Multi-Party Industrial Relations Agreements as a Means to Reduce Project Risks

The construction industry in Canada has suffered from declining productivity for decades. It has reached beyond a crisis point. In some respects, project owners just accept the escalating costs that go along with poor productivity – it is more or less expected that capital projects, especially mega projects, will inevitably go over budget and beyond schedule. To deal with these risks, project owners have continued to seek ways to mitigate and have embraced alternative building methods such as prefabrication and pre-engineering, and modularization as a means of “de-risking” the project.

To some extent, it is the workers who unfortunately are often blamed for the declines. Particularly amongst foreign project owners we hear the sentiment that Canadian workers are not motivated to do the work at the right pace. Some may even suspect the skill levels of Canadian workers are not up to world standards. This view exists despite many other countries have similar experiences with declining productivity. Another common culprit cited is the Building Trade Unions. It is assumed that they somehow promote a sense of entitlement amongst their members that discourages those workers from eagerly applying themselves to their work. These are all myths that we must expose so that the real causes can be addressed.

We believe the strict work rules promulgated as a result of the Building Trade Unions enforcement of each union’s jurisdictional claims is a barrier to improving productivity on projects. However, it is not reasonable to suggest that this is a causal factor in the decline of productivity – it has to be addressed as part of the solution but only as an element in a more comprehensive and integrated approach.

To a significant degree the culprit is complexity. Capital projects, particularly in the Industrial segment of the construction industry have grown to be incredibly complex because of:

  • significant advances in technology;
  • increasing regulations and government oversight with respect to health and safety, the environment and community rights;
  • changes in the economic landscape that allow for the contemplation of massive mega-projects leading to division of roles and oversight;
  • supply chain practices especially in public sector projects and so on.

Moreover, the way the construction industry has evolved we have seen an increase in the number of industrial stakeholders involved (EPCMs, Indigenous Groups, Environmental advocates, Alternate unions, etc.) in many projects which just adds to the complexity.

The net result is not only an industry suffering from poor productivity but one plagued by the adversarial relationships between many of the stakeholders. For example, the commercial arrangement between the Project owner and the Engineering, Procurement and Construction Management firm (EPCM) chosen to execute the project should be one of trust. Both should benefit from the project and work towards mutual gain. However, in practice many project teams have experienced a certain degree of hostility between the owner and EPCM during the various phases of project execution. It is well accepted that there is little trust between owners and EPCMs for example, or between EPCM and contractors, and between any number of stakeholders.

The reason for these adversarial situations is that all parties are risk adverse and the art of the deal in construction is to transfer as much risk onto someone else as possible. Using ideas developed by Toyota (the Toyota Production System) and computer technology advances, some construction organizations are suggesting that an integrated project delivery method could be the key to solve these key construction problems.

Integrated project delivery is a delivery system that seeks to align all stakeholders with the project owner’s interests, objectives and practices. There are different ways to do this including creating a single business entity purposefully organized to plan for and execute the capital project. This entity would be owned by the project owner, the engineering firm, contractors and other significant stakeholders (for example local indigenous communities could be shareholders in the enterprise). Thus, key players are aligned via this commercial arrangement in a cooperative venture.

This approach is of interest to us as labour relations consultants because it often involves bringing stakeholders together through a multi-party agreement based ultimately upon successful project execution. In a multi-party agreement (MPA), the primary project participants execute a single contract specifying their respective roles, rights, obligations, and liabilities. In effect, the multi-party agreement creates a temporary virtual, and in some instances formal organization to realize a specific project. Because a single agreement is used, this requires each party to understand its role in relationship to the other participants.

In Canada, we believe the successful transition to integrated project delivery will include the development of multi-party agreements that include the unions; whether the unions are the Building trade Unions or alternate wall-to-wall construction unions such as CLAC, or ideally both. We also believe such agreements must maintain an open-site status and not offer exclusivity to any union or group of unions (such as the Building Trade Unions) in order to ensure that there is room for healthy and fair competition.  For clarity, we are not suggesting an alternate form of a Project Labour Agreement (which has very specific statutory meaning and usually involves exclusivity), but rather something very different where there are truly multiple parties with different roles and responsibilities.

Multi-party agreements require trust. They also provide incentives to all stakeholders based on project success. Individual success depends on team success. Risk is shared by all. For a multi-party agreement to be successful, the participants must be committed to working as a team to achieve team goals.

This is an idea we all should be exploring in Canada to transform our construction industry and show the world we are the place to invest.

Canadian project owners, EPCMs and contractors seem reluctant to adopt the Integrated Project Delivery approach and other innovations in project management beyond a few isolated cases. So, we need to ask the question – What is a 10% improvement in project productivity worth to your project?