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What To Know When Developing Capital Project Contracts

 

10/27/2021

57 Minutes

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Rob Bryant:
Welcome everybody to our webinar today. The topic of which is what to know when developing capital project contracts. Hello, my name is Rob Bryant. I’m the Executive Vice President for INEIGHT in Asia Pacific. It’s my pleasure to host today’s session. I’m going to be joined by a couple of seasoned experts in just a moment, to cover today’s topic, which is on project contracts, a very topical subject with delays, costume resources at the forefront of everybody’s mind, as well as all being in the knowledge that we’re about to embark on another significant phase of growth and intensity in the industry. Nothing really happens on a project without a contract being agreed and signed, and they provide that reference point to help navigate and set of careers throughout the whole project life cycle and beyond. I think everyone understands clearly just how important they are getting them right, and making sure they’re approached in the right way is something that needs close attention and something that we’re going to get into some detail on in the next hour.

Rob Bryant:
Before we get started, just to cover a few housekeeping issues for you just to make sure you get the most out of today’s session. Let us know that you’re here through the chat box. That’s your opportunity to participate in today by providing some comments and questions as we work through this. Then, we will look to include those as we get through the session and get those answered. Make sure that you stick with us through the duration. We’ll look to get those questions answered towards the end. Also, don’t forget to rate the webinar, very important for us to get your feedback. We are constantly looking for the topics that we understand are at the forefront of everyone’s mind and hitting and resonating with all the things that are you’re conscious of.

Rob Bryant:
Give us your feedback, let us know how this one lands for you and make sure that it’s hitting all the right high notes. Moving along, before I bring our panel on stage let me just get through this part. Here you go. Sorry. I’m with you now. Okay. Good stuff. I’d like to introduce now, our two panel members for today and that’s Jon Davis from the Association of Australian Constructors and Jane Wild. I’ll let Jane and Jon both introduce themselves. Jane’s experience is as a lawyer in this industry and helping to put contracts together. Jon, of course, known to many of you as the CEO of the Australian Constructors Association. Jon and Jane welcome.

Jon Davies:
Thanks Rob.

Rob Bryant:
Jon, if you’d like to just give an introduction for those that may not know you and then Jane, we’ll ask you to do the same.

Jon Davies:
Thanks. Hi everyone. I’m Jon Davis, CEO, Australian Constructors association. My background is not from association world. I’ve lived in this space for a couple of years now, but I’m 30 years working for major contractors in the contracts and commercial space, gathering from the accent originally from the UK, but spent over 10 years in the Middle East and 10 in Singapore. I’ve been here in Australia now for 13 years.

Rob Bryant:
Thanks, Jon. Jane, welcome to you.

Jane Wild:
Hi, thank you. I’m Jane Wild, partner in the construction and infrastructure team at HWL Ebsworth. I’ve had other 16 years advising clients on procurement methods, drafting and negotiating contracts.

Rob Bryant:
Excellent. Like I said, at the top, really looking forward to this one, because it’s such a topical issue and getting both of your perspectives is going to make this all that bit more interesting. I know, as we’ve spoken over the last few weeks, in the lead up to this, there’s no end of current issues that we’re all facing. I think we’re going to get into some real detail and some interesting aspects of contracts and procurement, as we work through this.

Rob Bryant:
Now, to get us started, we did want to run a quick poll and just to see what our audience are thinking in terms of how the issues that affect you are impacting on contracts and the role that contracts can play to help you in your business and your projects. To start that off, if you can each please respond to the following question. What are the most common issues facing contractors and owners when creating contracts? Which of the following do you feel are the most common, the most pressing? Is it the type of contract? Is it the risk allocation, or is it the entitlements that are built into those contracts? We’ll give everyone a chance to take part in that quiz and put your answers in we’ll come back and see what your thoughts are, in just a moment.

Rob Bryant:
But to start things off, really posing the question to both Jon and Jane, what is it that you see happening right now at the tail end of ’21 in terms of contracts and the changes that you’re seeing, that the current trends and how much of that do you feel is a result of the experience that we’ve had through COVID-19 in the last two years, or how much of that may have just been in place anyway, and we’re just starting to see it come to fruition. I’ll pose that question, firstly to Jane, just in relation to what you’ve, what you’re seeing in the structure of contracts and the trends and the common themes that are being discussed at the moment.

Jane Wild:
Thank you. Look, firstly, I’ve decided that I think that COVID was, kind of out of the blue and it was an interesting opportunity to have parties talk about issues outside of the contract because by and large, they weren’t contemplated. But as far as the industry, I’m saying a huge flurry of activity and quite a bit of an issue with supply of materials, particularly I would say source materials. In part that was in trying prior to COVID because of the infrastructure boom that we’re experiencing, but it’s been amplified by supply issues throughout the market.

Rob Bryant:
Interesting that it is those factors then that you’re seeing that have come about, perhaps emphasized by the events at the last two years, things that were already in place, but just amplified by the restrictions and challenges. Jon, from your perspective, I know you’re obviously engaged in representing major contractors across the industry, across the sector. What have you experienced? What’s been your take on things?

Jon Davies:
What we’ve seen, if this is a positive to come out of all of this is that we’ve started to see a rebuilding of the trust deficit that we all recognize in our industry, that lack of trust that exists between all the key stakeholders in our industry. What COVID has done is it’s forced us to come together to address this particular problem. Initially it was, how do we keep construction going? How do we keep projects open and running? We had some very productive discussions there, from contractor perspective with the unions on that front. Then we also had discussions with clients, with other industry clients with, with designers around, how do we actually expedite projects? How do we get some stimulus going? Those discussions have led to a rebuilding of in some instances of relationships.

Jon Davies:
Another area where that has happened is if we look at the industry shutdowns that happened in Sydney and then Victoria, same thing happened there. In both those instances, the government brought together a panel from across industry to look at how do we reopen? You would close the industry down that’s the easy bit, how about trying to get it back up and running again. How do we do that? Again, that was industry associations, unions, government coming together and working really proactively together. I think we’ve got a great opportunity to use that now as a platform for further reform of how we procure and deliver projects in Australia.

Rob Bryant:
I think it’s been evident, isn’t it? Gotten a fair bit of coverage in the media on the challenges in regards to starting projects up and the delays have obviously been a theme for some time now. I guess, some of the really interesting themes that I’d like to explore with both of you is how we can look at and how both parties need to be that owners and contractors need to look at the procurement and contracting models in relation to risks. Some of those risks have been really emphasized through the last two years in terms of delay resource allocation, resource capacity from a skilled labor force point of view. Then also, the way that we go about entering into projects to ensure they have a fair chance of running and being successful in the outcomes and looking at the outcome and the market conditions that exists today and being able to be flexible in regard to those. Any thoughts from you, Jon, to start with on those two factors of risk allocation, as we understand it better and more evidently than before, and also the structures that allow for flexibility?

Jon Davies:
I think importantly, what we need to consider here is that, the government is relying on industry to lead the economy forward after COVID so that the economy is taking a big hit. Economics 101, government spends on infrastructure on the basis every dollar spent on infrastructure, $3 can come to the wider economy. Why is that important? It’s important because now there’s a huge amount of work out there that has to be delivered and, if it is going to be delivered, we need to look at different ways of doing it. We’ve got capability and capacity constraints. But to put it bluntly, we’ve got a situation where contractors can pick and choose what work they undertake and, naturally, contractors are going to be focused on projects where the opportunity to make a reasonable return is high, where the risks are potentially lower. Where things like, how quickly the procurement is likely to take, how much resource is going to be tied up in the procurement process.

Jon Davies:
These are all things that are going to be considered. That’s why what we’re seeing is that, that their clients are naturally in that process moving towards more collaborative forms of contract. But what we’re getting as an association to do is because we’ve seen this before, this is not new. We’ve seem these picks in the troughs and we see contracts and procurement decisions taken, not on the basis of what is the right procurement process for a particular type of job, that the procurement processes as has historically been chosen largely on the basis of whether it’s a contractors’ market or not a contract as market. Constructer’s market, let’s wheel out the more collaborative forms of contract, not a contract as market let’s wheel out the lump sum day and say, full restaurant model. We couldn’t move away from that. We got to use this as an opportunity to refine our thoughts on this, to choose a procurement process based on the particular circumstances and risks associated with the project, not the market cycle.

Rob Bryant:
Good point. I think that’s a really interesting one, particularly as we embark on this next phase of growth, this something as an opportunity to work, to set the scene and set the, set the bar for the next decade of, of contracts and projects that are going to get underway. Jane, now, from your perspective, are you seeing that shift in approach or that understanding from the owner side where you’re representing them? I know you represent both parties in different scenarios, what’s your perspective?

Jane Wild:
Look, I agree with a lot of what Jon says, and I do think that, as we said before, COVID has paved the way for, if not in contract, but in relationship, more collaborative approach. For the first time in my career, I’ve seen parties sitting down and talking about events that haven’t been contemplated in a contract and coming out with a vested project approach, which means, good for the constructor and good for the owner as well. We can talk forever on a diet about different types of contracting alliance, whether that’s appropriate or not. But ultimately the best project is where there’s a good relationship from the outset. I think that what I’ve seen with regards to relationships between owners and compactors during, the COVID period is definitely signaling to me that there is appetite for change. What form that ended up ends up taking, it’s yet to yet to say, but there’s definitely a willingness to work together. Because it seems in everyone’s best interest to have a large pool of contractors or a large pool of wealthy principals and artists to deliver projects.

Rob Bryant:
Right. That’s encouraging, I think, if we are seeing that and every indication is that we are. What is the behaviors that might signify what’s what’s wrong? When procurement isn’t working right, what are the hallmarks of that? And what do we need to look out for, if we are going to get some sustained change in both that procurement process and the behaviors that we want to see. Jane, any thoughts on that topic from yourself?

Jane Wild:
Obviously the wrong form of contract to start with. Then you will often see that in a possible down the supply chain where you’ve got a supplier that’s part of a major project, and their only role is really to supply and sometimes not even install. And they given back-to-back DNC contract and that’s just problematic from many points. The wrong type of contract is an issue or, not enough consideration to the project specifics in choosing the form of contract and, I mean, ultimately you want a roadmap that addresses everyone’s expectations and it’s important to get the document right in the first place, I think.

Rob Bryant:
Very good, Jon, anything that you’d add to that in terms of things that we need to look out for, and then we can obviously talk about the structures that we need to put in place to make a sustainable and a healthy change.

Jon Davies:
I think the biggest issue is that we don’t spend enough time aligning the interests of all the parties before we get going. Construction is viewed as a zero sum game currently, or historically the need to get that outcome. When I’ve got to get that outcome and lose and that doesn’t have to be the way, if we spent some time at the start and saying, “Well, what is it that you’re looking to get out of this? What are we looking to get out of this? How can we draft a contract that aligns our interests there?” I think we’re starting to see a lot of movement towards that and we’re seeing through the construction industry leadership forum, for example, there’s some work being done on trying to come up with a framework that helps all of the parties define value, because currently value unfortunately is viewed through the very narrow lens of lowest possible price currently.

Jon Davies:
Whereas we all know that there are many other things that there constitute value, especially from a government client perspective which could be, things like indigenous content, it could be more broadly local content. It could be increased opportunities for women in construction and a whole range of things. But we too far too often, it’s just the lowest possible price at the tender box is the one that gets the gig. We’re surprised then when the dispute starts soon after.

Rob Bryant:
It’s a common thing. We’re seeing that trend. We often say that the projects don’t fail in the execution, it’s in the planning generally and it’s in the allocations that are made and the consideration that’s given at the beginning of the project and being able to remain agile. But I think it’s probably where those outcomes that are desired by both parties aren’t fully considered. It’s seen in isolation as a cost exercise, rather than looking at that broader value. Jane, from your point of view, what are you seeing in contract negotiation to accommodate and consider value and those other components that go beyond just the typical cost of a project and the deliverables and looking more at the outcomes.

Jane Wild:
I mean the private fee, principals and under, they’re looking to partner with someone that is aligned from a value point of view, whether that’s eliminating modern slavery or whether it’s expertise in a niche area. I mean, I see more and more lower price, not necessarily getting the job, but a relationship getting the job and someone that they feel that they can work through, from, I guess, negotiation through to project delivery to any wrap up at the end. I think it’s much more relationship based than it is adversarially based, which is, how things have evolved in years that I’ve been working in that. I’ve spent a lot of time fighting and defending entitlements whereas now, it’s more trying to, I guess, understand expectations, take your time to eliminate assumptions, unless assumptions form part of the contract, which they often do.

Jane Wild:
Two, from the outfit try and eliminate disputes. That does require documentation of many things. By the sign talking, kind of it’s shyness that there are some risks that you just can’t contemplate and how do we deal with those if they come up again? I think that’s all front of people’s minds. We know how to deal with COVID. We see some good ways of dealing with it, I’m sure Jon sees some very great ways of dealing with it. Certainly in some contracts, you get a very honorous regime that I think, well, no one’s ever going to get any money out of that. I mean, I think at the forefront of my mind now is, what could happen that we haven’t contemplated? Is there some way we can deal with that in a contract now in anticipation of that happening rather than just relying on general principal, I guess easygoing contract that when it comes to fighting over the spoils and how you deal with something like that.

Rob Bryant:
Then agility is a hard thing, I think, too, it seems it’s one of the biggest differences in perhaps where contracts have historically come from and where we need to be to be able to set something out that may be at the beginning of a 10 year engagement, but needs to remain agile and how it accommodates those changing risks and changing situations through the life of that project. From the two different perspectives, from the owner perspective and the contractor’s perspective. If we start with the owners, Jon, I like to ask you this question first, what are you seeing from both owners and contractors, but from the owner perspective to start with, how willing and what examples are there of that accommodation of agility in the contracting process, in the procurement process, are you seeing good examples of that? Are there ones that come to mind and then similarly for the contractors, what are they having to do to change their approach?

Jon Davies:
Good question. Well, I think a good example that I’ve seen recently of something that a client has done particularly well, certainly from a risk perspective will be on Sydney Metro. This was, again, coming back to Construction Industry Leadership Forum. This was a trial with the Construction Industry Leadership Forum. Just for those of you that haven’t heard of that organization, is made up of ourselves, the [inaudible 00:27:50] government. It’s trying to reform how we procure and deliver projects. And then the Sydney Metro, and one of the packages, it was the Western Sydney Airport tunnel installation box package. What they did on that was they had a very collaborative approach, during the tender process to identification of risk and ultimately how that was going to then play out through the contract.

Jon Davies:
Essentially it was a number of workshops. First workshop was all around identification of risk even prior to the EOI being issued, EOI was issued. Contractors were shortlisted further workshop around risk and identification of risk and opportunities to whether it was possible to mitigate any of that risk. Then once that the process had come to an end, it was a case of, well, this residual risk here, who’s the party that’s best able to essentially have that responsibility into the contract, not necessarily manage that risk because we have this conversation, I must admit, I get quite annoyed a little bit about this conversation about risk management, and you hear that line, the person that should be responsible for the risk is the party best able to manage that risk.

Jon Davies:
Well, no, I don’t agree with that because ultimately nine times out of 10, that’s going to be the contractor. They still have to manage the risk. The question is who is the party that should be in a position where they’re wearing the financial risk and managing that particular outcome. Who’s who’s best place to price that risk, not who’s best placed to manage that risk. But anyway, back to the Metro situation, the parties reached an alignment on where risks should lie. The contract was amended to take into account that position the parties finalized the price was made. We’ve obviously got to wait and see the outcomes to that in terms of how that project progresses from a contractual claims perspective. But that was a really good example there, and just to pick up on your second sort of point about contractors, contractors, we are our own worst enemies when it comes to risk where we like the the the alcoholic and the liquor cabinet.

Jon Davies:
If you leave that door open with full of nice risk, we’ll go in there and say, “We can price that. We can do that.” And so we do and then we come to grief and nine times out of 10. We need help with that and we also need to recognize that our willingness to price risk isn’t something that we should be competing on. We should be completing on the positive things, our ability to innovate, our ability to be productive. That is a change in mindset for certain sections of our industry.

Rob Bryant:
That is interesting, isn’t it? Looking at the strengths and the positives of those contractor is giving them a chance to emphasize and play to those, rather than trying to, as you say, accommodate or calculate risk too far or too early on in a project about selling. The value of innovation as you face those challenges, rather than trying to cost them the risk at the beginning. That’s interesting. Jane same question for you, I mean, based on what Jon said, is there anything you’d add from what what are the owners need to do and what can contractors also do to position themselves better and perhaps any examples of where you’ve seen this being done well?

Jane Wild:
I mean, it ultimately depends on the sophistication of the call. I don’t mean that in a sort of smart ass way, but the more experienced project developers understand that passing through, too much risk is just going to add to the contract price. If that’s the way they want to go, then, that’s a way to run a project, but I’m saying a real tie copping the project, early contractor involvement contracts as a precursor to entering into a predominantly fixed price contract at the end. Whilst early on in the [inaudible 00:32:25] might have one or two contractors or potentially three contractors running under an ACI simultaneously with the idea of getting the best price at the end of it, I say more and more picking a partner early on, perhaps having some risk workshops as Jon said.

Jane Wild:
Then, using that ACI phase to reach closer to a fixed place, but more often than not even at the end of that, what they’re getting from the contractor as he says is innovation, is build ability advice. It’s things that add so much more value to the project that I’ll often say a process where it’s intended you’ll end up with a fixed price contract with no pretty much under variations and less directed by the owner. When they’ll get to the end of that process they’ve developed such a good relationship with the builder and the level of trust that they will still allocate certain items that can’t be quantified until you get into the job.

Jane Wild:
I’m also saying recently on another government project where I was actually actually acting for a supplier, where the entity involved contracted me, was prepared to leave site condition risks because there was certainly some site constraints to the particular site until after the contract was entered into. It certainly wasn’t going to give them a full lantern condition entitlement, but it certainly allowed a period of time to do further investigations to understand what was going on. That’s a real move in a positive direction, I think.

Rob Bryant:
Good indications. Got a question from our audience relating to this, asked the question just about implementation of integrated project delivery contracts, where there’s risk that’s high or low and where those benefits and presumably risks, benefits and pitfalls can be shared or essentially sharing that risk. Jon, what’s your take on that on Integrated Project Delivery contracts?

Jon Davies:
Thanks. Good. I’m I’m fully supportive of them. But again, it’s sort of horses for courses. IPD is essentially a development of alliances, the Americans took alliances and so the way we can do this a little bit better and come up with a better name for them and so they call them IPD. But they look very similar to the alliances, but there are some key differences there, especially, one of the big criticisms of alliances in some ways, was one of the things that was championed as being the best things about them, which was the no blame culture. Part of an alliance agreement is a commitment that you essentially won’t sue each other if things start to go pear shaped, but that did have unintended consequences from a point of view of, especially when there’s a lot of alliances happening with ATMs being promised and [inaudible 00:35:21] being delivered, then it could be done about it.

Jon Davies:
I think IPD has addressed some of those issues. I think that IPD absolutely has a place on projects, that there is a high degree of complexity and a high amount of risk, but the issue is the cost and time that goes into setting up those IPDs is fairly considerable. You wouldn’t use them for smaller projects and sorry, one final area where it’s not really coming out of that question, but I think which is really important about IPDs and alliances in general is the opportunity to bind the supply chain into the agreement and to really leverage the innovation from the supply chain on these projects.

Rob Bryant:
Jane, from your perspective, anything you wanted to add on that, what you’re seeing, particularly in that alliance and that integration through supply chain, where that might… you mentioned before about how sometimes it’s inappropriate, but is there anything that you see in those integrated contracts that you’d like to comment on?

Jane Wild:
Yes, not traditionally IPD contracts, but I do still see resharing mechanisms and allowances and cost savings and cost benefits shared in contracts less, now I think. The old traditional guaranteed maximum price would always have an element of sharing at the end of the day, but it’s not quite the same thing. I haven’t seen too many projects delivered under that top of model.

Rob Bryant:
Fair enough. One of the challenges that we’re seeing come through currently is with mega projects and there’s projects that are going on for, to say up to a decade in many cases. A lot changes through the course of that time. What are you both seeing from the point of view of entering into agreements that allow for some review and for both parties to come together at various milestones to essentially reassess risk, to look at what needs to be addressed for the next phase. Why is that mega projects are being accommodated and lessons that are being learned from those outside of more traditional projects that may have tighter defined timeframes and tighter outcomes in terms of deliverables. There’s a lot of variables when you look at a project includes tunneling, bridges, inter-modal connections. Just curious about, it’s not a topic that we’ve really got into in our preparatory, but I just wanted to ask you about that because it seems like an interesting one to me. How do we accommodate mega-projects. I’ll start with Jon and ask that question to you just from a contractor’s perspective.

Jon Davies:
Mega-Projects indeed are difficult by the nature, obviously big, that they usually very risky. They usually in brownfields locations. I’m not sure that there’s a way of introducing some sort of review during mega-projects. I think what we need to look at, there has been some debate about this recently is about breaking those projects up and potentially also to look at programs of work, rather than large packages of work. With programs of work, you absolutely can introduce these sorts of review processes into it. I mean, if you look at the Melbourne Level Crossing Removal Program, for example, theoretically you could have made that one big project, you could have said, this 50 level crossings or whatever to remove and away you go. They didn’t do that, they took a program to approach, that chose essentially a panel of contractors.

Jon Davies:
Those contractors were incentivized to perform not just on an individual basis on a project specific basis around the metrics on that job. But, if you didn’t make the grade in terms of certain metrics, you didn’t go and go into deliver, or have the opportunity to undertake further projects in that. I think that program approach or enterprise approach, it’s also being referred to throw in another sort of name or an acronym here, Project 13 is another example of that, that Sydney Water have implemented where you look at 10 years worth of work, and you come up with a mechanism for driving value across that 10 years of developing partnerships across that 10 years, where there is a review process, regular check-ins as to how well that is progressing. I think that is the way forward. I think mega projects are highly problematic and we should avoid… I probably don’t get shot by any moment for walking into this, but I think if you asked all of our members what their sweet spot is for undertaking projects, I don’t think any of them would put mega projects up there. I think we need wherever possible to try and move away from mega projects.

Rob Bryant:
Jane, any thoughts on that?

Jane Wild:
I was involved on the NBN project which became an unnecessarily mega project. I don’t think it should have been a mega project. From the contractor side as well, which is slightly different for me. But as Jon said, it was again broken up into stages and the work was… Oh, excuse me.

Rob Bryant:
I think you just went on mute there, Jane. There you go. I put you back.

Jane Wild:
One of the big issues in those longer term projects is the continuity of resourcing. Because, obviously we’ve got wonderful document retention and communication facilities now in projects, but the longer the project goes or the chances that the same people that started are going to be there at the end are harder. That continuity and knowledge of the project is so important. I think, where I’m involved in a project that might have a duration of more than a few years, an important piece is a resourcing plan. That doesn’t mean that Jon has to be on the job from day one to day… But there needs to be considered thought as to how all that knowledge is transferred, because, regardless of whether we like to think we’re getting automated, it is a people’s business a lot of the time and you need that continuity and that project knowledge to really make this successful project. Again, I probably share the same view as Jon’s that no one really wants to have a project that’s going to have a life span of more than a few years unless it’s absolutely essential.

Rob Bryant:
Those sub projects is one way in terms of the managed delivery and obviously mitigating risk for both parties, arguably in that way. But then interesting point, you raised Jane around the documentation and obviously retaining that information for continuity through the life cycle and even beyond, because of course, as you both very aware contracts get referred to post delivery, post completion, there’s reference back to those. Being able to understand what’s occurred is so important on that topic. One that obviously an eight are very close to in terms of how those things are documented and how that’s all captured, but what are you both seeing in that space in terms of the willingness and the compliance of owners and contractors to come together in what they’re sharing and how they’re sharing information through the project and how that helps to iron out issues that may otherwise be seen as contractual. Jon, I’m interested to get your take on that first, given your exposure across the contractor sector and what their pattern of behavior is?

Jon Davies:
I think this is a major problem for us, this sharing of information, because our industry has got an appalling record from a productivity standpoint. We look at to do something about that, I mean, we’ve got a 25% gap in productivity growth between us and major industries over the last 30 years. If we could just have that gap, we could be constructing an extra $15 billion worth of infrastructure every single year. That’s three Western Sydney airports, one inland rail every single year.

Rob Bryant:
Wow.

Jon Davies:
How can we do that? Well, one of the two processes that have been around, both have been around for 30 years. I do confess an interest in lean construction, but you have lean construction as a concept, and you’ve got BIM, Building Information Modeling or digital engineering, call it what you will. Both of these are not new. Both of these have been demonstrated to lead to substantial savings projects, savings if implemented, but we still from a digital engineering perspective get excited if we see a 3D model on a computer screen, which has been level 0.5, of scale of one to 10. Why is that? Both of those, lean and BIM digital engineering at their heart rely on open and transparent sharing of information. If you don’t have that, they just don’t work.

Jon Davies:
Unfortunately the contracts that we’ve used historically drive exactly the opposite behaviors, that just drive the behavior of holding onto information, because I can use that potentially against you or to defend a claim from you. Until we get beyond that, we’re still going to be talking about, sorry, I know you’re in a digital and all the rest of it, all these digital type, all these great things that we can do. We’re still going to be talking about, in 30 years time, if we don’t overcome this fundamental problem of open and transparent or facilitating open and transparent sharing information.

Rob Bryant:
I completely agree. I think it’s a challenge we see, and it’s something that at the most innovative, we’re seeing project leaders challenge that we’ve got, I’m pleased to say there are some examples out there. I don’t mind saying, I think at Sydney Water or embarking on that with all the right intent and purpose to create that visibility. But I’m sure none of that team will or might admit it, but it’s a tough road to travel. You’re changing approaches, you’re changing mindsets with an outcome in mind. Jane, what are your thoughts on that in terms of the willingness to provide better visibility and transparency? Are you seeing that being written into contracts? Are you seeing almost anything along those lines of almost a contractual obligation to be transparent? Is there any avenue of hope in doing that?

Jane Wild:
There’s definitely a will. I wouldn’t say that I’m necessarily saying it translates into documents on a frequent basis. I am saying it occasionally. But I think there is a general… I mean, look, again, it depends on your clients, right? Some clients can appreciate the benefit of that transparency and that collaboration and that best of project approach and neutralizing it really to the best of project, not best for me and not best for you, but then I’ve got other clients that are still traditional in their methodology and how they like to go about contracting. It really just depends on the type of project and the type of owner and the stakeholders. If they’re out to ball to, obviously board or stakeholders of another nature, it becomes harder. It may be some of those projects where people are more nimble and flexible. There’s not the need to do something or to have an investment ultimately.

Rob Bryant:
Just listening to your comments before it makes me think perhaps, we’re thinking about, perhaps, the industry thinks about contracting in the wrong way. Is it a question of changing culture to view the contract as as an operating framework rather than a document that acts as a backstop for arguments and, is there an opportunity to develop contracts that really outline how we’re going to behave and work together?

Jon Davies:
Yeah, I think so. Partly, I mean, ultimately a contract serves a purpose, doesn’t it? But what is interesting is that the International Association of Contract and Commercial Managers, IACCM, they rebranded a year ago, I can’t can’t remember what they call themselves these days, but international association, they run a survey every year. And that survey, it surveys clients and contractors on the top 10 most deemed most important contract terms. But interestingly it also survey those same people, what they spend the most time negotiating. It’s really interesting this because what they spent, what they deem as being value is not what they spend, adding value, it’s not what they spend time negotiating all the contractual provisions that deal with what happens when things go wrong.

Jon Davies:
We’re starting from this mindset. I think that ultimately part of the solution, you can’t just sort of write into the contract, well you can, but I don’t think I’m make any difference, a general requirement to open and transparent sharing of information. The issue is everything, sort of generally comes back to the issue of risk and liability and where that lies. If you look at BIM digital engineering, it’s issues around intellectual property rights. It’s things like, if you’re all feeding information into one integrated model, again, what happens when things go wrong? Who picks up the can if the project doesn’t work? Well, all I did was I designed the the, the foundations for it, or the contractor said, “I’m just building what’s in the model.” We’ve got to address those sort of fundamental risk issues to find a way forward, I think.

Rob Bryant:
Right. Jane, what are you seeing? Are you seeing anything in that from what’s been included in contracts or how parties are trying to accommodate that or negotiate that in?

Jane Wild:
I mean, I do agree with Jon, that by and large, 75% is focused on risk issues and when things go wrong, but I do see slowly move towards, perhaps not parties must statue acting good back on anything that unexpected, but when it comes to disputes and resolving disputes, I say a much greater focus on, I guess, a couple of layers of executive discussion, perhaps an overarching obligation to work together, to resolve issues before they become a dispute. I guess in a sense there’s more of a flavor of that. I also, this is by no means generic across all my clients, but I see less of a focus on things like time bars and that’s really punitive draconian measures in contracts and more of a willingness to forge some of those things on the basis that if we’re working together closely, which is the aim and the project, we’re not going to be blindsided, we’re going to know what’s going on.

Jane Wild:
Look, I think there’s definitely a will, as I said, from the outset, or I might not have said that, I thought from the outset, it’s in everyone’s interested interest from an honest point of view to have a pool of solvent innovative builders to choose from to deliver projects. I think that mindset of scoring for the lowest price and passing it all the risk is going through a bit of a transformation and maybe, it’s got a bit of a kick along by COVID.

Rob Bryant:
That seems to be a good point to, to work on and to to start to think about. As we work towards the, the end of this particular conversation I do want to ask you both to make sure you’ve got a full time to answer this question. As we look at the future and we look ahead, you both talked a bit about where you’re seeing the evolution of contracting and procurement models. As a takeaway for our audience, what do you see being the key themes and sort of looking ahead and crystal balling the future of contracts, how do you see those? What do you see being the fundamental elements of those in the years ahead, as we get into the next decade of major project work. Jane, perhaps start that with yourself in terms of the trends you’re seeing and where you think is going?

Jane Wild:
I mean, look, I guess, in the years I’ve been running contracts and advising on contracts, they just seem to get longer and longer and longer. I mean, if I have to take in advising an international projects on a particular contract, I just cannot believe the length of them because, they might come from a European jurisdiction where the contracts really short because you’ve got a civil code, which governs a lot of things. Unfortunately in Australia, we don’t have the construction law like the Corporations Act, it’s made up by the judge so as soon as the case is deleted, someone says, “Okay, we better back then.” They’re getting longer and longer and longer. That’s the first thing. But I would say, I know that Jon and I disagree on this point that I would say don’t shy away from the bespoke contracts, a well-written relatively short planning bespoke contract that is specific to the project could sometimes be the better outcome than one that’s got all the bells and braces of every single risk issue that anyone’s ever encountered.

Jane Wild:
The only thing I would say is, obviously the commercials are very important and the pricing and all that sort of stuff is very important in the project, but don’t leave the contract the last minute. I have seen both sides, be the owner or the principal get backed into a corner because of the urgency to get into the ground effectively. You really lose your bargaining power if you don’t take the time to work through the contract. I mean, I guess that my key point is really actually devote enough time to deal with it and be upfront about what your key concerns are and be prepared to articulate that because people are reasonable if they understand. Although I might be doing myself out of a job, it’s much better to get the people that are delivering the project in a room and don’t leave it just to the lawyers to battle out because the outcome is very different.

Rob Bryant:
I appreciate you saying that, Jane, I think, most people I’m sure would agree. It’s good to have the expertise on hand to advise, but making sure the intent is clear is often a critical thing that can get lost in the clause. Jon, what are your thoughts? Where’s the future of contracting and where do we go from here?

Jon Davies:
As Jane says, we were going a little bit, if what Jane’s saying about bespoke being smaller, I’ve got no idea. Unfortunately the experience tends to be the other way around, but if we could get to that position that then we’ve just resolved a dispute between Jane and I, we do other proliferation contract forms and bespoke forms here in Australia. Certainly for our members that is a challenge for them. We do advocate for greater use of more standardized forms of contract. The reality is here in Australia with the federal nature of our country it’s probably just one notch below we’ll piece in terms of something that’s attainable getting to a national standard form of contract. We sort of have been and do strongly favor the NEC suite on the basis of a couple of things.

Jon Davies:
One, that the way that it is easily understood, the language that is used is easily understood by those that are usually asked to administer it. Also, the fact, we could probably talk all day on this one as well. It has provisions for the client. It has some sort of evenness in terms of how the contract is handled or bit. Really welcome what Jane was saying there in terms of clients moving away from less of an enforcement position or looking to include some of these daily provisions that currently work, that the contractor has to oblige to comply with, around time bars and the like, because what we see quite often is a client’s not doing what they should be doing and administering the contract in a timely fashion with no consequences, which ultimately quite often leads to the problems that we see.

Jon Davies:
I’d love to see a position where the contracts that we, we moved to are not necessarily left in the drawer, but that they are a fallback position that set out the framework rather than the minuature of how we’re going to work together. We do as Jane says, spend really important that we spend more time upfront in working out what it is we’re both trying to achieve. All parties are trying to achieve and drafting a contract that really helps the parties to achieve that.

Rob Bryant:
Very good. I think it sounds as if that’s something that we can, as an industry bring into the spotlight, as we enter the contracting process, to not assume that that form of contract is issued with the tender, is the one that will be accepted, but perhaps to have that opportunity to invite objectives to be achieved through the contract, through the agreement from both parties to have those identified upfront and beyond just the pure deliverables, to say, what are the other objectives that we need to achieve and tick off as we work through this negotiation. It’s certainly an interesting time ahead, but I really appreciate both of your time today to dive into this subject and start to sort of peel back some of the mystery and the frustration that exists around contracting.

Rob Bryant:
I think it’s, it’s always going to be there, and there’s always a lot of risk for both parties. Understanding how to achieve a better outcome seems to be, the least to be the common objective, common goal from both owners and contractors. We’ll just see, I don’t think we have any other questions that have come through that we want to pose right now. But I think there’s a topic here that we can certainly expand on and something that’s worth revisiting as we look ahead, I guess, with a couple of minutes to spare, I’m curious to ask you both in terms of what you’re seeing in the news today from even just an environmental perspective and the obligations that the government is setting out to meet. Have you seen anything in contracts currently that refers to emissions and sustainability, and how does that get accommodated in today’s construction contracts? I think that’s going to be an interesting topic. If it isn’t already written in. Jane, what are you seeing there?

Jane Wild:
Well, they certainly already reporting requirements and on certain major projects, there’s a need to kind of log that type of information. Again, that’s something that, going back to a point in that earlier about being a very small person at the bottom of the end of the big contracting chain in the major project. Some of those obligations, if I get possibly incredibly onerous but as far as anything in response to our recent political movements towards net zero, I haven’t seen anything squarely in relation to that, but perhaps that’s something to look out for.

Rob Bryant:
Jon, I know it fits in with a lot of environment with corporate citizenship, from a lot of contractors where they’ve been getting ahead of the curve in many cases. Are you seeing anything there from either a point of difference that contractors are offering, or if it’s something that owners are asking for in contract obligations?

Jon Davies:
Unfortunately, I think the answer is no, currently. I think we’re following the federal government’s lead on this and doing sweet bugger, not nearly enough. I mean, in the UK, they’ve just announced Construct Zero Construction Leadership Council. What is the industry going to do to meet its short sort of share the burden of reducing carbon? We absolutely can, should do much more. As contractors, we generally do what we’re told. If you tell us to go and build a pink elephant in the field, that’s exactly what we will do. We need to see clients show an interest in that in all valuing that we know it comes back to that place around value. It’s not just lowest price. What are you going to give us in terms of environmental sustainability?

Jon Davies:
Putting a value on that as part of the bid process, but you’ve got to free contractors up to be able to do that. What do I mean by that? We’ve got to see a movement away from these very prescriptive specifications that we’re asked to price against two more performance-based specifications that give us an opportunity to innovate, not just in the space of environmental issues, but in terms of general productivity and other enhancements, we very much have, in a lot of respects, have our hands tied behind our backs with some of this.

Rob Bryant:
It’s a good point. It’s absolutely going to be about value and where both parties really see that coming. A good little point to, to finish on. Well, it, thanks very much to both of you, really appreciate you both providing us with some time and insights today to contribute to this topic. Been very insightful and I think for everyone that’s joined us today, there’s plenty to take away and learn and consider as they approach their next contract negotiation and their next project. Thank you, Jon. Thank you, Jane. Greatly appreciate your time and insight today.

Rob Bryant:
The series that we’ve been running here on an eight webinars is available for you to download it at our website. Please do visit ineight.com and check out the webinars that you can view and see what’s up coming as well, so, ineight.com/webinars, will get you straight to that page. There are a number in the series that are yet to come before we get to Christmas. It’s only a few weeks away, unbelievably, wave goodbye to 2021, I’m sure in 2022, we’ll have lots more of interesting topics to touch on, but until we see you again on one of these webinars, thank you all for joining us today and look forward to catching up next time, Jon and Jane thank you once again.