Blog Author: Peter Hibberd
Those involved with construction frequently berate themselves and others for its poor performance; often rightly. However, there remains a failure to recognise fully what can be done to improve. The tendency to concentrate simply on improving efficiency is not enough because one can be efficient without creating value. What must be improved is quality and productivity as these will create project life value for the client and a better return to the participants without increasing costs disproportionately.
Those two objectives are achieved through appropriate procurement processes but evidently there are differences of opinion as to which process. Whatever procurement process is adopted, none will work effectively in delivering a successful whole life asset without leadership, management skills, design and technical competence and an appropriate legal framework. Even then, for those requirements to be successful there must be collaboration, which in turn is dependent upon trust, fairness and honesty. Behavioural capabilities and motivation should not be underestimated in the part they play in creating relationships that deliver superior outcomes. In recent years alliance arrangements for contracting, which some would suggest is a form of partnering, have emerged and these are similarly dependent.
What then is different about an alliance? Recently King’s College Centre of Construction Law suggested the contractual principles that support a ‘successful’ alliance were; shared objectives, transparent performance measurement, aligned commercial interests and collaborative governance, which collectively underpin shared risk management. Indeed, much the same as partnering. Obviously, such issues have the greatest potential impact where a series of projects are involved rather than a one off; scale is a major factor but not necessarily the determining one. An umbrella such as a framework agreement partly meets those requirements but something more is needed because for each contract called off under a framework agreement there is often a need for an underlying contract such as JCT’s Constructing Excellence.
Some observers believe that legal requirements get in the way of partnering type arrangements, which rely on trust and good faith, and that if you need such an agreement then the approach has failed; however, that view is too simplistic. A more frequent complaint about partnering, collaboration and alliancing is the lack of an effective legal agreement; they are too touchy feely and lacking in teeth. The reality is that participants endeavour to establish shared objectives and work with absolute good faith within a legal framework that not only supports these but provides a mechanism in the unfortunate event of breakdown.
An alliance arrangement, like partnering, is not a specific procurement method but rather a concept that can be used with or incorporated into many forms of contractual arrangement albeit some better than others. That is where JCT’s Constructing Excellence Contract (CE) together with its Project Team Agreement (PTA) come in: no need to start devising further documentation. CE is an established means that fulfils all the specific requirements identified for an alliance and much more. It embraces early involvement of those involved in sponsoring, delivering and promoting open relationships which work to provide the best solutions that properly take account of sustainability and in turn reduce waste. It not only underpins collaborative working but also promotes the formation of integrated teams, transparency in all things, including risk, and shared objectives. CE’s overriding principle is working together and it operates throughout the supply chain using a series of bi-lateral contracts. That together with each party’s primary obligations concerning communication, collaboration (which includes consultation) and transparency are the drivers that improve the outcome both in terms of productivity and quality.
CE, as with any partnering or an alliance approach, requires a different mind set for creating the cultural shift where positivity flourishes and blame becomes redundant. But for this to arise it is also necessary, in addition to establishing clear objectives, to establish the basis for fair payment that properly takes account of the project’s risks. In this regard one must choose the appropriate payment option (section 7), provide a risk register and determine the risk allocation schedule (section 5). A valuable attribute of CE is that it deals with all the important requirements of a project and provides a precise framework for completion by the parties. It does not shy away from areas such as insurance, copyright, termination and dispute resolution, which are equally necessary for alliance type arrangements. The contract also provides specifically for health and safety and sustainability and for measurement of performance using key indicators. CE is an effective legal framework that recognises the statutory framework within which construction operates yet avoids making liability overly complex.
The PTA is a supplementary agreement to CE and is for bringing together the members of the project team in a multi-party agreement. Its objective is to guide the successful delivery of the project through both its design and construction. This is done by working transparently using well defined processes and may, optionally, adopt risk and reward sharing arrangements by taking into account the project final cost and its previously agreed target cost. Like the contract, this agreement also requires early involvement of matters that might lead to disputes and the project team is tasked with conciliation so as to maintain good working relationships.
There is little doubt that those engaging in an alliance are presented with much the same issues that must be addressed as those entering any other contractual arrangement. Success does not come by avoiding issues but by embracing them and in so doing working together to build the alliance that delivers quality and productivity gains. JCT’s Constructing Excellence is ready made to support that objective. It is familiar yet remains novel: it is flexible yet provides discipline.