Collaborative contracts are designed to make the industry less adversarial by encouraging all parties to work together under a project manager. Image generated via Idiogram 2.0 using AI.

“There are so many reasons why things can go wrong,� says Rekha Thawrani, global head of NEC Contracts.

A gloomy sentiment perhaps but, as Thawrani knows only too well, in the world of global construction, it’s an accurate one

According to UK-based disputes specialist HKA, which investigated data on 2,002 major works in 107 countries at the end of June 2024, one of the key reasons why so many projects end up over budget and late is that they start off on the wrong foot with a contract which is later disputed by the people who signed it.

HKA found that contractors around the world are currently locked in disputes over sums totalling US$84.4 billion while the cumulative length of extensions sought spanned 994 years.

Moreover, HKA found that conflicts over the formation or terms of the original conflict � from administrative shortcomings to spurious claims and tender errors � affected 43.2% of the projects it analysed. This rose to 51.9% in the Middle East and 68% in Africa.

“With a lot of contracts, once they’re signed, they go into a drawer, and everybody forgets about them. Disputes are dealt with right at the end when it comes to payment and settling and, well, the courts are full of them,� says Thawrani.

What is collaborative contracting?

Thawrani is one of a growing number of professionals attempting not just to persuade more project owners around the world to adopt standard construction contracts to facilitate an increasingly globalised marketplace, but also to change the entire way the industry works.

Over the past 30 years, engineers, contractors, government officials and industry bodies have been pushing to encourage builders and their clients to work together to get projects built, rather than trying to reduce risk as much as possible and then rushing to law at the first opportunity.

One of the first proponents of ‘collaborative contracting� as it is now known, was the late civil engineer Martin Barnes, the man who spearheaded work on the New Engineering Contract � a standard legal agreement aimed at contractors and their clients first published by the Institution of Civil Engineers in the 1990s.

Barnes was shocked by the common practice among contractors to bid for projects based on the lowest price and then make their profits by claiming huge cost overruns - which in turn led to many big projects ending up in expensive court cases.

Barnes felt that one of the main reasons why builders and their clients were so frequently at odds was that the contracts they were using set out the relationship via a highly transactional model which pitted parties against each other from the outset.

So, instead, he set out to come up with a new type of contract designed to make the industry less adversarial by encouraging all parties to work together under a project manager. He even wrote a stage play on the subject.

The result was the New Engineering Contract � a set of documents which its proponents say is much more than a contract because the whole thing is focused on stimulating good management.

Rekha Thawrani, global head of NEC Contracts. Photo: NEC Contracts

“In order to deliver a successful project, you need a contract that’s fair across all parties so that they work together in the spirit of mutual trust and collaboration. That’s really the foundations of the NEC and it’s in fact the first clause in the contract,� says Thawrani.

Thawrani points out that NEC contracts, now in their fourth edition, include mechanisms such as an early warning system and a risk register encouraging parties to communicate and resolve issues proactively by promoting transparency and a collective responsibility for risk management.

“We’re making sure that trust and respect remains through mechanisms like early warning,� she says. “So, if something goes wrong, as the term says, you must give an early warning. Rather than hiding behind a screen and saying everything’s going well and I’ll deal with it at the end of the project.�

NEC contracts also contain options for key performance indicators, (encouraging collaboration by aligning the objectives of the parties with the overall success of the project) and multi-party collaboration (to support collaborative working across the supply chain).

Since NEC was published in its first form back in the 1990s, the suite of contracts has become the recommended form of contract for the UK public sector and has been used on major UK infrastructure projects including the HS1 rail link between London and the Channel Tunnel, the venues and infrastructure or the 2012 London Olympic Games, the Thames Tideway Tunnel and Crossrail.

Further afield, NEC contracts have been used on venues for the Pan American Games in Lima, the Square Kilometre Array Observatory in South Africa and Australia and Sydney Water’s Partnering for Success A$4 billion infrastructure programme.

Since the NEC’s publication, other standard construction contracts publishers have embraced collaborative style contracts too.

The American Institute of Architects (AIA), one of the most popular publishers of standardised construction contracts in the USA, has been selling standard Integrated Project Delivery documents since 2008 and last year released a new Collaborative Construction Management through requirements for early engagement and integration and enhanced communication and transparency.

Who is drawing up collaborative contracts? 

The American Society of Civil Engineers is also co-sponsoring a new suite of contracts aimed at encouraging collaborative project delivery. They include tweaks such as employing the contractor early in the design process to perform constructability reviews, advise on material availability and selection, assess risk factors and mitigating strategies, develop procurement strategies and organise work into efficient work packages.

The International Federation of Consulting Engineers (FIDIC), the publisher of the FIDIC suite of contract templates, which also publishes standardized construction contracts aimed at international projects and is probably the most widely used standard contract form for international construction projects, is currently finalising a new suite of collaborative contracts.

Separately, lawyers have also been drafting separate ‘alliancing� agreements, such as the Framework Alliance Contract FAC-1 published by Kings College London, which aims to sit on top of existing contract awards on a complex project by setting out agreed processes to force teams to work together better.

Thawrani says that the uptake in NEC contracts has directly led to a reduction in the amount of litigation going through the courts arising from disputed contract terms.

“One thing we’re really proud of is that, as a standard form of contract, NEC, to our knowledge has not been in any major litigations,� Thawrani says. “It has had litigation in case history where the client has amended the NEC core clauses, but because any disputes are dealt with throughout the project by an adjudicator, it doesn’t get to that stage.�

NEC was used by the UK Olympic Delivery Authority to deliver the construction programme for the venues and infrastructure required to host the London 2012 Olympic Games. The programme was delivered within budget and ahead of schedule. Photo: Adobe Stock

However, this ignores a number of high-profile legal cases which have come to the courts using amended versions of the contract such as Costain v Bechtel (2005) regarding a dispute over the administering of a contract for works on the Channel Tunnel Rail Link.

Moreover, despite the adoption of collaborative work practices and contracts, construction projects overall do not appear to be any more likely to stick to their budgets or schedules � or to be any more likely to avoid disputes.

HKA, which has been analysing its database of disputes on major construction projects around the world for the past five years has seen the total value of disputed amounts increase from US$48.6 billion in 2020 to US$91.3 billion in 2023 before dipping slightly in 2024 to US$84.3 billion. And the total amount of time asked for in extensions has increased from 600 years in 2020 to 994 years in 2024.

One of the most high-profile projects currently being built under NEC is the UK’s HS2 high speed rail link which was initially designed to connect London with Leeds and Manchester but has been scaled back due to massive cost overruns.

Last year the UK government announced it was “reinstating ministerial oversight of the project to ensure greater accountability,� adding that it was reviewing the incentives of the main HS2 contractors which could lead to some contracts being “renegotiated or amended.�

Yet, proponents of collaborative contracts argue that if truly collaborative practices can be allowed to bed in, the built environment as a whole will reap the benefits.

Are collaborative contracts effective?

“This debate over collaborative contracts is not new. The reason it has not made progress is that although collaborative contracts have been shown to be an engine room for delivering better, safer, faster and greener projects, they have to have solid foundations,� says David Mosey, professor of construction law at King’s College London, the principal author of the FAC-1 alliance contract.

Speaking at the CICA-EIC Conference in Paris in November, Mosey argued that projects must start on a collaborative basis from the very beginning, with a procurement strategy ensuring that the contractors are selected, not on lowest price but by assessing proposals for improved quality, efficiency, safety, risk management, social value and net zero. Then, he says, projects can benefit from their expertise and contractors themselves can learn how to improve efficiency from one project to another and implement changes.

“If we rely on slogans like good faith or no blame or win-win, it sounds very nice but it isn’t very clear. Outside the room is cynical criticism. People working in high risk, low margin, dangerous environments are not easily persuaded by big words and are easily put off if they’re talked down to and told what to do in ways that aren’t clear,� he says. “Despite the logic of a different approach, people revert to the logic of a finance director somewhere saying get me the lowest price or a design consultant saying I don’t want to see the contractors until they’re on site.�