Guide on Collaborative Contracting in the Construction Industry

Singapore Academy of Law

Law Reform Committee

January 2022

ISBN 978-981-18-3276-5 (softcover)

978-981-18-3277-2 (e-book)

Guide on Collaborative Contracting in the

Construction Industry

LRC Cover_Main.indd 1LRC Cover_Main.indd 1 1/4/2022 10:02:03 AM1/4/2022 10:02:03 AM

Guide on Collaborative

Contracting in the Construction

Industry

January 2022

form without the written permission of the copyright owners except in accordance

with the provisions of the Copyright Act or under the express terms of a licence

granted by the copyright owners.

Authors and Members of the Building and Construction

Subcommittee

1. Paul Sandosham (chair)

2. Lynette Chew

3. Wilbur Lim

4. Ming Ming Looi

5. Linda Low

6. Eugene Seah Hsiu-Min

7. Melvin Chan

8. Sathia Jagateesan

9. Soh Lip San

This guide was edited by Premjit Singh, Deputy Research Director, Singapore

Academy of Law.

An electronic copy may be accessed from the Singapore Academy of Law website

https://www.sal.org.sg/Resources-Tools/Law-Reform/Law-Reform-e-Archive.

National Library Board, Singapore Cataloguing in Publication

Data

Name(s): Sandosham, Paul R. | Chew, Lynette, author. | Lim, Wilbur, author. |

Looi, Ming Ming, author. | Low, Linda, author. | Seah, Hsiu-Min Eugene,

author. | Chan, Melvin, author. | Sathia Jagateesan, author. | Soh, Lip San,

author. | Premjit Singh, editor. | Singapore Academy of Law. Law Reform

Committee, publisher.

Title: Guide on collaborative contracting in the construction industry / authors,

Paul Sandosham, Lynette Chew, Wilbur Lim, Ming Ming Looi, Linda Low,

Eugene Seah Hsiu-Min, Melvin Chan, Sathia Jagateesan, Soh Lip San ; edited

by Premjit Singh.

Description: Singapore: Law Reform Committee, Singapore Academy of Law, [2021]

Identifier(s): ISBN 978-981-18-3276-5 (softcover) | ISBN 978-981-18-3277-2 (ebook)

Subject(s): LCSH: Construction contracts--Singapore.

Classification: DDC 343.5957078624--dc23

ISBN 978-981-18-3276-5 (softcover)

978-981-18-3277-2 (e-book)

About the Law Reform Committee

The Law Reform Committee (“LRC”) of the Singapore Academy of Law makes

recommendations to the authorities on the need for legislation in any particular

area or subject of the law. In addition, the Committee reviews any legislation

before Parliament and makes recommendations for amendments to legislation (if

any) and for carrying out law reform.

Comments and feedback on this report should be addressed to:

Law Reform Committee

Attn: Law Reform Director

Singapore Academy of Law

1 Coleman Street

#08-06 The Adelphi

Singapore 179803

Tel: +65 6332 4070

Fax: +65 6333 9747

Email: [email protected]

TABLE OF CONTENTS

Guide on Collaborative Contracting in the Construction Industry .................................... 1

Summary Note .......................................................................................................................... 1

FAQ on Collaborative Contracting in the Construction Industry ....................................... 2

1. What is collaborative contracting for construction projects? ................................. 2

2. Are there different models of collaborative contracting? ......................................... 3

3. What kind of projects are suitable for collaborative contracting? .......................... 5

4. What are the advantages of collaborative contracting? ............................................ 5

5. What are the disadvantages and risks of collaborative

contracting? ..................................................................................................................... 6

6. What are the key requirements for collaborative contracting to

work well? ........................................................................................................................ 7

7. What are the inhibitors to collaborative contracting? .............................................. 8

8. Has collaborative contracting been adopted in Singapore

projects? ........................................................................................................................... 8

Guide on Collaborative Contracting in the Construction Industry

GUIDE ON COLLABORATIVE CONTRACTING IN THE

CONSTRUCTION INDUSTRY

SUMMARY NOTE

The collaborative contracting model has been successfully implemented,

particularly, in public sector projects in various countries, including, the

UK, USA, Australia and Hong Kong. This model is intended to address

problems typically associated with the traditional contracting model that is

used in Singapore. These FAQs are intended to provide a primer to and

raise awareness on the collaborative contracting model. It is hoped that

project participants will consider the adoption of this model for suitable

projects and reap the benefits from its successful implementation.

Guide on Collaborative Contracting in the Construction Industry

FAQ ON COLLABORATIVE CONTRACTING IN THE

CONSTRUCTION INDUSTRY

1. WHAT IS COLLABORATIVE CONTRACTING FOR CONSTRUCTION

PROJECTS?

It is a contracting model based on the recognition that there can be mutual

benefit for a project owner and project participants from a more

co-operative working relationship. Collaborative contracting arose out of a

desire to address problems often faced in traditional contracting, including:

(a) Misalignment of commercial interests: Traditional fixed price

contracting can create incentives for project participants to

act in a manner that is contrary to the interest of the project

and/or the project owner. For example, where there are

changes to the design, project participants may charge higher

prices for the extra work because it is usually not practical for

the project owner to competitively tender such additional

work.

(b) ‘Blame game’: In traditional contracting, delayed or defective

performance by one participant typically excuses the other

participants from strict compliance with their obligations. As a

result, when things go awry, it is in the personal interest of the

participants to blame each other rather than collaborate to

solve the problem together.

ultimate aim of generating profits, project participants

engaged under traditional fixed-price contracts will try to

minimise costs to maximise profits. Accordingly, project

participants are financially motivated to do no more than is

minimally required of them. For example, where the project

owner engages a contractor under a fixed-price, build-only

contract, and the design is found to be defective during the

construction process, the contractor has no financial

incentive to suggest a construction solution that will solve the

design defect, if such a solution will increase its costs without

a corresponding increase in its fixed fees.

Collaborative contracts incorporate features designed to overcome the

above problems which are associated with traditional contracting. These

features can include:

(a) contractual commitments that expressly require parties to

cooperate, act in good faith and in the spirit of mutual trust

and confidence;

(b) early warning and risk management mechanisms designed to

give early warning to the other participants of potential issues

Guide on Collaborative Contracting in the Construction Industry

which may arise, so that solutions can be discussed and

agreed before the issues escalate;

project participant to act in a way that is better for the overall

project;

(d) agreement between parties to waive the respective right to

sue each other for breach and negligence;

(e) governance arrangements that facilitate joint decision making;

and

(f) pro-active project management involving all project

participants.

(g) pain share – gain share arrangements

A collaborative contract does not necessarily have to incorporate all of the

above. Parties are free to choose the model of collaborative contracting

which matches their desired level of risk-sharing and cooperation.

2. ARE THERE DIFFERENT MODELS OF COLLABORATIVE

CONTRACTING?

Yes. The various models of collaborative contracting differ depending on

the extent of risk-sharing and cooperation. On the one end of the spectrum,

the partnering model has a lower degree of collaboration and risk-sharing

whereas the project alliancing model has a high degree of collaboration and

risk-sharing, including the adoption of a ‘no-fault’ clause whereby parties

agree to forfeit their legal rights to sue another party for any breach or

negligence.

Partnering

Engineering,

Procurement

and

Construction

Management

(EPCM)

Project

Delivery

Partner

Project

Alliancing

Contract

structure

Traditional

contract coupled

with a non-

binding

‘partnering

charter’. This

charter will set

out guidelines on

how parties

should conduct

themselves in the

partnership to

create an

environment of

EPCM contractor

is principally

responsible for

design and to

manage project

implementation.

Owner may

directly contract

with other

consultants and

downstream

contractors or

EPCM contractor

may contract

Owner engages

one or more

delivery partners

and directly

contracts with

consultants and

contractors

Owner,

consultants and

contractor(s),

enter into a single

multi-party

agreement

Guide on Collaborative Contracting in the Construction Industry

trust, openness,

and collaboration

with them as

agent for the

owner, under the

owner’s close

control

Time risk

Similar to a

traditional

contract,

partnering

contractor has a

‘hard’ obligation

to complete by a

completion date.

Liquidated

damages

recoverable from

partnering

contractor for

delayed

completion

EPCM contractor

has a ‘best

endeavours’

obligation to

complete by a

completion date.

Owner can

recover actual

losses flowing

from delayed

completion if it

can be shown

that EPCM

contractor has

not tried its best

to achieve timely

completion.

Owner can also

recover

liquidated

damages for

delayed

completion

against

downstream

works

contractors, if

engaged directly

Similar to EPCM

contractor,

delivery

partner(s) has

‘best endeavours’

obligation to

complete by a

completion date.

This obligation is

complemented

by gain

share/pain share

payment for

early/delayed

completion

Target date for

completion is

supported by

gain share/pain

share payment.

No-fault clause

whereby project

participants

forfeit rights to

claim against one

another for

delayed

completion

Remuneration

regime

Similar to

traditional

contracts, may be

in the form of a

fixed-price lump

sum or re-

measure.

Fixed price fee

for services and,

if engaged

directly by EPCM

contractor,

reimbursement

for downstream

contractor and

consultant costs.

May include gain

share payment

for value

engineering

Fixed price fee

for services,

reimbursement

for direct costs,

and gain

share/pain share

payment linked

to achievement of

pre-agreed KPIs.

Fixed price fee

for services,

reimbursement

for direct costs,

and gain

share/pain share

payment linked

to achievement of

pre-agreed KPIs.

Risk of defects

Similar to

traditional

contracts

whereby

Partnering

contractor

assumes full risks

of defects.

EPCM contractor

typically only

accepts

responsibility to

exercise due care

and skill in

carrying out

design. Owner

has recourse for

defective

workmanship

Owner has direct

contractual

relationship and

legal recourse

against

downstream

contractors and

consultants for

defects.

All participants

are responsible

for defects, as

reflected in the

gain share/pain

share payment

structure. No-

fault clause

whereby project

participants

forfeit rights to

Guide on Collaborative Contracting in the Construction Industry

against

downstream

contractors if

engaged directly

or through

collateral

warranties if not

engaged directly

claim against one

another for

defects

3. WHAT KIND OF PROJECTS ARE SUITABLE FOR COLLABORATIVE

CONTRACTING?

The type of projects that are suitable and would benefit the most from

collaborative contracting typically have some or all of the following

characteristics:

(a) scope of work is subject to significant change after project

commencement;

(b) scope of work is complicated by technical and/or stakeholder

issues which render it difficult to allocate risk and/or sensibly

price for such risk at the time of tendering;

concurrently;

(d) works would benefit significantly from innovation and risk-

taking by project participants;

(e) project owner has technical expertise and experience such

that project owners direct and hands-on involvement will

benefit project; and

(f) the project is sufficiently large and complex to justify the time,

costs and resources that would have to be deployed towards

establishing the joint project monitoring, management and

decision making protocols and procedures associated with

the collaborative model.

4. WHAT ARE THE ADVANTAGES OF COLLABORATIVE

CONTRACTING?

The advantages of collaborative contracting turn on the model of

collaborative contracting employed and the degree of risk-sharing and

collaboration involved. Broadly speaking, the practical benefits to be

gained from successful collaborative contracting can include the following:

(a) Encourage innovation: In traditional contracting, it is often the

case that parties would push blame to other project

participants when things go wrong. The inclusion of a ‘no

fault’ clause removes the incentive to resort to such tactics

and motivates participants to take risks in pursuit of increased

efficiency.

Guide on Collaborative Contracting in the Construction Industry

(b) Potential cost savings from early risk management:

Collaborative contracts may deliver projects at a lower cost

than traditional contracts. Early risk management mechanisms

in collaborative contracting allow potential issues to be

managed collaboratively at an early stage, resulting in

significantly less time and cost impact if the risks do

eventuate. This may result in lower cost for the project owner

compared to if the contract had been a fixed-price traditional

contract, as the contractor in the latter case may have

accounted for the risk by pricing premiums.

fault’ clause or establishing an independent disputes board to

manage dispute avoidance and early resolution of issues

caters for a non-adversarial way of resolving conflict. This may

reduce the costs associated with adversarial dispute

resolution, for example, by reducing the internal costs

associated with adversarial contract administration which

requires the keeping of a detailed paper trail to prepare for

the parties’ respective positions in the event a dispute does

arise and engagement of claims consultants and lawyers.

(d) Flexibility: The collaborative contracting model allows the

contract and parties to adapt easily to changes that become

necessary on large scale, multi-disciplinary projects by

enabling parties to effectively collaborate to tackle

complicated design and technical issues which may not have

been anticipated at the outset of the project.

5. WHAT ARE THE DISADVANTAGES AND RISKS OF

COLLABORATIVE CONTRACTING?

The disadvantages and risks of collaborative contracting also depend on

the degree of risk-sharing and collaboration involved. The potential

disadvantages and risks of collaborative contracting can include:

(a) Potential ramifications of the ‘no fault’ clause: In a

collaborative contracting model where the entitlement of each

non-owner participant to its gain share/pain share payment

depends on the performance of other participants, any

defective or non-performance by a party will lead other

participants to suffer financial loss. Where there is a ‘no fault’

clause, the other parties may not have any recourse against

the non-performing party.

(b) Difficulties with traditional insurance policies: In standard

insurance policies, when an insurer pays for a claim, it

typically has the right of subrogation to step into the shoes of

the insured party to seek recovery from the participant whose

actions caused the loss. However, in collaborative contracts

where there is a ‘no fault’ clause, parties will not have legal

Guide on Collaborative Contracting in the Construction Industry

recourse against the participant who caused the relevant loss.

Therefore, traditional insurance products may not be a good

fit for certain collaborative contracting models. Tailored

policies which are designed to address the risks of

collaborative contracting would be required, which may be

more costly than traditional policies.

project owners may potentially derive cost savings, there is no

guarantee that collaborative contracting will deliver a project

at a lower cost compared to traditional contracting. For

example, defects may reduce the non-owner participants’ gain

share entitlement, it is not necessarily the case that such

reduction will cover the costs incurred by the owner to rectify

the defects where there is a no-fault arrangement.

6. WHAT ARE THE KEY REQUIREMENTS FOR COLLABORATIVE

CONTRACTING TO WORK WELL?

The key aspects that underpin successful collaborative contracting include:

(a) Aligned goals: Collaborative contracting works well where

there are aligned objectives, and where all parties commit to

work towards these objectives by acting collaboratively and in

good faith.

(b) Open communication: Parties should be able to work together

effectively and efficiently based on mutual respect and

honesty. Parties should share information openly, and a

regular forum for communication between all parties is

encouraged to build and maintain an efficient team.

avoidance and resolution procedure should be set up to

encourage collaborative problem solving over the use of

adversarial methods. Examples include: early risk

management measures to enable parties to discuss and deal

with potential issues before it escalates, establishing an

independent disputes board at the outset of the project to

facilitate dispute avoidance and resorting to non-adversarial

dispute resolution methods, such as, mediation.

(d) Collaborative mind-set: When setting up collaborative

contracts, all participants should be guided to embrace the

philosophy of collaborative contracting – i.e., that a more

cooperative relationship can lead to mutual benefits in the

wider and longer term. Participants should work to embrace

the mind-set of collaboration and reduce tendencies to use

legal swords and shields.

Guide on Collaborative Contracting in the Construction Industry

(e) Trust: Trust is a cornerstone for collaboration and parties

should channel time and effort towards building trusting

relationships.

7. WHAT ARE THE INHIBITORS TO COLLABORATIVE

CONTRACTING?

(a) Lack of familiarity: Collaborative contracting is an unfamiliar

concept for many parties in the construction industry in

Singapore. Parties may be resistant to step out of the ‘comfort

zone’ of the more familiar traditional contracting and embrace

a different contracting model.

(b) No change in mind set: Successful collaboration entails close

co-operation between the project owner and all project

participants as they work towards the best interests of the

project. This requires a change in the mind set of parties more

used to traditional contracting where the focus is on parties

acting to protect their own interests rather than the interests

of the project.

project participants may be sceptical of each other’s

intentions and actions, especially where they are involved in a

project for the first time. Parties may be reluctant to invest the

time and effort needed to build trusting relationships. Project

owners may not be prepared to share control and decision-

making powers with other project participants.

(d) Lack of commitment: There must be sufficient incentives for

all project participants in achieving successful project

delivery. Where KPIs and gain share/pain share payment

structures do not sufficiently incentivise project participants,

there will be a lack of commitment to performance and

collaboration towards the successful delivery of the project.

8. HAS COLLABORATIVE CONTRACTING BEEN ADOPTED IN

SINGAPORE PROJECTS?

Yes. Collaborative contracting has been adopted in Singapore projects, for

example, in the Punggol Digital District Project. The Building and

Construction Authority has introduced an Option Module E (Collaborative

Contracting) to the Public Sector Standard Conditions of Contract

(PSSCOC), which may be adopted in addition to the PSSCOC terms. The

collaborative principles in Option Module E include, establishing:

(a) a collaborative working relationship whereby the Employer

and the Contractor will use best endeavours to work together

and act in a spirit of mutual trust and cooperation;

Guide on Collaborative Contracting in the Construction Industry

(b) a set of Key Performance Incentives (KPIs), the achievement of

which will be monitored and, if achieved, will entitle the

Contractor to specified bonus payments;

Superintending Officer) and the Contractor to promptly notify

each other of any matter that could cause time or cost

overruns or have an adverse impact on the performance of the

works or KPIs and to work together to mitigate the adverse

effects of such notified matters; and

(d) a dispute board based on the Singapore Infrastructure

Dispute-Management Protocol 2018 to facilitate dispute

avoidance and early resolution of disputes.

Singapore Academy of Law

Law Reform Committee

January 2022

ISBN 978-981-18-3276-5 (softcover)

978-981-18-3277-2 (e-book)

Guide on Collaborative Contracting in the

Construction Industry

LRC Cover_Main.indd 1LRC Cover_Main.indd 1 1/4/2022 10:02:03 AM1/4/2022 10:02:03 AM