deeper collaboration across the project ecosystem can the necessary agility be realized to respond quickly and aptly.
- Overcome the barriers to collaboration and get started. Owners and contractors recognize the imperative for change but are cautious to make the first move. Several owners have been exploring new collaborative models but, when it comes to implementation, are hesitant to reset the project stakeholder risk profiles and roles. Others are uncertain on where to start and feel the need to first get their own house in order. Contractors are hesitant to invest upfront with little certainty of seeing a return and often struggle with making the case for exclusivity while maintaining competitiveness. To change the status quo, owners and contractors will need to make bold moves and test new collaborative models.
- Implement with leadership from owners and a true partnership spirit from contractors. To get started, owners must initiate, commit to, and drive the collaborative effort. This will require real commitments—for example, long-term frame agreements, formal partnership agreements—and a departure from the process-driven transactional procurement approach which invariably leads to lowest price wins. Public sector owners—with a healthy long-term pipeline—and private sector developers delivering at scale are key to making this change by coinvesting with contractors. Adopting a collaborative and technology-driven approach to improve productivity, reduce waste, and jointly reap the benefits of a healthier ecosystem will benefit all stakeholders. Similarly, contractors have much to offer and should be willing to put skin in the game—ranging from equity or upfront investment in the front end of projects to sharing of expertise and technology.
- Select the right pilot project to get started. Improving collaboration is a long journey requiring radical transformation that is likely to be met with resistance. Therefore, starting with small pilot projects and demonstrating early wins is important. Moving on to complex projects that require early collaboration and longer runways will provide teams the opportunity to learn and grow together, thereby benefitting from continuous improvement cycles. Projects where the conditions of success are more tangible, or have elements of replicability, are also good options to get started.
- Invest time upfront to select the right partners and build a one-team spirit. Selecting the right partners and building a compatible project team, with the capabilities and culture to succeed, is a critical success factor for collaborative project delivery. In practice, this can and should be addressed on multiple fronts—for example, early involvement of all parties in the design phase, coinvesting in technology platforms, and embracing lean principles—and fosters collaboration and trust during project development and execution. The collaborative contract then only serves to formalize this new way of working
- Educate the industry towards a more collaborative approach. There are many barriers that constrain a project’s ability to pursue collaboration, including an antagonistic culture, fixed mindsets, lack of transparency, or long-standing procurement practices. The region experiences a large share of public sector projects and the procurement policies are seen as restrictive and counter collaborative. The industry needs to come together to tackle this challenge by educating stakeholders of alternative approaches, changing perceptions, and redefining regulation.