Paper 0363V2-0
Partnering in practice
Contents
Aim
Learning outcomes
4. Conclusions
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Aim
The aim of this paper is to introduce you to some of the major practical issues that
influence the successful use of partnering and other collaborative procurement
techniques. The paper also includes an introduction to some of the skills required to
successfully implement a partnering arrangement.
Learning outcomes
After studying this paper you should be able to:
z Explain the function and use of performance incentives, benchmarking and key
performance indicators within the partnering process.
The proposed methodology (known as the BPF system) was intended to reduce the
cost and time taken to procure construction projects. It included such advanced
concepts as an employer’s project manager, tenders produced on the basis of priced
activity schedules which were to be used as ‘milestones’ to trigger payments to the
contractor, and financial incentives to the contractor to improve project performance.
At the time these proposals were considered to be too radical, and the BPF system
failed to achieve general acceptance. It did, however, throw the problems faced by
employers into sharp focus and began a long-running debate about the future role of
the employer in the construction procurement process.
z Profit margins in construction were roughly half those accepted as the norm in
other comparable industries.
z The construction industry had an exceptionally poor record of financial
investment in the future.
z Construction industry employer complaints far exceeded those in any
comparable industry.
Overseas, ‘partnering’ – arguably the most popular term used to describe the
collaborative approach – has been used extensively in the United States, where one of
the best known examples is that of a substantial number of large roads schemes
beginning in the late 1980s. In Australia the use of partnering has had a lengthy and
somewhat chequered history, principally due to a number of contractors attempting to
exploit the concept in a rather cynical way, but has now developed into the concept of
relational contracting. The Australian National Museum Project in Canberra is (at the
time of writing) probably the world’s largest and most complex collaborative scheme.
Collaborative procurement approaches are being increasingly widely used around the
world for large, complex and risky projects.
All the above approaches differ slightly in the mechanisms used and in the legal
significance of the ‘partner’ status, but all are essentially methods of harnessing the
combined efforts of all parties involved in the project, to ensure successful project
completion for all. The technique requires a significant shift in the relationship
between employer and contractor, away from the conventional ‘customer/supplier’
approach, where each of the parties fights for its own goals, and towards a ‘shared
risk/shared reward’ approach, where all parties commit themselves to work for the
good of the project.
The successful implementation of this method of procurement also requires the use of
specialised supporting tools, such as formal risk and value management strategies and
the implementation of formal quality management procedures.
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Note, however, that simply putting these tools in place will not itself guarantee
success. The tools must be used in a sensitive way as part of a cohesive procurement
methodology in which the emphasis is firmly on shared goals and a mutual
commitment to project success. Experience, particularly with the management of
quality, has shown, for example, that the simple adoption of formal quality assurance
systems such as the ISO 9000 series did little to improve the quality of the finished
work. What is required is a cultural shift, such that a ‘right first time, every time’
attitude is accepted as commonplace. So although implementation of the techniques is
important, this must be accompanied by an attitudinal change by all concerned in the
project, if the shift away from confrontational methods and towards collaborative
methods of construction procurement is to be effective.
One major advantage of the collaborative approach is that it aims to improve value
for money by placing the employer and the end-user once more at the centre of the
project development and construction process. Indeed, the success of the
methodology requires the employer and the end-users to be full and active members
of the project team.
Collaborative approaches such as these demand that complete trust exists between the
parties, and that all involved have both the willingness to maximise value for money
for the project as a whole, and the opportunity for an enhanced reward should they
manage to do so. Of these, trust is probably the most important as a prerequisite for
successful collaborative working.
JCT forms of contract including the Standard Form of Building Contract and
the JCT Constructing Excellence Contract
The JCT range of contracts is very popular in the UK, not least because of their
broadly risk-neutral drafting. However, although the JCT has produced a Practice
Note explaining the use of the JCT contracts in a partnering environment (No. 4,
Partnering), there is a commonly held view that this range of contracts does not in
fact support the basic principles of the partnering philosophy. In short, the JCT range
of contracts is perceived to be confrontational, in that it specifically requires parties to
the contract to serve formal notices in order to protect and preserve their contractual
rights, and so encourages the parties to take up entrenched positions.
The JCT Constructing Excellence Contract, published in 2006 and introduced in early
2007, marks a significant shift in JCT policy, in that it is the first JCT contract to be
aimed specifically at collaborative projects. The form adopts many of the features of
the NEC3 and PPC 2000 contracts (see below), and includes an obligation for the
parties to contract in good faith. It will remain to be seen whether the form will be
widely adopted.
GC Works range
The GC Works range is produced specifically for Government works, of which the
most widely used is the GC/Works/1 Contract for Building and Civil Engineering
Major Works.
The GC/Works range is generally regarded to be less risk-neutral than the JCT range,
with a higher proportion of the risk being perceived as passing to the Contractor.
Although the GC/Works/1 form is primarily intended for Government projects, it is
occasionally used by private sector clients looking for a less risk-neutral approach
than is provided by the JCT range. Although some of the procedures in the GC/Works
range still require the parties to serve formal notices if particular events arise, the
form does at least appear to recognise the fact that co-operation is required.
GC/Works/1 Clause 1A states that:
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1. ‘The Employer and the Contractor shall deal fairly, in good faith and in mutual
co-operation, with one another; and the Contractor shall deal fairly, in good
faith and mutual co-operation, with all his subcontractors and suppliers.
2. Both parties accept that a co-operative and open relationship is needed for
success, and that teamwork will achieve this. The project team for this purpose
shall include, but shall not be limited to, the PM and his representatives; the
QS; the Contractor’s agent; and major subcontractors and suppliers engaged on
the Works from time to time.’
The contract incorporates all the features recommended in ‘Constructing the Team’
and ‘Rethinking Construction’. It also incorporates a number of key features,
including:
Although this is the first contract specifically designed for partnering, initial response
has been mixed. Some project teams do not want their partnering arrangements to
become legally enforceable, and some purists have argued that to make them
enforceable is a direct denial of the benefits of partnering itself.
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The aim of the project team is then to secure maximum value for money by
completing the contract as far below the target cost as possible, but without loss of
function. Contractors or subcontractors bringing forward alternative approaches that
aid this process are awarded a pre-agreed percentage of any cost savings as a reward
for their innovation (so-called ‘gain share’).
The approach also commonly recognises the fact that events may occur which are the
fault of neither party, but which might still increase the project cost. In this case, the
additional costs are often shared between the contractor and the employer (the so-
called ‘pain share’). The employer’s liability in this respect is commonly limited by
the introduction of a ‘guaranteed maximum price’, which represents the absolute limit
of the employer’s liability – unless, of course, the employer himself causes the project
to overspend by, for example, ordering variations to the work.
The process is shown diagrammatically in Figure 1. Here it is assumed that the initial
target cost is set at £1m, the contractor’s agreed level of overheads and profit is set at
10%, and the pain/gain share percentage is set to 50%. If the target is achieved, the
contractor’s return will therefore amount to £100,000. If, however, the contractor is
able to bring forward innovations which reduce the actual cost to £900,000, then his
return rises by 50% of the value of the savings to £150,000. Conversely, if unforeseen
events drive the project cost up to £1,100,000, then the additional cost is shared
between the contractor and the employer, and the contractor’s recovery is reduced to
£50,000.
Note that the commonly recognised deficiencies of cost plus contracts are largely
negated by allowing the contractor to improve his return as a reward for improving
value for money. This approach is usually reinforced by an ‘open-book’ approach to
project accounting, where the contractor’s records are made fully available to the
employer’s quantity surveyor, and the contractor is then paid the agreed value of
resources supplied. The approach has a number of advantages, and greatly reduces the
potential for disagreement over the value of the work carried out and consequent
disputes.
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There is, however, a major concern over the setting of the initial target cost, in that it
is plainly in the contractor’s interest to set the target as high as possible. There is
therefore an important role here for the employer’s cost consultant in ensuring that
the initial target cost and guaranteed maximum price are realistic.
At its best, partnering will result in significant savings in time, cost and improved
quality, leading to better value for money. In addition, by adopting a joint approach to
the solution of problems as they arise, partnering can significantly reduce the number
and severity of contractual disputes, and should therefore ensure that settlement of the
final account is much less problematic than would otherwise be the case.
The facilitator’s role will include working with the parties to establish the initial
partnering relationship, and helping them to reinforce the relationship as the project
proceeds. The process will include identifying a set of overall project objectives
applicable to all parties, which all of the parties then undertake to work actively to
accomplish. The agreed mutual objectives then become the ‘code of practice’ for the
project, and form the basis for the project key performance indicators against which
eventual project success will be measured.
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Successful partnering depends upon many factors, but perhaps the most important are
that all parties involved in the project are committed both to the agreed project
objectives and to the partnering philosophy. Working in this way is often very
different from the more confrontational approach adopted in conventional ‘low bid’
tendering situations.
The task is difficult not only because, of its nature, it is to do with orchestrating
professionals with often widely divergent backgrounds, interests and objectives, but
also because time limits and pressures mean that this group of 10 or 12 individuals
(ideally no more) must very quickly work as an effective team. In the workshop
process the time frame is compressed and there is likely to be less security with the
unfamiliar tasks and roles.
z In co-operative groups:
z In effective teams:
The greater the ambiguity and uncertainty in a particular situation, the greater the
need for the group to exhibit the characteristics of the effective team more nearly in
order to achieve its task – but the more difficult it is likely to be. There are, however,
a number of measures which have been found useful in helping the facilitator to
manage the process and increasing the chances of a successful outcome. These
guidelines are presented briefly below. They have much in common with those
frequently advocated for the effective management of meetings. It should be
emphasised that they are of even greater importance where the climate is felt to be
characterised by uncertainty and potential conflict, as is frequently the case when new
teams come together for the first time.
A constant and obvious reminder of purpose, tasks and timing in the form of a large,
clear agenda displayed in a prominent position sounds so obvious that it is rarely
done!
Regular summaries
Regular summaries of progress serve much the same purpose as the agenda. They
help to clarify communication and maintain control. They can be used as a
psychological booster to focus team members’ attention on what has been achieved so
far, and/or as a way of getting things moving forward and on track should time be
running out.
Control of phases
Clear separation between stages is necessary, but this does not mean that the
facilitator should show no flexibility. It is important that he should be able to read the
mood of the group. Often a short break will help to get things moving again if
participants are flagging and/or ideas are lacking. But obviously it would hardly be
wise to interrupt a brainstorming session in full swing with ideas flowing thick and
fast if it appeared that the whole programme would be jeopardised as a result.
Obviously judgement is required: too much control will destroy the flow, too little
will open the floodgate.
Gatekeeping
Needless to say, it is the facilitator’s job to ‘gate-keep’. This is where his
interpersonal skills are really stretched. He has to ensure that each individual is
contributing and that vociferous individuals are not allowed to dominate discussion.
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Team composition
It is plainly important to ensure that the partnering team includes all the major
stakeholders. In the case of public authorities, it has been found particularly important
to involve both audit and legal representatives at least in the initial sessions. The
facilitator should be seen as an impartial ‘third party’ who is not directly involved in
the project. The perceived neutrality of this person is useful in helping to guide
discussion in an unbiased manner.
Some organisations hire external ‘consultants’ to lead workshops, on the basis that
such people have a greater degree of expertise in facilitation skills and objectivity.
4 Conclusions
This paper has reviewed the factors underlying the development of collaborative
methods of construction procurement, together with a range of contextual issues.
The development of trust and good working relationships is, above all, the major
critical success factor in achieving a successful partnering relationship.