Whenever I talk about collaborative contracting publicly at a conference, or privately in a business meeting, I am often asked the question: What exactly is Collaborative Contracting? I am asked this question often enough, that I resolved to address it with this blog. So, Enjoy!
The reality is that there is no one, single definition of collaborative contracting in use by those who are familiar with the term. Venerus has researched, studied and discussed several definitions in both public and private contexts. We found two basic groups of definitions. One group that we feel is perhaps too narrowly conceived, focuses on the collaborative contract document as an artifact. The other group of definitions (which we really prefer) is more broadly conceived and describes collaborative contracting as a method or process – treating the collaborative contract document as an important outcome of that process. In the wide variety of definitions, there is a common theme: alignment of interests.
Relying on this common theme, Venerus humbly offers its own contribution to the effort to define collaborative contracting:
Collaborative contracting is an approach to contracting that brings about an alignment of interests – primarily commercial interests – among stakeholders (i.e. not just the parties to the contract) involved in a mutual endeavour and/or having some common goal.
Often the endeavour is a “project”, but not all collaborative contracts are necessarily project contracts. When the endeavour is a project, then the aligned interest is often framed in a neutral way as: “the best interest of the project” and the common goal generally as “project success”. However, in order for these terms to have meaning in the project context, they must themselves be defined by stakeholders as a natural part of the collaboration process.
Also, we note the terms ‘collaborative contracting’ and ‘relational contracting’ are sometimes used interchangeably. Venerus believes that the latter term is best applied to collaborative contracting situations that involve long-term relationships that persist beyond the duration of a single endeavour or project. In short, it is a species of collaborative contract.
Back to our definition: In fact, the collaborative contracting approach manifests as a wide variety of methods and forms representing varying levels of collaboration that are probably best viewed as a spectrum or continuum.
The continuum we present here is probably most applicable in a North American construction industry context where the need for greater collaboration among project parties is now quite widely recognized. For more information about the role collaboration contracts can play in exploiting productivity opportunities in construction projects, please see my other blog.
No matter what the definition, the collaborative contracting approach stands in stark contrast to more familiar ‘traditional’ or ‘conventional’ contracting approaches. These contracts are often criticized for establishing a scheme of incentives that create situations of misaligned interests among stakeholders, each of whom is driven to prioritize their own interests above others – a situation which, all too often, culminates in a collective performance failure.
The practical need to avoid performance failures as well as a powerful desire to avoid the tiresome conflict associated with adversarial contracting had caused many enlightened individuals to create and enthusiastically support collaborative contracting methodologies – which are often passionately espoused as “a better way”.
© 2020 / Venerus Advisory Partners