Many people today choose collaboration as their implementation model for construction and maintenance projects. But what does that actually mean, and what contractual terms must be in place to ensure that collaboration as an implementation model is safe for everyone involved? Can collaborative contracts be used in condominiums and housing cooperatives?
By attorney Bent S. Kverme
What is a collaborative contract or collaborative agreement?
Let's start by explaining what a collaborative contract or collaborative agreement is.
Collaborative contracting, collaborative contracts or collaborative agreements are not a specific form of contract or specific contract terms, as we know the forms of contracting Total Contracting NS 8407, Execution Contracting NS 8405 / 8406, or subcontracting (NS 8515, NS 8416 or 8417). It is more a way of carrying out a construction and civil engineering project, an implementation model.
Construction contracts
To put things into perspective, we can first describe what we call construction contracts. Unless otherwise agreed, the contractor shall perform what the client asks the contractor to perform, provided that it can be carried out in accordance with applicable laws and regulatory requirements. We are then talking about a pure construction contract.
The developer must then describe and design the work. We call this the production basis on which the contractor must build. The design requirements are set out in the Planning and Building Act, Technical Regulations (TEK17) and Case Regulations (SAK10).
Builders often enter into agreements with architects, engineers, and others who can assist in describing the requirements and selecting methods and materials that ensure that all requirements in laws, regulations, public decisions, and the builder's wishes are met. Finally, working drawings and work descriptions must be prepared, which the contractor must carry out in accordance with.
The contractor only comes into the picture after the developer has finished drawing up the description and plans.
Turnkey contracts
In turnkey contracts, the client must still prepare a clear and comprehensive description of the requirements that the contractor must meet during the construction period, but leaves it to the contractor to plan the work. In this case, it is the contractor who must plan the work before carrying it out in accordance with his own plans.
In traditional forms of contracting, the contractor is brought in late in the project.
One problem with these traditional forms of contract is that the contractor is only brought into the project after the client has finished describing the functional and other requirements that the client wants the contractor to meet. If the contractor had been brought in earlier, the client and contractor could have worked together to determine which functional and other requirements the client should ideally demand be met.
We are trying to address this in our collaborative ventures.
In collaborative contracts, the contractor is brought into the project even before the client has selected the functional requirements and other requirements to be met through the project.
This allows the client to benefit from the contractor's knowledge and experience even before the requirements are decided. This applies whether the client wishes to design the work themselves or let the contractor design the work.
Early involvement of the contractor offers many advantages, but also risks
Early involvement of the contractor offers many advantages.
- The developer can benefit from the contractor's expertise and experience as early as when the requirements are being decided.
- The contractor has more time to understand the client's wishes and needs and the requirements described by the client.
- The contractor has more time to plan his own production.
- The parties will have more time and better conditions for drawing up a realistic progress plan, invoicing plan, and payment plan.
- This ultimately gives the parties a more refined basis for setting the right price for the job.
Although the advantages are many, we also see some obvious dangers with such early involvement. The two most important are
- the risk of using inadequate contracts and
- the risk of uncertainty about who is responsible for what, resulting in parties being given responsibilities they were not intended to have.
Important to have clear and comprehensive contracts, rules that allocate responsibility and risk
Many people believe that collaboration means that the parties share the risk, a form of joint liability with each other. This is fundamentally incorrect. When we ask parties if they want to be responsible for matters that the other party is traditionally responsible for, such as unforeseeable circumstances or additional costs resulting from construction defects, most say no. Nevertheless, they believe that there is a form of joint liability in collaborative ventures. There are some misunderstandings surrounding this.
In other words, it is important to clarify which risks the parties wish to be responsible for and to choose contracts and terms that allocate responsibility in the manner desired by the parties.
We do not yet have a Norwegian Standard for collaborative contracts. Instead, bits and pieces from various contracts are used, and many collaborative contracts are implemented with poor, weak, and unclear regulation of the parties' rights and obligations. This can lead to the parties being held responsible in areas where they did not expect to have any responsibility.
If you are entering into a joint venture, you must read the contract carefully, ask yourself what terms you need, and check whether those terms are actually included in the contract.
Unclear decisions may nevertheless result in unintended joint and several liability.
Even if the contract is clear and specifies who is responsible and bears the risk for what, the parties may implement the project in such a way that they nevertheless become liable or jointly and severally liable for matters for which they were not initially responsible. Call it chaos and unclear decisions.
To avoid this, it is important that the parties understand the rules in the collaboration agreements, organize the work and make decisions in such a way that the intention of the rules is fulfilled. We see that many collaboration contracts are carried out without the parties being sufficiently aware of this, and many risk far more liability than they anticipated when they entered into the collaboration agreement.
We can therefore say that good project management is just as important as good contract terms. Project management and good contracts are two equally important criteria for success in collaborative contracts.
Target price: a useful tool for keeping costs down, but not essential
Target pricing is a phenomenon that originates from collaborative ventures. It is a form of bonus/penalty scheme, where the parties share additional costs and savings. The idea is good, but in practice there are many dangers associated with using target pricing.
Firstly, it must be clearly stated which cost items are to be included in the target price and which are to be included in the project accounts for comparison with the target price. If this is not clearly stated, disputes may quickly arise as to which costs the parties have a joint responsibility to keep down.
Secondly, there are challenges associated with changing target prices in the event of changes or unforeseen obstacles. Negative changes in particular can cause problems.
Before the parties sign a target price, they must have thoroughly familiarized themselves with how the target price is constructed and changed.
Many people believe that it is necessary to use a target price to implement a collaborative contract. This is incorrect. It is entirely possible to implement collaboration until the client has finalized their description of functional requirements and other requirements, and the parties then proceed with a fixed price or other pricing model. It can often be more appropriate to choose a fixed price rather than a target price. We therefore recommend not getting too hung up on using a target price, but feel free to use collaboration in phase 1.
Terminology and fine expressions
Many people use fancy words and expressions such as "characteristics" to describe collaborative contracts, for example
- "cost plus,"
- "open book,"
- IDP (Integrated Project Delivery),
- BVP (Best Value Procurement),
- LCC (Life Cycle Cost),
- user involvement,
- BIM,
- offsite production,
- lean management,
- industrialization,
- Uncertainty analysis/uncertainty management.
These words and expressions describe various working methods that are naturally used in many projects, both traditional forms of contracting and collaborative contracts. In other words, they do not contribute to defining or describing collaborative contracts per se.
Therefore, be careful not to focus too much on such words and expressions when looking for what distinguishes collaborative contracting from other contracting models.
You may need BIM, BVP, Offside Production, etc. to carry out your project, but in its simplest form, the collaborative contracting model can be used without any of the above.
We find that the use of such expressions makes the interaction model seem more complicated and less accessible than it actually is.
No Norwegian Standard for collaborative contracts
As mentioned above, we do not yet have a Norwegian Standard for collaborative contracts. At the same time, there are many contract templates out there. They vary in quality and complexity, and since we now know much more about which rules need to be included in such collaborative agreements and which rules we do not need, we can say with certainty that many of the contract templates contain text that distracts from what is important. The contracts are often unnecessarily complicated and lack clear rules that distribute responsibility and risk between the parties.
It is therefore important to choose a cooperation agreement that contains what you need, and nothing more. Remove anything that makes the agreement unclear and unnecessarily complicated.
Can collaborative contracts be used in condominiums and housing cooperatives?
So finally, we can answer the question we asked at the outset: Can collaborative contracts be used in condominiums and housing cooperatives? The answer is a resounding yes.
There are many advantages to using collaboration as an implementation model in such maintenance projects. In addition to those mentioned above, maintenance projects often involve a considerable degree of uncertainty. By bringing in a contractor at an early stage, the contractor can help to uncover much of the uncertainty even before the price is set. This reduces the risk in the project and significantly reduces the danger of surprises.
If you are going to use collaborative contracts in condominiums and housing cooperatives, both the developer and the contractor should review the model carefully in advance and reach a common understanding of the terms and conditions, the project's objectives, the tasks involved, and how the project is to be organized.
We assist with such projects throughout the country, and would be happy to assist with your project as well.
Read more about collaborative contracts at www.samspillsentreprise.no.
If you have any questions, please feel free to contact attorney Bent S. Kverme. Consultations are free of charge until you decide to engage our services.
Read more about what we can offer in terms of ongoing advice or courses at our
Product sheet Courses for boards of housing cooperatives and co-ownership associations
Supervisor for construction projects in condominiums and housing cooperatives
We have written a guide for those of you who are on the board of a co-ownership or housing association. It is intended to answer most of the questions you may have.
We have divided the guide as follows:
- The planning phase
- The construction period
- The takeover
- Final settlement
- Defects and complaints
- Collaborative contracts in co-ownerships and housing cooperatives
We have included a chapter on claims against developers.
You will also find a checklist of questions that you, as a board member, can ask the construction manager.
The guide is approximately 90 pages long and can be obtained free of charge by contacting us.