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Pressure grows for contract re-design

October 30, 2013

Last week I attended a small meeting to discuss Building Information Modelling or ‘BIM’. It is not an area where I had prior familiarity and you may be wondering why it is relevant to contracts – so read on!

The construction industry has traditionally suffered from relatively high levels of claim and dispute, reflected in a history of major delay, sizeable cost overruns and concerns about quality.  Many of the problems arise from poorly defined scope and lack of clear requirements. Technology has made the situation worse, due to the extent to which it has reduced the social interaction between the client and the supply chain (email was highlighted as the culprit; I would add ERP and globalization to the factors that have damaged inter-party communication). As a result, contracting parties have tended to battle over risk allocation, in spite of efforts to develop more collaborative forms of contract (for example, NEC contracts and some versions of FIDIC).

This story is probably starting to sound familiar to many who are not involved in the construction sector and where similar issues are prevalent. So the real interest in hearing about this meeting is to understand what remedies and improvements are taking place. And this is where we come to BIM.

BIM – to my limited understanding – is a process that results in animations, rather than the traditionally complex drawings that unqualified personnel cannot understand. It enables buyers and users to experience the construction and offer intelligent comment at the design phase. Level 2 of BIM (which is the current level achieved by some organizations) is typified by “models, objects and collaboration using file based collaboration and library management”.

The potential benefits to reduced capital expenditure, reduced operating costs and reduced cycle times are substantial – hence the extent of interest, especially by Governments charged with improved control over public expenditure. But right now, it is proving difficult to expand the adoption of BIM beyond individual projects and to drive the approach at a portfolio level. One reason for that seems to be the contracting process. “In one room, we define the technical needs and scope. But when these go to Procurement in the next room, something completely different seems to emerge,” commented one participant. Another factor is impatience: it takes longer up-front to develop all the information needed for accurate design and the building of the model. Traditional procurement processes are driven by speed and the demands of management to ‘get things started’.

Overall, these factors combine to encourage a contracting process that drives the very adversarialism that undermines intelligent design. In general, contracting does not lead to open sharing of commercial issues and risks and is often a game that suppresses requirements (in order to keep the price lower) and exaggerates capabilities (in order to win the bid). What I find fascinating is the idea of ‘animation’ within contracts. Just as BIM is now enabling users to walk-through a virtual building, why couldn’t CIM (contract information modelling) enable a walk-through of the contract?

Relational contracting is a step in this direction because it expands the areas of discussion and the approach to negotiation, ensuring the development of mechanisms that increase communication and cooperation. In that sense, it is almost a suitable accompaniment to BIM Level 2. But like BIM, it often struggles to replicate and the contracting community needs to explore new approaches that support the continued evolution of technical design. However, we must start somewhere – and it is for these reasons that IACCM has been developing and promoting approaches to relational contracting and recently introduced its Contract Design Award.

What a fascinating set of ideas lie ahead of us … who will be first with a fully animated, virtual contract?

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