When it Comes to Signing Contracts – The More Signatures the Better!

Tri-Party vs Multi-Party IPD contracts.

The tri –party agreement is certainly a step in the right direction by combining the 3 most influential parties in a building project, the Architect (A), CM/GC (C) and Owner. This can certainly help align the major stakeholder interests to one goal and dramatically reduce the finger-pointing of a traditional contract model. The multi-party agreement casts a wider net over the key trades and design partners as well. I have seen as many as 17 partners on one contract with the average being closer to 8. A key to making this determination is to understand what behavior a team wants from the trade partners (design and build).

Tri-Party Agreement – A contract where the owner, primary designer and primary builder execute a single contract for delivery of a project. Other partners for design and construction may be bound to the same terms as the primary signatories yet they do not sign the base agreement.

Multi-Party Agreement – A contract where the owner, primary designer, primary building and other key parties to design and construction execute a single contract for delivery of a project. Each member that is bound to the terms of the agreement is a primary signatory with at least 4 signatories and as many as the team chooses to include in the contract. (this is sometimes called a Poly-Party Agreement)

If your desire is to offer trade representation and a voice in: establishing and managing target cost, developing and managing risk and opportunity, procurement strategies, design packaging, operational efficiency management and contingency management, consider how this looks in each case.

Decision Making

IPD contracts contemplate consensus decision making to optimize the project for everyone involved. A tri-party agreement will typically have a 3 member management team and a multi-party will have as many as are signatory to the contract (8 on average). A tri party may seem to offer easier consensus, but often times the answer is not in the room and the principles must reach out to the extended partners anyway. The most affected parties should always be consulted.

The most important thing is to find a way to elicit input from trades in a meaningful way. If they are equal partners they are more likely to participate.

Communication

If your desire is to offer partners equal say in design, participate in the BIM, and to learn about and affect the work of others, the more equal partners the better.

A multi-party agreement breaks down traditional communication barriers. All parties are responsible to gain their own knowledge and information rather than funnel it through 1 party to many. Various subject matter experts can speak directly to their partners. Often this makes the A & C feel a loss of control, but the right parties with the most knowledge are making the decisions. Contracting directly with more than just the architect and the contractor helps empower the partners to speak more freely, improving communication.

Establishment and Management of Targets

If you want the trades to inform design, to meet a target cost, to confirm constructability coordination, to participate in schedule planning for the entire project, to shift scope beyond traditional boundaries, to improve outcomes, to strive for continuous improvement, to be responsible for complete implementation not just what is on the drawings, and to tie their outcome to that of the rest of the team regardless of individual outcome, bring them to the contract table.

Targets are established by the parties and memorialized at signing this multi-party contract. This brings bore visibility and ownership by trades over the target and adjustments thereto. The multi-party agreement breaks down the barrier of trade to engineer (specialty consultant), creates tension between design and cost in search of the best solution, and empowers trades to assert cost authority until consensus.

Coordination

If you want the trades to: influence the sequence of work for the best project outcome sometimes at the cost of their own productivity, to accurately predict duration of tasks and comply, to negotiate task handoffs, to manage and optimize work flow amongst all participants, and to assume field leadership for all personnel not just their own staff, then offer them the authority to do these things.

Traditional Architect and Contractor roles can be shared, distributed, assigned to partners to allow distributed leadership. The GC doesn’t need to manage the Trade Partner but relies on it to behave equally.
The industry for many years has treated the trades and designer consultants as Subordinate to the prime and they have learned to behave that way. A tri-party is not going to change that relationship or behavior. If you want the trades to behave differently you must start by treating them differently. A great way to do that is empowering them with equal status to the others on the project.

Negotiation

One might think negotiating with 8 parties at one time is much more complicated than with 2, but my experience is quite the opposite. When you gather 8 firms around the same table it often helps drive a much fairer contract all around. With 8, it is really difficult for one party to try to gain advantage for themselves. In the tri-party, both the Architect and Constructor have to quickly turn around and contract with their “sub-contractors” but have far less latitude to address specific terms as they have already been established with the owner. This leaves the sub-tier with an almost take it or leave it approach.

There is a bit more “cat herding” required with more parties to a contract to ensure all comments and changes are considered and managed timely. There may also be some trepidation with sub-contract tiers and their understanding of their ability to influence a traditional customer while still carrying the risk of each other. This is a required education regardless of tri-party or multi-party agreements, so take it as an early challenge to gain the benefits and behaviors described above.

Conclusion

The trades and the sub consultants provide major portions of the project deliverables, why should they not be properly represented at the contract table? The outcomes far outweigh any education needed at the outset. Be prepared to challenge and change traditional relationships and build a new culture.