By McKercher LLP lawyer and partner, Bruce Harrison with the assistance of student-at-law, Tyler Gray
In 2018, the Canadian Construction Documents Committee (CCDC) released CCDC 30, a new standard form contract for integrated project delivery (IPD) construction. The IPD project model seeks to overcome weaknesses in traditional project structures that isolate design and construction from one another by promoting collaboration between project owners, designers, and contractors from project conception through the design stage and during construction. The stated goal of the IPD model is greater project efficiency by promoting collaborative and timely troubleshooting of potential project problems through the implementation of a shared risk/reward system.
The main difference from a contract perspective is that the core project parties (owner, consultant. general contractor, and major suppliers) each sign on to a central project agreement. The design, scope of work, price, and performance schedule are administered and controlled through this one single agreement.
There are two key provisions in CCDC 30 that act in tandem to support this increased collaboration. The first is the establishment of a risk/reward pool from project profits. The primary parties to the contract place an agreed percentage of potential profits in a common pool that pays out at key milestone dates and project completion. If the project is on-time and on-budget each signee receives their allocated profit from within the pool. Efficient performance presents an opportunity to multiply profits, while poor performance reduces potential earnings for all parties proportionate to their role in the project. The structural goal of the risk/reward pool is to tie individual profits to project success.
The shared profits pool is also a significant risk apportionment mechanism under CCDC 30. Parties will want to determine how much individual profit is allocated to the risk pool within the IPD contract. Varying proportions of profit allocation may shift the burden of risk from one party to another. For example, where 100 per cent of profits are shared, risk is apportioned equally among all parties. However, if less than 100 per cent of profits are allocated to the risk/reward pool, “shared risk” may land more heavily on one party’s shoulders. When combined with waiver and liability provisions within CCDC 30, the risk/reward pool requires parties to consider how much risk they are willing to bear in the performance of their obligations.
The second provision in CCDC 30 that differs substantially from traditional contracts is found in the waiver and liability provisions which significantly reduce opportunities for parties to bring claims against one another in court. Here, the shared risk/reward structure results in the waiving of claims that would result from project delays or cost overruns as those are risks born by all contract parties. This significant alteration to the liability structure within IPD projects seeks to promote early communication of project challenges or errors between parties without fear that such communication will give rise to liability. Rather than parties protecting positions in fear of potential litigation, they can work together to collaboratively problem-solve and mitigate risk to the overall project outcome more quickly and effectively.
The alteration of risk apportionment in CCDC 30 from traditional contracts is a key consideration for parties looking to use the IPD model. Effective collaboration will require early involvement of all parties to the contract and a strong commitment to project-first thinking. This is a paradigm shift, so experience in collaborative approaches is certainly an asset for those looking to use IPD models. While there are some exceptions to the general waiver of liability, claims arising from project delay and cost overruns under CCDC 30 do not give rise to individual liability. In order to effectively apportion risk, parties making use of an IPD model will want to consider which parties will be obligated to sign onto the IPD contract. This will likely include the relative importance of the subcontractor supplier and the willingness of a participant to accept the risk of other’s performance.
CCDC 30 offers a new perspective on traditional project delivery where parties share risk and reward related to the performance, efficient or inefficient, of all participating parties. With substantive changes to waiver and liability provisions and significant potential deviation from traditional risk apportionment, parties considering the use of an IPD model should bear in mind past experience using this model and the importance of a strong, collaborative team.