With Canada’s appetite for public infrastructure projects showing no signs of slowing down, infrastructure experts are clocking a trend that they hope will stick: a move towards increasingly collaborative procurement models that aim to stave off disputes before they begin.
“Ultimately, the goal of all these models is: get the private sector teams in early, allow for more collaboration and planning and design development,” says Tristan Musgrave, a partner at McCarthy Tétrault LLP who co-heads the firm’s procurement group.
Such models allow parties to work together before construction starts “with a view to [fewer] disputes, less litigation, and a much more clear allocation of responsibilities between the parties,” Musgrave says.
Brian Kelsall, an infrastructure partner at Fasken, summarizes the philosophy behind one of these dispute-avoidance models as “no blame, no claim.”
Kelsall adds that the model’s staying power will hinge on a cultural shift. “Can we shift 30 years of carnivorous behaviour, which is the fixed price [procurement] model, into a far more collegial methodology? Probably. But it’ll take time, and it’ll have its ups and downs.”
For several years, procurement models have been trending away from the long-standard fixed-price framework. Musgrave and Kelsall trace the start of this trend back to the COVID-19 pandemic when the construction sector was hit with challenges like cost inflation and supply chain disruptions.
Under the fixed-price model, procurement contracts set fixed fees for services, providing predictability to parties but less flexibility. The pandemic introduced legitimate schedule delays and significant cost increases to projects, prompting many vendors to make “supervening event” claims in an effort to hike the prices they’d previously set. However, it was not always clear whether these claims, which parties can make when certain events interfere with their ability to meet contractual obligations, were motivated by hardships stemming from COVID-19 or by vendors’ desire to correct their pricing. Due to a trend towards larger projects and governments prioritization of low prices, vendors had long felt pressure to offer unrealistically low pricing in order to secure projects.
“This certainly gave rise to more claims and more disputes,” Kelsall says.
This increase in disputes prompted a broad shift from the fixed-price model to a “progressive” one. Under the fixed-price model, project owners largely define their projects' scope before selecting vendors to come on board. In contrast, the progressive model allows project owners to choose and collaborate with a team to develop design, estimate costs, and allocate risks early on. When the selected team has finalized their proposal for realizing the project, “Everybody knows what it is, everybody’s agreed to it, everybody’s cool,” Kelsall says. “There should be no need for litigation.
“Litigation or arbitration or whatever it may be is unacceptable, politically and economically. It costs money, it causes huge delay, it puts projects in jeopardy, and it embarrasses whichever party is in power,” Kelsall says.
“The politics of it was terrible, so that’s led to the procurement models that are farther away from the fixed price.”
Musgrave agrees that since the pandemic, there’s been a “clear trend away from procurements using fixed-price construction models and other commoditized procurement delivery models.” While many projects continue to use the fixed-price framework successfully, Musgrave says its use has decreased in favour of other options like the progressive model, which is being used for projects like a high-frequency rail project that connects Toronto to Quebec City, the QEW Garden City Skyway project; and Toronto Pearson’s LIFT program.
Musgrave notes an increase in projects using other collaborative approaches as well. These include the alliance model, where the owner, vendors, and other stakeholders work together as a single team and share equally in all the risks and rewards, or the integrated project delivery model, where every party works together to develop and execute a shared vision.
While “the jury’s still out” on these collaborative models, Musgrave says the general feeling is that they’ve “increased engagement in procurements for infrastructure, limited some of the concerns that contractors have about taking on too much unmanageable risk, and allowed both owners and contractors to ultimately feel that there’s a less adversarial, more collaborative relationship that gets things done.”
Kelsall says the alliance model’s potential for minimizing disputes is particularly promising. With origins in the United Kingdom, the model hinges on every party in a project agreeing to share, rather than divide, the risks, rewards, and responsibilities involved in executing a project. Kelsall likens the model to a boat: if there’s a leak, “you all better fix it or row pretty fast, [or] we’re all going to go down with the ship.
“There’s no philosophy of litigation there,” he says, adding that contracts under the alliance model typically specify a limited number of issues that can be litigated.
In Canada, uptake of the alliance model is still low, with only a handful of projects having employed it in British Columbia and Ontario. Gerry Ranking, a partner and litigator at Fasken, says the model makes more sense for brownfield projects, which involve repurposing or expanding preexisting structures instead of starting entirely from scratch. Ranking points to the revitalization of Toronto’s Union Station as an example. The complexity of such projects and the difficulty of accurately estimating costs make collaborating and sharing risks an ideal proposition.
Ranking says the alliance model makes less sense for simpler projects, where costs and risks are more predictable and parties are more comfortable setting margins.
However, its success also depends on a broader cultural shift. “I’ve spent forty years litigating, and I can tell you… the cases that settle have people [who] are well-motivated, they're acting in good faith, there's a legitimate dispute, and they want to resolve it,” Ranking says. “The cases that don't get settled are usually where you have very adversarial parties, and they go to court because they are incapable of actually coming to a resolution.”
A procurement model like the alliance framework can only work “if people really are collaborative,” he says. “That’s the challenge for the next years ahead, is to see… whether people can shed the old culture of looking out for their own interests, and [change] their entire mindset to looking out for the collaborative and being collegial and wanting to get the project done.” The benefits of such a shift could be significant. If the alliance framework is widely and successfully adopted, “litigation and dispute resolution will hopefully be minimized,” Ranking says.
In the years ahead, there will be plenty of opportunities for experimentation with less adversarial procurement models. Musgrave notes “the continued large nation-building ambition” across Canada’s federal, provincial, and municipal governments, which have all identified infrastructure procurement as a priority.
“Since COVID, there’s been an increasing tendency for the projects and the procurements to become bigger and more socially impactful,” he says. “That’s to replace aging infrastructure… meet expected and real population growth, reduce emissions, protect against climate change, and ultimately increase the efficiency and performance of the necessary infrastructure to meet technological improvements and expectations.”
Musgrave says that trend will likely continue despite headwinds like inflation, supply chain challenges, and contractor shortages.
“Canada has not lost its ambition at all,” Musgrave says, adding “that ambition if anything, will become more prevalent and more important.”
Kelsall says that while it’s a “tumultuous time,” as of mid-April, the infrastructure market has picked up after uncertainty triggered by the US election and wars abroad. This pickup in procurement activity could be due to the recent surge in nationalism in Canada. “Infrastructure is always the thing that pulls economies up; it is a nation-building exercise,” he says.
He adds that there might be other factors behind the current market, “but at least for us, we’re going crazy. It's very busy.”