Australia: Unlocking the value – applying Early Contractor Involvement (ECI) to service contracts

Last Updated: 30 August 2018
Article by Scott Alden and Victoria Gordon
Most Read Contributor in Australia, September 2018

Early Contractor Involvement (ECI) is a procurement method that is being increasing implemented in both the private and public sector. Typically, ECI has been reserved for large scale infrastructure projects where the design of the project is not fully developed at the outset and the principal requires specialist knowledge from the contractor.

However, ECI is being increasingly recognised as a highly successful procurement method in other industries and for smaller scale procurements.

Our recent experience in the first ECI conducted by the City of Sydney Council (the City) for a service contract showcases how the value of ECI processes are being unlocked by industry leaders for the benefit of other organisations and for future procurements.

  1. What is an ECI process?

ECI is a procurement method that encourages collaborative contracting in the design and development stage of a project. Typically, ECI involves a series of workshops between the principal and the contractor aimed to refine the design or scope of the project prior to contract award. ECI has been typically implemented in the construction industry where the contractor's expertise is required to develop the design of the project or where the project has many complex or unknown risks.

ECI aims to address the adversarial relationship between a principal and contractor on a large construction project that often arises due to the conflicting objectives of the parties and the high risk nature of large projects. ECI can reduce conflict and contract variations throughout a project as the contractor has the opportunity to develop and refine the design or scope of the project with the principal prior to contract award. A better understanding of the project risks prior to awarding a contract allows the parties to better allocate those risks which ultimately leads to better price optimisation.

However, an ECI requires clear project objectives, careful forward planning and a commitment from both parties to adhere to 'best for project' behaviours for the life of the project, not just the ECI phase. If poorly structured or managed, an ECI process can create additional challenges and its potential benefits may not be ultimately realised. Refer to section 3 below for key considerations when deciding to undertake an ECI process.

  1. Recent experience – service contracts

We recently facilitated the first ECI process for a service contract for the City, who are leaders in local government procurement, and specifically ECI, having previously delivered two successful large scale infrastructure projects through ECI - the Green Square library and the Gunyama Park Aquatic Centre – for which we were also engaged as facilitator. The City's recent ECI for a 10 year multi-million service contract was such a success that they are undertaking a further ECI process for another service contract.

The recent service contract ECI process with the City was a 'triple ECI' process with three shortlisted EOI proponents who each participated in a minimum of three ECI workshops with the City over a month long period.1

The ECI workshops were designed to refine the scope of the services and service delivery expectations of the contractor, resolve ambiguities in the tender documentation and examine the contracting behaviours of the proponents, with a key driver for the City being an enduring positive relationship with the successful contractor having regard to the 10 year contract term.

The City's sound understanding of the requirements of an ECI process allowed it to balance both the required 'courage' and 'curiosity' to participate in open and transparent dialogue with each proponent and preserve the integrity of the ECI process by protecting proponent information and confidentiality.

As facilitators, we ensured that the proponents, who were new to an ECI process given its rare adoption in the service contract sector, understood their roles and responsibilities throughout the ECI workshops, especially the requirement to thoroughly test and analyse the tender documentation and prepare detailed agendas for the proponent-led ECI workshops.

  1. Considerations for an ECI process

With the potential benefits that ECI offers, it is being increasingly implemented by clients in both the public and private sector.

The question of whether an ECI is appropriate for a particular project should be considered early in the procurement phase and have regard to the following factors:

  • Cost and time versus overall value – an ECI process requires an up-front commitment in both time and cost which needs to be considered against the overall value that the ECI process will provide to the project. If the project design or scope of services is clearly defined or relatively simple, such that specialist knowledge from the market is not required, a traditional procurement is likely to be more appropriate. Conversely, if the project design or service specification is incomplete or complex, and would benefit from specialist market knowledge or innovations, the time and cost required in the ECI phase will likely be outweighed by the overall value of a thoroughly tested and resolved design or specification resulting in fewer variations during the contract's delivery phase.
  • Availability of the right resources –to maximise the value of an ECI process, both the principal and the proponents must commit the right resources for not only the ECI workshop period but also the whole of the project. The ECI workshop period can be relatively resource intensive, depending on the number of ECI workshops and, from the principal's perspective, whether it is a single, double or triple ECI process. The resources committed to the ECI workshops need to have appropriate decision making authority, project knowledge and expertise and should be the same people who will be involved for the entire project.
  • Expertise of resources – an ECI process requires a thorough understanding of the process and a commitment and belief in the value of the process. The participants involved need to have the requisite knowledge of an ECI process and understand what is required of them to maximise outcomes.
  • Loss of competitive tension – an ECI process can result in a loss of competitive tension in the procurement. This is somewhat mitigated by running a double or triple ECI process, which is required for any local government entity under NSW Local Government procurement requirements. For state or federal government, and private sector entities, the loss of competitive tension in a single ECI needs to be weighed against the increased resource commitment required for a double or triple ECI process.
  • Management of the ECI process – for an ECI process to be successful, the process itself must be well planned and managed. This includes careful consideration of:
    • whether the process should be a single, double or triple ECI process having regard to legislative procurement requirements (if any)
    • the length of the ECI workshop period and number of ECI workshops each proponent will be required to attend
    • ensuring the ECI process preserves proponent confidentiality and security of information
    • ensuring the client has a clearly defined objective of the ECI process and how the ECI workshops will achieve that objective
    • ensuring the ECI workshops are planned well in advance to ensure all required personnel can attend including any required external consultants having regard to the particular ECI workshop agenda.
  1. Conclusion

ECI processes are being increasingly implemented by both public and private sectors on a broader range of procurements with great success. We are especially seeing the value of an ECI project being unlocked for service contracts with a long contract term where the service specification requires refining and the long term positive relationship with the contractor is a key project driver.

Footnote

1NSW local councils are unable to run a 'single ECI' process with only one proponent due to NSW Local Government procurement requirements including under the Local Government Act 1993 (NSW), as opposed to State and Federal government and private sector entities who are able to run 'single ECI' processes with a single shortlisted proponent. A 'double ECI' process also complies with NSW Local Government procurement requirements, however, a 'triple ECI' was selected for this process having regard to the particular aspects of the contract and other market considerations.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Authors
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