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Collaborative contracting in water projects

11 August 2020
Managing Australia's water resources is becoming more critical than ever. Through harnessing emerging trends in construction, participants in the Australian water sector can strengthen their ability to respond to water stress and to provide sustainable water infrastructure projects in Australia.  

Water disruption

Most of the world economy is directly or indirectly affected by water. Industries rely on water to cultivate raw materials, their direct operations or supply chain. With approximately 1% of the world's water source being readily available to support human and eco-logical sustainability, the management of these water sources is critical. 

As a result, supply and demand of fresh water are often misaligned exposing the delicate environmental, social, and financial systems on which Australia rely are at risk. Enhancing the underlying stress on water sources, the management thereof and supporting infrastructure. 

Climate change is also expected to cause greater volatility in weather patterns (such as drought or flooding) which, in conjunction with population growth and sustained economic growth combine to exacerbate existing water issues and stress.The sustainable development of water infrastructure in Australia is important for the management of the impacts of climate change. Through harnessing emerging trends in construction, participants in the Australian water sector can strengthen their ability to respond to water stress and to provide sustainable water infrastructure projects in Australia. 

Emerging trends influencing future construction

Construction projects are getting larger and more complex, as a result many inherent impediments to productivity that the industry grapples with are being exacerbated. When developing infrastructure for a scarce resource such as water, addressing such impediments becomes more critical. Such impediments may include the:

  • bespoke nature of construction projects which limits repeatability of projects;
  • differing regulatory regimes between states;
  • high proportion of small companies with limited economies of scale;
  • complexity of projects requiring many steps and companies which scatters accountability and inhibits coordination between project participants; 
  • contractual structures and incentives misaligned (i.e. risks not sitting with the party best able to manage that risk);
  • unpredictability and cyclicality of project pipelines have caused construction firms to rely on temporary staff and subcontractors (affecting continuity of outcome, cost and productivity). 

In response to these impediments, both Government and the private sector have taken steps to adapt to the changing construction industry. Three key trends which are earmarked to influence the trajectory of the construction industry and which have been harnessed by Government are:

  • further adoption of collaborative contracting;
  • digitalisation of construction; and
  • unlocking efficiencies through strategic partnerships and value chain optimisation.

In 2018 the NSW Government released its 10 Point Action Plan (Action Plan) for the construction industry, encouraging NSW state agencies to procure and manage projects in a more collaborative way. This has fuelled interest and adoption of collaborative contracting, a trend we are beginning to see realised in infrastructure projects in Australia.  

The Action Plan also promotes looking abroad to more mature international markets with a view to adopting international best practice and learnings in the procurement of major infrastructure projects in Australia.  

Collaborative contracting means moving away from traditional fixed price procurement in favour of contracting methods which may include: 

  • parties contracting on a 'good faith' basis;
  • involving the main-contractor and/or specialist subcontractors in early in the design process;
  • aligning parties to achieve 'best for project' outcomes through financial incentives such as 'pain/gain share' payment arrangements; 
  • early warning mechanisms to alert parties to an emerging issue in order for the parties to address the issue before the issue escalates (digital technologies such as BIM can assist in identifying such issues through clash detection);
  • parties waiving their rights to sue in the first instance by parties adopting a solution orientated outlook when addressing breach or negligence.

BIM is the digitisation of the construction and procurement process. Benefits that can be realised from BIM include providing a holistic view of the project (via digital models), greater coordination across the design disciplines and greater accuracy on quantities and pricing.

Australian water projects – collaborative contracting and economies of scale

In light of the Action Plan's focus and the broader market trends, Sydney Water developed the 'Partnering for Success' project framework to deliver the Lower South Creek Treatment Program (Program). In short, the Program will see the staged development of three processing facilities (Riverstone, Quakers Hill and St Marys) to address the increased demands on wastewater treatment due to population growth in Sydney's North West corridor. Sydney Water has adopted the delivery partner model as the preferred project delivery method appointing UGL and WSP as delivery partners. 

The Program seeks to improve commercial efficiencies (through the adoption of a 'no blame' or 'one team' policy for the project. Through fully integrating Sydney Water's owners, operators, maintainers and engineers into the design, construct and commissioning processes. 

Consistent with an emerging trend in construction of parties seeking to overcome issues of the 'non-replicable' nature of projects and seeking to unlock economies of scale. The project is a staged delivery of three separate projects, under the same project documents, allowing the transfer of learnings from one project to the next unlocking economies of scale.

In order to achieve the integration and project outcomes of a delivery partner model, Sydney Water has utilised progressive approaches to procurement in the Australian market namely utilising BIM and the NEC4 contract suite. 

The NEC4 suite is a more agile procurement suite when compared to the Australian Standards contract suite and relatively new to the Australian market, being born out of the UK. 

Australian water projects – digitalisation

In another positive step for the NSW Government in delivering their Action Plan and commitment to the construction sector, Sydney Water is one of the first major Government agencies in Australia to use the NEC contract suite approach in conjunction the delivery partner model to deliver major infrastructure. The Action Plan seeks to promote the standardisation of contracts and procurement methods which (amongst other things) looks to adopt best practice internationally and harmonise contract terms to open the NSW construction market to international firms. 

The NEC3 contract suite was successfully used to deliver major infrastructure for the London 2012 Olympics and other major water projects in the UK, Hong Kong and New Zealand. Through such projects, the fourth iteration of the NEC contract suite (NEC4) was updated by utilising both user and industry best practice learnings, designed to support innovation through digital advances and encourage collaboration. NEC4 is tailored to operate in a digitally sophisticated construction environment suited to design, build and operate, engineering and construction, alliance, framework and supply contracts. 

The benefits Sydney Water are seeking to realise by utilising the delivery partner model in conjunction with the NEC contract suite include:

  • integrated team adaptable to needs of the program; 
  • full design control to enable best value life cycle cost; 
  • learnings from the Riverstone project to be carried through to subsequent projects; 
  • opening up the contractor field; 
  • agreeing pricing across three projects early; 
  • continuity of work for project teams and subcontractors; and 
  • no premium for transfer of design risk. 

Final remarks

The construction industry is evolving to respond to the challenges of modern infrastructure projects. It is encouraging to see Government agencies explore and adopt innovative approaches to procurement especially in to support the development of key water infrastructure. It is likely that this trend will continue into the future as both public and private sector industry participants become more comfortable with innovative approaches to procurement. 

If you require further information or have any queries in relation to this legal update, please contact a member of our national Construction & Infrastructure team.


Further Reading