Over the last few years, infrastructure projects developed under the so-called progressive model – in which project owners collaborate with contracting partners early in the process to develop designs, estimate costs, and allocate risks – have seen varying levels of success. “There’s been some good stories. There have been some not-as-good stories,” says Ella Plotkin, a partner at Fasken who leads the firm’s global infrastructure and projects group.
The progressive model, and other collaborative construction frameworks that aim to pre-empt disputes, have seen growing uptake in Canada amid an ongoing building boom. But in contrast to the fixed-price model that was previously standard in Canada, these models have also, at times, led to significant price hikes on projects while offering few viable off-ramps for owners.
Still, infrastructure experts say the decision by many project owners to move away from fixed-price contracts – where the parties agree upfront on a predetermined, unchanging project price – in favour of collaborative approaches is here to stay. In recent years, the implementation of these latter models has given the infrastructure sector the chance to develop a deeper understanding of where they fall short – but also of the mechanisms that can help address these gaps, and of the circumstances that might be better served by a return to a fixed-price approach.
“The impetus for pursuing these [collaborative] models is still there,” Plotkin says. “There’s a need to create more competition in the markets, the need to deal with mega projects where it’s difficult for the markets to price and commit on day one without this development stage.”
For many project owners right now, Plotkin adds, a priority is carefully considering “what kind of project this model should be used for,” rather than assuming it should be used “across the board.”
The ongoing trend of developing projects using collaborative models can be traced back to the COVID-19 pandemic, when challenges like supply chain disruptions and inflation pitted many contractors – many of whom saw legitimate reasons to raise project prices – against the fixed-priced contracts they had previously agreed to.
Ilan Dunsky, a partner at Dentons and national co-chair of the firm’s infrastructure and PPP group, says many contractors or project developers grew increasingly reluctant to bid on “fixed-price, time-certain projects” because of the perceived risks.
“Many Canadian developers either dropped out of the market for fixed-price contracts or they reduced their exposure to fixed-price contracts by bidding on fewer of them,” Dunsky observed. “We had [seen]… starting five, six years ago, projects where only one or two bidders would actually submit a bid at the end.” At this point, governments across the country had already been moving towards alternative procurement models. The diminished interest in fixed-priced contracts further spurred governments to adopt frameworks such as progressive design-build, alliance contracting, or integrated project delivery.
But Dunsky says the move away from fixed-priced contracts is also motivated by another factor: many projects have grown more complex. He notes that most infrastructure in Canada is still developed using traditional methods; fixed-price models work well for projects like standard schools, which are relatively straightforward to price and manage. For other projects that are currently underway, like light rails and hospitals, however, “the variables are far less determinable at the time you’re designing the project,” Dunsky says. “So bidders have been faced with risks that they can’t really identify adequately. They can’t appropriately mitigate them.”
To account for these risks, bidders might raise their prices and hope their budgets are adequate if those risks materialize. However, Dunsky argues that few developers would feel comfortable with a fixed-price arrangement for truly complex projects. Because the collaborative procurement models start with a target price rather than a fixed price, which can be adjusted if risks arise, they should theoretically result in lower project prices for complex projects “because the parties are working toward controlling costs jointly… rather than having tried to figure out these unknowable risks beforehand,” Dunsky says.
In reality, though, this has not always been the case. Plotkin says that in recent years, there have been a handful of projects developed under more collaborative models that ultimately “resulted in significant cost escalation to the project owners – the procuring governmental authorities – substantially beyond what was anticipated.”
Ryan Chalmers, a partner at Aird & Berlis LLP who co-leads the firm’s construction and projects group and its infrastructure group, has observed similar scenarios. While he agrees that collaborative frameworks have many benefits, they also have one downside: Project owners are more or less stuck if the project price climbs too high.
“On a progressive design-build, if you hire an entity, and you spend, say, a year designing the project with a constructor, with the engineer who’s on the team with the constructor, and then you say, ‘that’s the design’ and then the constructor gives you a price… if the owner doesn't like that price, it’s very hard to go to a different constructor,” Chalmers says.
“The constructor’s already spent a year with its team, with its engineer, they know the project inside and out, they’ve given advice on it, they’ve helped give early contractor involvement advice to it,” he says, adding, “There’s not a lot of off-ramps to a progressive design-build type model.”
According to Plotkin, some governments are rethinking their approach to these collaborative models and how best to leverage them. Some governments have broken megaprojects into smaller projects, each subject to different procurement models; the Ontario Line, for example, which will include more than a dozen subway stations, consists of several projects delivered through various public-private partnerships, as well as progressive design-build and traditional procurement contracts.
“Part of the progressive versus not progressive conversation is really identifying what project the model is right for and is needed for, and where a different solution might be used if a project could be broken down into smaller components,” Plotkin says.
Chalmers has meanwhile seen collaborative arrangements with mechanisms built in to ensure that all parties can easily communicate about and resolve issues throughout the project’s lifespan. P3s, or public-private partnerships, have long included committees of non-executives who might meet once a month and have the authority to make decisions and resolve conflicts. But under alliance or progressive design-build models, there are often additional subcommittees empowered to make decisions that provide safeguards against cost and time overruns, Chalmers says.
“For the C-suite or the top-end operational people to delegate authority down, that does need a mind shift,” he says. The members of these subcommittees might be site superintendents, for example, and “they get to make the decisions on certain issues without having to elevate it all the way up to a works committee that meets once a month,” Chalmers adds.
“It has the tendency to keep projects moving and has the ability to get project decisions made quickly so that the project keeps going, which keeps time down, which keeps money down.”
