Conflict in construction procurement Why is it still happening?

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By Clive Thurston

Special to Ontario Construction News

“In recent years a considerable number of projects have not been finished, nor will they be finished. This disorder, sir, is caused by the depressed prices frequently obtain for your works; … These cut prices are illusionary, especially as a contractor who was working at a loss is like a drowning man who clutches as straw. In the case of the contractor’s means he does not pay his suppliers, sheets everyone he can underpay as his men, getting the worst, not only using the most peer materials, but quibbling over everything and always begging forgiveness over this and that.

Abandon [this type of competitive tender], re-establish good faith, give the estimation of the work and not refuse a reasonable payment to a contractor who will fulfil his obligations. That will always be the best transaction you will be able to find.” (Pilton, 1998)

Reading this, many of you will probably recognize that it probably comes from a past time but what may surprise you is that this was written some 300 years ago in 1683, by Marshall Vauban (1663 – 1707). He was Chief of Fortification for Louis XIV.

This was shared with me by Geza Banfi of McMillan, who found it in an article prepared by P. A. Tilley of the Salford Centre for Research and Innovation, University of Salford, Salford England.

In many years dealing with tender and contract issues in the construction industry like you, I have seen similar thoughts expressed by many owners, trades, architects and contractors, leading to disputes and claims that have plagued our industry for many years. The fact that it is been ongoing for over 300 years speaks poorly of our attempts to find a better way to procure projects and provide our services.

Over the decades we have tried many ways from the standard Design, Bid, Build, we developed Design Build, Partnering, Construction Management, and lately IPD along with many other variations of these and other systems. The purpose, to procure design and construction services and produce a product for a fair and reasonable price within an allotted time. Without dispute.

Why is it that for so many centuries we have failed to address this issue and find a solution to these problems?

There is no question that we all enter the relationships with the best of intentions. Yes, there may be the odd bad apple, but the vast majority of those of us in the design and construction profession are in it to do just that, design and build and deliver product for owners.

Over the decades that I have been involved in dealing with issues and trying to resolve problems arising from contract disputes, some things that clearly come to the fore that I believe are their fundamental causes.

Unlike the quote above, I do not believe that the low bid system, as it exists in Canada, is at fault. Rather it is how that system has been applied and tampered with over the years. The Canadian system that bidders must provide their best and final price at the time of tender has proven for the most part a workable system – that is until people tamper with it.

By that, I mean by attaching contracts that are unfair and one-sided, not investing sufficiently in the design and preparation of drawings and specifications, and most importantly communications failures between the parties.

Attempts to resolve this have been tried in the past such as Partnering and Design Build, and lately IPD, which is showing great promise in trying to resolve the communication challenge.

When I took the position as Ontario General Contractors Association (OGCA) president, one of the first articles I wrote was “Collaboration not Confrontation.” It is something I strongly believe in and still do.

There will be those out there who say, “Well we remember having to battle with you.”  It is true that when collaboration and communication broke down, there was only one alternative left and it was my responsibility to do everything in my power to represent my members and get a fair deal.

But I think we all agree that confrontation is not the solution to the problems we face in procuring contracts and construction projects. We must all learn from history so that we do not repeat it. The failure to consider what has gone before leads invariably to repeating the mistakes.

This brings me to the second root cause that I believe continues to plague our industry and leads to confrontation, and that is a lack of corporate memory.

Almost every association will tell you when they study their history, and the OGCA goes back over 75 years, and you look at the minutes from board meetings and so, on it is shocking how the same problems continue to reappear every decade. These include unfair contracts, risky supplementary general conditions, unrealistic timelines to produce the project and poor documentation of drawings and specifications.

Why is it that, decade after decade, contained in the minutes of every association do these problems continue to arise?

My own recent history has brought this into clear view. When I arrived, we dealt with a number of issues with many owners and through consultation, meetings and education, contractors and owners came to terms and began to develop best procurement practices, standardize supplementary general conditions, and develop excellent dispute resolution abilities.

As a result, issues that I had with school boards or hospitals and some municipalities became almost nonexistent, though when I begin there was a great deal of confrontation between the industry and owners. Contractors were regularly having to qualify tenders. Overpriced projects beyond the budget were commonplace.

After a great deal of hard work, sitting down and talking face-to-face and providing information from both sides, we set out to learn from each other. We then developed several guides outlining best practices, and agreed to supplementary conditions that addressed virtually all of the problems. It did not mean they went away totally, but there was a tremendous improvement over what had been a very combative and legal process.

We developed an Early Dispute Resolution system adopted by Infrastructure Ontario. This helped head off problems and resulted in solutions before there were confrontations.

However, in my last couple of years at the helm of the OGCA, it was extremely disappointing to see issues arising with owners with whom we had been working well with for almost a decade. They suddenly resorted to clauses and practices that had been eliminated some 15 to 20 years ago.

Why was this happening over and over again? There is one answer that recurred – new staff.

Despite years of co-operation between contractors and owners, new people had taken over the procurement and decided to change things. Unfortunately they changed them back to things we had eliminated many years earlier. That is why I refer to the loss of corporate memory as being one of the contributing factors explaining why we cannot seem to eliminate problems and move forward.

The quotation above also alluded to improper payment terms and recruitment of trades and sub- trades. These issues, I believe, have been to a large part dealt with through the hard work of associations and unions in pressing for the new Ontario Construction Act. The legislation requires prompt payment, and sets out a straightforward and rapid dispute resolution process.

There is close co-operation now between the OGCA and many trade organizations, sharing information and working to improve the industry. This co-operative spirit is reflected in joint efforts to overcome the COVID-19 pandemic.

.Despite this progress, we continue to see some owners still attempting to create one-sided contracts to get around the law. They refuse to enter what needs to be a collaborative and communicative process between all parties, each treating the other fairly and with respect.

Public sector owners who fail to heed the lessons of the past increase the price their taxpayers pay for design and construction. Fortunately, these troublesome owners are in a minority, but they are out there. Their bad practices fail to give value to taxpayers or their organization and they certainly don’t provide for a workable relationship for construction designers and builders.

If we are ever to continue to make improvements and headway in eliminating the problems that existed for centuries, I believe communication must be primary.

If information is shared effectively through the procurement process, everyone will benefit. Procurement officials should receive better training and education. Buyers must work with providers in a shared responsibility to educate each other about their needs, concerns and abilities.

These proposals will, I believe, go a long way to solving the industry’s problems. We need to discard the old “us and them” practices, and replace the adversarial approach with a more collaborative and communicative system.

One way we addressed these concerns at the OGCA was to invite owners and architects to come to us before projects were released, in confidence, so we could review documents and proposed supplementary conditions, and provide comments on what might cause problems. We also enabled owners to come to the association, to work with members when disputes arose, or to assist in clarifying or interpreting clauses.

The OGCA has a reputation of being fair and honest in producing its comments and opinion. I was often quoted as saying: “We are not in the business of being a defence attorney. We are in the business of promoting what is best not just for our members but for the entire industry and that includes owners.”

My best advice is to owners is, when your procurement team changes a long-established practice, to ask why? Look at what you have done in the past and speak or meet with us. If you want to make changes, talk to us about why you feel they are necessary before hitting the market and things spin out of control.

clive thurston
Clive Thurston

Contractors and trades need to be aware of owners’ needs, especially in these difficult times, and be prepared to be reasonable and fair and as always continue to be willing to come to the table and talk with owners to develop industry best practices.

Clive Thurston is the former Ontario General Contractors’ Association (OGCA) president. He can be reached at (416) 399-2250 or email clive@thurstoncs.com.

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