The reluctant constructor

As a project manager, you are considering the sole-source appointment of a contractor with a unique technology and construction methodology.
You have commissioned work from this contractor before and you believe they are the absolute best technically.
The contractor is well aware that they are the preferred candidate for the work and that it would be very difficult for you to go to someone else. You want to work with them, but you are concerned about being ‘locked-in’.
Because of the specialist nature of the work, you need the contractor’s help to develop the scope of work for the contract.
The contractor is very protective of its intellectual property (IP) and is pushing for you to award the whole contract (including the scope of work) before doing any preliminary design work.
They are more of a design house than a constructor (though they have a reasonable construction history). They are also very risk-averse and are chasing a ‘relationship’ or ‘risk-sharing’ contract.
So how do you protect yourself if you start to have doubts about the contractor in the design stage, or think they might fail in execution?

You could award the design work as a separate agreement, with award of construction dependent on satisfactory performance during the design phase. Some contractors may resist this arrangement because of the fear that you will proceed with someone else and expose their IP. You may need to agree to a licensing arrangement for the construction phase if you really can’t proceed with them.

Another option is to tell them that they have to work with a partner for construction. This could be a joint venture, a company-nominated subcontractor, or a separate prime contractor. The choice between the models will depend on your assessment of both your capacity as an owner and your design contractor’s capability to manage the construction contractor. You don’t want to put yourself in a position where the design contractor has prime responsibility for the site but is really not competent to lead the construction effort.

A final option is to award the construction to another party, but keep the designer on as engineering consultant. While this gives you more responsibility as an owner, it protects the design contractor’s IP.

Corvative can help you by…

  • Designing a contracting approach that balances the contractor’s risk but keeps them accountable for performance.
  • Structuring the design portion of the work to preserve options if the contractor fails to perform in the scoping stage.
  • Developing incentives and KPIs for the construction stage.

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