How to make collaborative procurement work

Public-sector owners worldwide have been slow to accept collaborative procurement as a viable option for contracting complex infrastructure, as the first article in this series discussed. But increasing complexity and uncertainty are forcing them to accept that traditional approaches are no longer sustainable, opening the door to more collaborative options.

To collaborate successfully, public-sector owners need the organisational capability to select, establish and administer suitable contracts. This needs the right skills, governance processes, partners, agreements – and, importantly, the right culture. Presently, owners' capabilities in these areas are aligned to the traditional approach.

Yet the need for collaboration on complex projects remains; the lesson that should be learned is that collaborative procurement works, but only when it is properly implemented and supported. Obtaining advice from those who have successfully taken this approach could benefit owners before they set off down this path.

With traditional procurement, the parties' relationship develops directly from the risk allocation philosophy, which on complex projects is invariably adversarial. With collaborative procurement, the opposite is usually true: establishing a relationship for working effectively on the project becomes the primary aim, so the procurement process and contracts are structured to support this.

There are many other dynamics to consider too, some of which may hold the desired relationship back. For example, contractors with the necessary collaborative skills and processes may not exist in the construction industry where the project is located – for example, most contractors in West Asia have very limited experience of collaborative procurement. In such cases it still makes sense to identify the optimal relationship for successful project delivery, this allows the effect of any necessary constraint to that optimal relationship to be understood, planned for and managed.

Flexible, collaborative contract options have been developed allowing for the procurement route to be adapted to the particular circumstances. However, caution is still necessary because the options, although labelled as collaborative, may not achieve what is advertised.

The record of the traditional approach shows that the parties' failure to align themselves commercially restricts this decision-making because it promotes self-interest when decisions need to be made. Therefore, selecting a lump-sum contract with a partnering or collaborative clause for a complex project, while better than nothing, is likely to change little in a transactional relationship if trouble arises, because there is no incentive to solve issues jointly.

The project may well be a complex one with considerable uncertainty, but this can be dealt with using the appropriate commercial model; for example, cost reimbursement with a fee that varies based on the measurement of key performance indicators, or similar.

However, one distinctive feature of complex infrastructure is that there are multiple parties at every stage of a project, all of whom are essential. Given that the project life cycle includes design, methodology, installation, construction, assurance, operations and maintenance, decisions about the approach taken in any one stage will affect the others.

A recent report by the Institution of Civil Engineers highlighted that infrastructure and its construction have become so complex that conventional project management techniques are becoming obsolete. This is because infrastructure now typically represents a system that combines human, digital and physical components, demanding an integrated approach to projects, often called systems integration.

The presence of these multiple parties – including the owner, operator, maintainer, regulator, funder, users, adjacent asset owners, contractors, designers, suppliers and subcontractors – all of whom have their own objectives to fulfil at various stages in the project life-cycle, creates a high degree of complexity and uncertainty. Therefore the owner, when procuring a contractor to operate at the centre of the design and delivery of this system needs to select an organisation that has the best people with the skills, the processes, systems and culture to lead and perform efficiently in these challenging circumstances.

Collaboration among these parties occurs in the form of constant decision-making, problem solving and innovating with the exclusive aim of achieving the best outcome for the project. When this team is operating at its most effective, it does not matter which organisation people belong to, because the project team itself becomes an organisation of its own.

The life-cycle approach requires the team to be formed as early as possible if it is to develop robust plans and work effectively throughout. Involving contractors this early in the project can be challenging for owners, because their processes and accountability are aligned to the traditional model of preparing a reference design, holding a competitive tender process and selecting based on the lowest price. Procuring contractors through qualitative-led assessments – measuring the desired collaborative behaviours, culture and processes – is clearly more subjective, and therefore more demanding. But when this is done correctly, it can add tremendous value to the project.

In this type of environment, when the right organisations – and their people – are selected at the right time and the team is appropriately incentivised to achieve clear and realistic project objectives there is a solid basis for the team to perform well. But as with all projects, effective leadership, governance and processes will always remain prerequisites for success.

As for the collaborative procurement options for complex infrastructure, it is difficult to imagine successful outcomes unless there is an integrated team that is able to make decisions in the best interests of the project. There are a number of ways this can be contracted, but they key is to remove risk allocation which always creates commercial misalignment, the very reason why the traditional approach does not lead to positive results for complex projects.

Such complex projects bring together thousands of people from multiple organisations; it is therefore extremely difficult for an owner to create a joined-up decision-making unit. The more integrated the team, therefore, the more likely it is the project can be completed on time and to budget, even amid so much uncertainty.

Andrew Dixon FRICS is commercial director at STRABAG
Contact Andrew: Email | LinkedIn

Related competencies include: Leading projects, people and teams, Procurement and tendering