December 12, 2022

Brief: Collaborative Contracting

In this Brief, we explore the benefits and risks of utilising collaborative industry approaches (and contracting models) in the procurement process for Government supplies and services.

Hand in Glove: Collaborating with Industry in Government Procurement

What you need to know:

  • While collaborative contracting is not new, Government agencies are embracing more collaborative approaches with industry for high value and complex procurements.
  • Collaborative contracting is particularly attractive where the requirement is uncertain and the project is ambitious or seeking an innovative solution.
  • While there are benefits to utilising collaborative features within a procurement process, there are inherent probity and policy risks that must be kept in mind before engaging with industry as part of a procurement activity (particularly, prior to release of any approach to market materials).  These features should only be used where probity and policy advice has been sought, including on appropriate industry engagement methodologies.

For further information in a Defence-specific context, the Department of Defence has published a Collaborative Contracting Better Practice Guide to assist personnel in the Capability Acquisition and Sustainment Group.

What you need to do:

  • At the outset of a business requirement and strategy, Government projects should consider whether collaborative contracting models or methodologies are appropriate (or necessary) for their procurement activity.
  • If collaborative contracting models are adopted, project teams need to ensure that there is adequate resourcing to support the related procurement process.

Projects will need to implement probity procedures and prepare bespoke project plans, request documentation, evaluation plans, and contract documents to implement a collaborative contracting methodology.

Detailed Insights

What is collaborative contracting?

As the title implies, collaborative contracting is about parties working together in a commercial relationship to achieve an outcome, but in a collaborative (as opposed to adversarial) way. It is underpinned by parties collaborating in good faith, focussing on fixing problems (not finger pointing), managing risk equitably and jointly (if appropriate), and promoting transparency.

Collaborative contracting is commonly understood as referring to contractual delivery models which drive collaboration, such as managing contractor contracts, partnering contracts or alliance contracts, as opposed to traditional contract models. However, this article how collaborative contracting can be implemented as a process across the entire procurement lifecycle – from requirement setting, through to request documentation development, evaluation, negotiation, and during contract delivery.

Determining whether a procurement involves (or should involve) collaborative contracting is not binary.  Most, if not all, commercial arrangements involve some level of collaboration as the customer is ultimately working with the supplier to obtain the required goods or services, and there is alignment in goals and desired outcomes.  Collaborative contracting could be considered as a spectrum where, at one extreme, the procurement involves minimal collaborating processes and, at the other extreme, the project is highly collaborative.

Where permitted under the Commonwealth Procurement Rules (CPRs), common collaborative contracting processes that could be adopted across the procurement lifecycle include:

  • Requirement setting stage: At this stage, it can be useful to engage with industry to better understand industry’s capacity, interest and expectations of risks in meeting the Commonwealth’s requirements. The Commonwealth may then adjust its requirements or approach to ensure that its needs can be better addressed by industry. This could be implemented by conducting a formal Request for Information process with the industry at large, attending industry events (eg conferences), conducting market-scanning activities, and/or conducting workshops with particular industry participants where permitted.
  • Request documentation development stage: Similar to the requirement setting stage, the Commonwealth may engage with industry while developing the request documentation (eg Request for Tender documents) to support the Commonwealth obtaining better value for money proposals. This could include a phased development of request documentation which gives industry the opportunity to provide feedback before final release.  This could involve concurrent risk mitigation activities (eg workshops, demonstrations etc) with industry participants to reduce/refine scope and schedule risks.  Of course, the involvement of industry in the development of request documentation can only occur where advice has been sought on the application of the CPRs and other Government procurement policies, and where strict engagement protocols have been implemented and agreed.  
  • During this stage, if a collaborative delivery model is appropriate, the Commonwealth should consider the contractual models and provisions to include in the relevant request documentation (such as the contract and scoping documents), to signal to the market that it intends to carry out the relevant project under a collaborative contracting model.
  • Evaluation and negotiation stage: In general, there is very limited opportunity for industry to be involved at this stage. This is to reduce the risk of bias and unfair treatment of industry participants leading up to the selection of a preferred or successful supplier, as well as to ensure the Commonwealth obtains a favourable outcome in negotiations.  However, the Commonwealth could consider the tenderer’s collaborative behaviour up to that point in the procurement process as part of the evaluation. Also, if the Commonwealth determines that industry has misunderstood the Commonwealth’s requirements or not clearly articulated the proposed solution, the Commonwealth could consider undertaking offer definition and improvement activities (ODIA) to collaboratively address the issue as part of the evaluation process.  The extent to which those activities can occur (and the processes to follow in doing so) should be clearly identified and set out in the Approach to Market (ATM) materials delivered to all potential suppliers.
  • Contract development and delivery stage: As mentioned above, this is the stage at which collaborative contracting is most commonly understood. Accordingly, collaborative contracting processes can be included in a number areas within the contract suite which is then implemented through delivery:
  • Delivery method: using contract delivery methodologies which require the parties to consult and cooperate across the project delivery lifecycle. Common examples include Managing Contractor Contracts, Incremental Acquisition, Spiral Development, Agile (including ‘Cost as an Independent Variable’) and Alliance Contracts, each of which require tailored processes and allocations of responsibility reflected in the contract suite early-on in the procurement process (ie, at the ATM stage).
  • Decision making: joint decision making across some matters, including decisions regarding scope and schedule, albeit without limiting the Commonwealth’s ultimate rights as customer. As the customer, however, it is important that the Commonwealth retains absolute discretion (or an equivalent mechanism) in areas of the contract where appropriate.
  • Price and payment: gainshare/painshare arrangements which move away from the win-lose mentality common in fixed price contracts. These arrangements seek to more closely align the commercial interests of Commonwealth and contractor by establishing regimes where the rewards of outstanding performance and the pain of poor performance are shared among both parties.
  • Liability: no blame/no liability framework relates to fostering a ‘no finger pointing’ culture with a focus on the parties coming together to fix the problems. These contracts would typically include a ‘no blame, no disputes’ clause under which the parties agree that they will have no right to bring any legal claims against each other except in limited circumstances such as wilful or deliberate default. The clause is to encourage the parties to take risks, and to feel more comfortable to collaborate to achieve superior results without the fear of legal claims should they fail.  
  • Governance and dispute resolution: related to the above, this is to escalate issues and only litigate as a last resort. When issues arise, parties are encouraged to promote dispute resolution at the lowest level and resolve early, to only escalate issues if needed, and facilitate a collaborative process to identifying, mitigating, sharing and reducing risk.
  • Transparency and confidentiality: collaborative contracting seeks to foster greater transparency and trust between the parties by adopting mechanisms such as open book financial reporting and early identification of issues. Generally, the need for robust confidentiality protections increases as the level of transparency increases.
  • Performance management: the emphasis is placed on collaborative behaviour, rather than just adherence to scope, schedule and cost. Both parties are continuously identifying opportunities for improvement in performance, ensuring that project success is based on a shared vision as the project evolves.
  • Termination: if successful delivery depends on long-term, on-going collaboration, an exit is required where that does not occur. This is often addressed by the Commonwealth inserting into the contract a right to terminate on a ‘walk away’ basis.

It is important to note that the CPRs only permit a limited tender (or limited market engagement) in very specific circumstances.  Advice must be sought (including legal and probity advice) prior to undertaking any market engagement activities in a collaborative or industry-focused way, to avoid any breach of the CPRs.

When should collaborative contracting be used?

Collaborative contracting is generally used where:

  • there is a medium to high level of uncertainty with respect to the Commonwealth’s requirements such that scope, schedule and cost cannot be fixed;
  • there is an expectation that the resultant contract will be long-running such that positive relationships and continuous improvement are of paramount importance;
  • the Commonwealth and industry both have the capacity, capability and willingness to deliver the project under a collaborative contracting model; and
  • project success depends on the Commonwealth and the supplier completing significant inter-dependent requirements such that a flexible approach is appropriate. For example, the supplier may only be able to deliver its solution on time and within budget if the Commonwealth first provides the underlying infrastructure and then later provides constituent components for integration.

It is important to remember that good collaboration does not necessarily lead to a good outcome. Instead, collaboration should only be used as a tool to drive the achievement of good outcomes in relation to scope, schedule, and cost.  In other words, collaborative contracting processes should only be adopted where it enables the Commonwealth to achieve best value for money, and/or where appropriate for the particular project or requirement at-hand. The benefits and risks should be weighed in making this determination, some of which are described below.

Potential Benefits to Government  

A clear benefit of collaborative contracting is for Government to obtain valuable industry insight into core factors that can influence the requirements.  This can include design, solution buildability, project management, work scope, schedule, and risk allocation. Suppliers may feel more invested in the final commercial outcome having substantially invested in the initial planning, 'ideas stage' of the project. Residual benefits can continue into the contract delivery phase as the supplier may feel more incentivised to reach peak performance and drive project improvements having made this early investment. This is in contrast to the approach which some suppliers may take, which is to price aggressively to win new projects and then 'do the bare minimum' to satisfy other evaluation criteria and when subsequently complying with the contract during delivery - or may place caveats in a tender which then require variation or amendment to price or schedule at a later point, when it is too late to change course in a procurement process.

Another benefit is that greater collaboration and consultation between Government and suppliers supports mutual understanding of commercial and technical requirements and may reduce the risk of misunderstandings and disputes between the parties regarding performance.

Inherent Risks of Collaboration

A significant risk with collaborative contracting is that the collaboration may prematurely or inappropriately narrow the potential solutions that should be considered in meeting the Commonwealth's requirements. For example, industry participants may suggest changes to the Commonwealth's requirements which make the participant's existing solution more competitive. Accordingly, it is important that project personnel focus on end-user needs throughout the procurement (rather than 'solutionising') and only use the collaborative processes to determine how that need is best met.

A related risk is the perception or realisation of biases in evaluation or tendering activities, particularly where consideration is given to more subjective evaluation criteria. Project personnel need to make sure that they do not ‘get carried away’ in the collaborative engagement with industry and that they are able to step back and objectively evaluate the supplier based on its proposal and relevant evidence gathered during the collaboration. Accordingly, if collaborative contracting processes are adopted, comprehensive probity procedures will need to be implemented prior to industry engagement and maintained throughout the procurement.

The success of collaborative contracting processes is dependent on the Commonwealth providing adequate resourcing, which is generally greater than what is required for traditional procurement methods. This is because there is additional effort of project personnel continuously engaging with suppliers across the procurement lifecycle, as well as the Commonwealth monitoring the procurement more closely to ensure that the risks of collaborative contracting are managed. For example, the Commonwealth does not have extensive guidance or templates for collaborative contracting processes, so projects need to develop bespoke documentation to implement the processes which it has adopted. Accordingly, the project should only adopt the collaborative contracting processes which its resources have the capability and capacity to support.

Another risk arising under these processes is the extent to which potential suppliers are willing to embrace collaborative contracting. Despite confidentiality protections which may be put in place, some suppliers may not feel comfortable adopting open book transparency, preferring instead arms-length conventional processes.  Also, collaborative contracting processes impose a higher level of cost on industry as participants need to dedicate more resources to the procurement. This increases the risk of wasted resources as there is no guarantee that the supplier will be successful in the procurement, which could be prohibitive to SME suppliers. Accordingly, if a high level of collaborative contracting is adopted, the Commonwealth may need to co-contribute to industry's costs in order to increase the chance of success.

Further, government needs to be careful in the contract drafting stages.  Particularly, good faith obligations or express obligations to cooperate are commonly adopted in collaborative contracting models, however these obligations are imprecise and can be tricky to hold a party to account should a problem arise. Accordingly, this drafting should not be used for strict requirements such as critical delivery dates.  Also, drafters and negotiators need to be careful that collaboration does not undermine the fundamental relationship between the Commonwealth as the buyer and the supplier as the seller. Although the parties are working together to achieve a common goal, the contractual allocation of responsibility and risk should reflect the buyer/seller relationship.

Further Information

The Commonwealth has some publicly available guidance on collaborative contracting. For example, the (former) Department of Infrastructure and Regional Development has published guidance on alliance contracting.  Also, the Department of Defence has published a Collaborative Contracting Better Practice Guide to assist personnel in the Capability Acquisition and Sustainment Group.  

If you have any questions, or would like to know whether collaborative contracting is appropriate for your procurement, please feel free to contact us.


Rory Alexander, Director + Principal

Catherine Wang, Associate

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