For years after the infrastructure boom in the 1950s and ’60s, Canada’s public infrastructure may not have been a top-of-the-mind issue for many, and rightfully so: many infrastructure issues did not get publicized and were not pressing concerns. However, aging infrastructure and the development of high-profile projects have awakened interest in infrastructure redevelopment.
Infrastructure revival has become a focus of many governments, not only to address the infrastructure deficit, but also as a means to assist the economy. Governmental authorities now face the daunting task of having to deal with the magnitude of Canadian infrastructure revitalization and development in an efficient and transparent manner. The resources needed to accommodate this development have brought infrastructure delivery to the forefront of public interest.
The 2012 Canadian Infrastructure Report Card, sponsored by several prominent interest groups, assessed Canada’s municipal infrastructure, including that:
1. The trend of declining investment in infrastructure of the past 20 years is over, and governments at all levels have been increasing investment in infrastructure;
2. This increased investment could not come any sooner: a significant amount of municipal infrastructure ranks between “fair” and “very poor,” and the replacement costs of these assets alone totals $171.8 billion nationally; and
3. Under current infrastructure practices, most infrastructure—even if in good condition now—will require ever-increasing investment as it ages.
These conclusions raise a number of questions that many are now struggling to answer: most importantly, how can infrastructure be delivered in a predictable, cost-effective, and expeditious manner, taking into account the interest of various stakeholders, with a view not just to short-term solutions, but rather to long-term sustainability? A relatively new form of infrastructure project delivery known as integrated project delivery (IPD) is one alternative to procuring an infrastructure project, and it raises a number of legal issues that must be addressed.
Sharing the load
IPD developed partially as an alternative to the structured relationships and responsibilities of the traditional design-bid-build model of project delivery. Although IPD is much more prevalent in the United States, it appears to be gaining some traction in Canada.
The American Institute of Architects defines IPD as “a project delivery method that integrates people, systems, business structures, and practices into a process that collaboratively harnesses the talents and insights of all participants to reduce waste and optimize efficiency through all phases of design, fabrication, and construction.” The goal is to bring the key project delivery participants (typically the owner, architect, contractor, and major trades/sub-consultants) together at an early stage of the procurement to work collaboratively to deliver the project effectively, with every participant sharing in the project risk and reward.
As a result, the success or failure of each participant in the project is tied to the other stakeholders. If the project comes in under budget, each stakeholder will get a share of the profit, and if there is an unexpected increase in costs, each stakeholder will share in the payment.
Potential legal issues
The IPD model creates new forms of relationships that have never existed previously. At the outset, these relationships should be defined and the allocation of risk between the different IPD parties resolved, with the provisions for administration of project risk clearly drafted.
A key principle behind IPD is that risks traditionally accepted by one party will now be shared between the parties; however, the reality is that each of the different parties plays a vastly different role in the project. The participants in the IPD project may require a much more symbiotic mindset than with the traditional model. The responsibilities between the parties should therefore be addressed early and definitively. To the extent that the parties have a pre-existing relationship, this may be more manageable than in situations where the parties are strangers.
Another potential issue is in the use of standard form agreements. The many intricacies of the IPD model and the risk allocations therein require complex, multi-party, and interlocking agreements. While standard form documents can be effective starting points, they should be tailored to consider the risk profile of the participants and the specific nature of the infrastructure project. Contract task matrices, project cost adjustments, and project quality adjustments can be used to clarify the division of risks and responsibilities between parties, provided they are clear as to the expectations imposed on each.
Often, to align the parties’ interests, a mutual waiver of claims regarding costs and schedules is ordinarily a feature in IPD agreements. However, the IPD participants should carefully consider the impact of such waivers, and what exceptions to these waivers (such as the ability to claim for defects and professional liability), if any, are necessary in order to protect each party. Parties should also consider any dispute resolution mechanism contained in the IPD agreements and whether such mechanisms would be preferable to other alternatives in the event of a dispute.
Compensation under an IPD model can also be much more nuanced than in traditional infrastructure models, with incentive-based compensation often built in to further align the interests of the parties. However, these compensation systems need careful consideration to avoid any uncertainty when allocating shared responsibility for the project schedule and budget.
Unlike other traditional delivery models that have been tried and tested over many projects and for many years, any new delivery method will invariably have to go through a period of trial and error with refinement through lessons learned. This model will likely evolve over time as IPD increases in scope and usage, and in a manner that exposes the risk tolerance of the participants through experience.
Additionally, the use of the IPD model on public projects may pose some additional challenges. To the extent that there are any directives or regulations imposing obligations on public bodies in the procurement process, these must be considered throughout the process to ensure that they are complied with.
And finally, no infrastructure delivery method, whether IPD or otherwise, can fully account for the unpredictable nature and potential unforeseen issues inherent with all infrastructure projects. The only certainty is uncertainty, and the IPD model’s ability to withstand these issues will be put to the test.
Although IPD may not be a fit for all infrastructure projects, it is another tool in the project delivery toolbox to consider when determining the most efficient and effective means of completing an infrastructure project.
Richard Shaban is a senior partner and past regional leader of the construction and engineering group in Borden Ladner Gervais LLP’s (BLG) Toronto office. Richard Yehia practices construction and surety law with BLG.