Choosing the Right Contract: What ONEC Teaches About IPD Agreements

Using the wrong contract model can create significant issues on a construction project. It may lead to uncertainty about which party is responsible for which obligations, what bond coverage applies and whether a manageable dispute turns into years of expensive litigation.

A recent decision from the Northwest Territories Supreme Court, ONEC Construction Inc. v. NWT Energy Corp. Ltd. et al. (2025 NWTSC 56), highlights the risks that can arise when Integrated Project Delivery (“IPD”) contracts are improperly used for projects that are not suited to an IPD arrangement.

The decision illustrates that collaborative language alone does not create a true IPD arrangement. If a dispute arises, a court will examine both the structure of the agreement and the relationship among the parties participating in the agreement when determining their rights and obligations.

What Is an IPD Contract?

IPD is an increasingly popular collaborative contracting model, particularly on large and complex infrastructure projects in Canada. Different from traditional project delivery models built around separate bilateral contracts, IPD contracts are multi-party agreements structured around shared risk, shared reward and collaborative decision-making.

The defining feature of an IPD arrangement is that the owner, contractor and lead consultant are all parties to the same agreement. In some cases, key trades whose early involvement directly affects project delivery are also added to the agreement.

IPD contracts are designed to reduce the adversarial nature of traditional construction projects. Governance structures are established at the outset, project participants share risk and decision-making responsibilities, and disputes are intended to be resolved collaboratively before escalating into formal claims processes.

When structured properly, collaborative contracting models can be highly effective. However, the chosen contract model must be appropriate for the project and the parties involved.  

The ONEC Decision 

In ONEC, the project owner, NWT Energy Ltd. (“NTE”), hired ONEC Construction Inc. (“ONEC”) under a conventional prime contract to build an access road. ONEC then retained Northland Builders Ltd. (“Northland”) to perform certain portions of the work.

Rather than entering into a conventional subcontract, ONEC and Northland entered into an agreement which included IPD-style provisions relating to shared risk and collaborative project delivery.

The issue was that NTE was not a party to that agreement.

As a result, the project structure did not reflect the type of integrated arrangement typically contemplated by an IPD contract. The owner remained outside the collaborative model, while a separate agreement below the prime contract between ONEC and Northland attempted to incorporate IPD concepts into what was effectively a bilateral subcontractor relationship.

When disputes arose regarding payment obligations under the agreement, the parties disputed the nature of their relationship and consequently the rights that flowed from it. Northland maintained that it was acting as a subcontractor, while ONEC and Liberty Mutual Insurance Company (“Liberty”) relied on aspects of the IPD arrangement to characterize the relationship as a symbolic partnership rather than a conventional subcontract. Northland also advanced a claim under a labour and material payment bond issued by Liberty, which was denied.

The dispute required the court to closely examine and determine the true nature of the relationship between ONEC and Northland.

Despite the agreement’s collaborative contracting language, the court relied heavily on provisions such as the express disclaimer of any partnership relationship. Ultimately, the court concluded that Northland was acting as a subcontractor.

Why the Structure Matters

The ONEC decision highlights an important point about collaborative contracting models: not every project is suited to an IPD arrangement.

Where the project is not structured to support an IPD arrangement, incorporating collaborative contracting language into an otherwise conventional relationship can create ambiguity rather than clarity.

That ambiguity may affect:

• subcontractor and partnership characterization;
• risk allocation between project participants;
• bond and insurance coverage issues;
• dispute resolution rights; and
• the parties’ available remedies when disputes arise.

The Bottom Line

IPD contracts are not a one-size-fits-all solution, nor are they interchangeable with conventional subcontract structures. They are purpose-built agreements intended for projects where key participants are operating within a genuinely collaborative framework.

The ONEC decision demonstrates the importance of selecting a contract model that is appropriate for the project and the parties involved. Where collaborative contracting concepts are introduced without the structure typically associated with an IPD arrangement, parties may later find themselves litigating foundational questions about their relationship, obligations and available remedies. These are issues the contract was intended to resolve from the outset.

HOW WE CAN HELP

RAR Litigation advises contractors, subcontractors, suppliers and project participants on construction contract drafting, risk allocation and dispute resolution. We assist clients in assessing project risk, advancing and defending claims, and responding strategically while protecting both legal and commercial interests.

Contact us for strategic advice, risk assessment and litigation representation.