Paste yoAbstract
Standard forms of building and civil engineering contracts have undergone years of development to ensure an acceptable balance of responsibility and risk. Notwithstanding, the UK construction industry has evidenced a decidedly poor record of delivering on customer requirements (Armstrong, 2015) and in response, the Government and various prominent construction industry organisations commissioned Sir Michael Latham to review procurement and contractual arrangements. In his report entitled Constructing the Team (1994), amongst other elements, Latham advocated partnering and collaboration as a means of removing process inefficiencies and adversarial relationships. He recommended contract arrangements which emphasised co-operation, trust and mutual understanding between all parties to the contract. To give a further lead on the implementation of Latham’s report, the government commissioned a task force led by Sir John Egan . He was asked to look at the industry from a Client’s perspective with a view to improving the efficiency and quality of construction works. The recommendations in his report entitled, Rethinking Construction (1998) focused on improving product development, Project implementation, partnering the supply chain and production of components. Subsequently, in direct response to the recommendations of Egan’s report, the first standard form of Project Partnering Contract (PPC2000) was launched in September 2000.
Early endorsements of PPC2000 were argued on the basis that partner contracts place an obligation on all parties to collaborate with and consider the interfaces between all members of the Project team. By working in this manner, the actions of all parties are concentrated on the quality of the overall Project outcomes. The approach was seen to be in stark contrast to more standard forms of contract that establish the obligations of each party in terms of delivering that part of the Project for which they were engaged, often resulting in adversarial relationships, counter-productive governance and financially wasteful Projects. As a cornerstone of the partnering contract to avoid oppositional working practices, Clause 1.3 of Partnering Terms, asks that “The Partnering Team members shall work together and individually in the spirit of trust, fairness and mutual cooperation for the benefit of the Project, within the scope of their agreed roles, expertise and responsibilities as stated in the Partnering Documents.” The clause seemingly implies a rather subjective moral argument to unveil dormant issues, to undertake work with skill and care, and to cooperate, at least as far as necessary to allow a contract to progress works. Whilst arguably a laudable term under which to agree a partnering arrangement where risk is balanced (Teubner, 2003), the inference is indeed contrary to UK Law under which there is no clear doctrine of “good faith” (Cooke, 2010). It is at this entropic point that this paper seeks to identify i) the Partnering Terms that are designed to enable the Partnering Team members to work in accordance with this principle; ii) the Partnering Terms that could be problematic for the Partnering Team members in their implementation of the Project; and accordingly, iii) how such problems might be resolved during implementation.
Enabling Partnering Terms
Practitioners will more generally acknowledge that complex and multi-faceted Projects often give rise to disputes, particularly at significant inflection points such as when a material scope change or amendment to the sequence of the works is encountered, impacting the original cost and schedule allowances. More traditional contracts will often surface differences between the parties as to the extent of the impact of that change or indeed whether the contract apportions the risk of that impact to one party or the other. It is clear that in practice, such approaches result in parties retreating to defendable positions, rather than enabling solutions. In the case of Laing O’Rourke vs Newcastle-upon-Tyne Hospitals NHS Trust, the two parties were locked in a legal battle over the final phases of a major clinical Project, and from entrenched positions regarding minor differences with meeting specifications, resulted in a delayed completion certificate and meant the offices were abandoned for more than two years (Garcha, 2014) at considerable expense to the public. This scenario is further exemplified in the case of Multiplex vs Mott MacDonald, where the Constructor of the new Wembley Stadium, which opened in 2007 after years of delays and almost tripling construction cost, sued the engineering consultants behind the project for £253M, claiming that their services were unsatisfactory (Elliot, 2007).
In the partnering contract vernacular, the dispute resolution provisions form part of a problem-solving framework. Parties are encouraged, and in some cases obligated, in the mutual spirit of co-operation and trust, to communicate details of any problems early and to find informal means to resolve disputes within their respective organisations. Under Clause 27.1, the initial stage in the proposed dispute resolution procedure is notification. There is an onus on parties to inform other members, including the Client Representative, when a “difference or dispute” surfaces “under or in connection with the partnering contract”. On receipt of such a notice, the resolution is coordinated by a Partnering Adviser, who guides members through a problem-solving process that facilitates members to apply “reasonable care and skill” to ensure that the employees “express their views” and “propose their solutions” within the timetable stated in the problem-solving hierarchy. Under Clause 27.2, the problem-solving hierarchy envisages employees of increasing levels of seniority co-operating with a view to resolving the dispute or difference. The objective is to resolve the differences or disputes at the lowest appropriate level of seniority. In the event that a mutually acceptable solution is not reached within the timetable set out in the hierarchy, under Clause 27.3, the Client Representative convenes a forum of the core group at no more than 10 working days’ notice, proving relevant information concerning the dispute or difference and inviting the relevant members and the Partnering Adviser to attend the meeting and make constructive proposals to achieve an agreed solution. The benefit of this secondary line of defence is to prevent parties from retreating into vested positions and to ensure that the spirit of co-operation remains at each stage of the process. Where a dispute or difference remains unresolved and no right of termination has been exercised, then under Clause 27.4, any partnering team member involved may refer the difference or dispute to refer the difference or dispute to adjudication recommended by the Partnering Adviser. Under Clause 27.6, the conclusive phase in the dispute resolution process is either arbitration or a courts case, depending on what the project partnering agreement provides for. In either case, the outcome is binding for all parties.
Problematic Partnering Terms
The 2008 Arup Report for OGC described PPC2000 as “a complete procurement and delivery system that is distinct from other forms of contract”, and according to Mosey (2017), the case studies in the 10th anniversary publication suggest that the contract format is as relevant now as ever. Moreover, no PPC Project has been litigated or arbitrated, and only a few have progressed to adjudication, despite throughput worth several billion pounds per year (Mosey, 2017); however, given the popularisation of the Grenfell debacle (Doward, 2018), coupled with the issues faced with the collapse of Carillion (Clarke, 2018), and the possible implications of Brexit (Edgar, 2018) and a weakening currency, it is nonetheless prudent to examine whether a partnering contract remains relevant for Constructors in an age of progressive austerity, trepidation and risk aversion. The following section outlines the limitations associated with the design and build (D&B) duty of care for Constructors as stated in Clause 22 (Option 1), and by extension, the Constructors’ D&B compromise in the absence of Client obligations to provide the Lead Designer and Design Team with all the information for the design under Clause 8. In continuum, the Constructor is further burdened in the absence of veto and any implied relief for design changes by the Lead Designer and Design Team through references to Clause 17 (Changes) and Clause 18 (Risk Management). Moreover, in the absence of any express division of risk responsibility stated in the Partnering Terms, the effect of Clause 18.2 is that it will be the Constructor who assumes that D&B responsibility for remediation; and under Clause 21.2(ii) obliges the Constructor to rectify any aspect of the Project incongruent with the Partnering Documents, which could arguably include design defects not caused by the Constructor.
Clause 22 establishes a duty of “reasonable skill and care” for each Partnering Team member in the exercise of their respective roles, expertise and responsibilities. To the extent that design (as identified in the Partnering Documents) falls within a “role, expertise and responsibility”, the Constructor may be absolved for presuming that this duty of care will apply to such design. There are, however, further specific options relating to design responsibility outlined at the front of the contract, which require careful consideration to assess the responsibility the Constructor is actually being asked to accept (Rakar, 2007). The most commonly chosen option by Clients, places full responsibility on the Constructor for the design, supply, construction and completion of the Project “without prejudice to the duty of care of each Partnering Team member (other than the Client) to the Constructor”. In the event of a dispute in relation to design, this allows the Client to sue the Constructor, who would then need to prosecute any culpable Partnering Team member for breach of its duty of care to the Constructor under Clause 22. This is akin to the Constructor having a D&B role. Separate from the question of whether such a role sits comfortably with the partnering ethos, it must also be realised that the Constructor has limited control over the design process in Clause 8 and it is the Client who selects the Consultants, agrees their services and has the power to issue instructions and change requests. As such, a Constructor should be cautious of accepting this full D&B responsibility (Dartnell, 2007).
Clause 8 outlines the design development procedures for both the pre and post Commencement Agreement phases, with the primary obligations falling on the Design Team and Lead Designer. However, in totality, the provisions should be of particular concern to a Constructor who has accepted full design responsibility. Constructors should note that despite this being a partnering contract there are no express obligations on the Client to provide the Lead Designer and Design Team with all the information and assistance that they reasonably require in order to carry out the design (Dartnell, 2007).Nor is the Client expressly required to warrant the reliability of all the information provided pre and post tender upon which the Lead Designer and Design Team have relied. Furthermore, whilst various provisions in Clause 8 provide the Client a right of approval over design development, Clause 8.11 allows the Constructor a right to object to a design only on the grounds that the “design is contrary to any Partnering Document or otherwise demonstrably not in the best interests of the Project”. This may cause the difficulty where the design is not the Constructors, but where the Constructor carries responsibility for it, as might the provision which states that if the Lead Designer confirms or amends a particular design then the Constructor is duty bound to accept that confirmation or amendment. The Constructor has no embargo or implied relief through references to Clause 17 (Changes) and Clause 18 (Risk Management) is not clearly set out (Dartnell, 2007). With respect to the latter, Clause 18.2 is problematic for the Constructor as it provides that the Constructor is responsible for managing all Project risks “except as otherwise stated in these Partnering Terms”. Given that Projects are likely to be complex with multiple parties and obligations, as noted in earlier examples, it is highly probable that the up-stream division of responsibility fails to cater for all eventualities. In this event, under Clause 18.2 the Constructor would assume a duty of responsibility to balance risk not expressly provided for, and under Clause 21.2(ii) the Constructor would be obliged to rectify “any aspect of the Project … not in accordance with the Partnering Documents”.
Suggested Resolutions to Problematic Partnering Terms
With respect to Clause 27.1, the declared aim of amicably settling disputes at the lowest appropriate level of seniority is laudable, but would seemingly ignore the reality of normal business practice. Peer-to-peer discussion at subordinate and technical organisational levels are not inured nor uninfluenced from the executive decision-making authorities that govern business direction. It is often the case that only persons of seniority within an organisation have the appreciation of the wider business issues that enable early resolution through a commercial deal to settle a dispute or difference amicably. Contrariwise, experienced practitioners may undoubtedly hold the circumstantial position that those closely coupled to the detail of the dispute are oftentimes technical or legal personnel and frequently hold vested positions and an inability to compromise. In this case, a more appropriate partnering position would be to explore the benefit of channelling executives early in the dispute process through the Partnering Advisor prior to Client decisioning or formal routes of escalation.
In furtherance to Clause 22, popularised cases would suggest that whilst Clients may wish to share the rewards of a successful Project, the sentiment is not favourably reflected in the apportionment of risks that define the territory of a construction contract. Options that would present obvious difficulties in obtaining professional indemnity coverage, or where there is a pre-agreement of responsibility for loss or damage that has not yet arisen should be circumvented to avoid possible court proceedings. For Constructors, it is proposed that Client-side heuristics should be catered for accordingly, either through negotiation, amendment, additional risk management or pricing, or indeed a combination of all three. A viable Client option for Constructors would be for an open-ended invitation to amend the duty of care warranties as the Partnering Team agrees is appropriate. This would facilitate a more inclusive, progressive and holistic acceptance of risk unaccounted for or unknown at the Commencement Agreement of the Project. Advice would therefore follow for Clause 8, where to avoid unnecessary Constructor liability for the design, the Client should be obliged to provide the Lead Designer and Design Team with all the information and assistance that they reasonably require in order to carry out the design; and the Client should be bound to warrant the reliability of all the information provided pre and post tender upon which the team have relied upon for the design. Attestation at both the pre and post tender stage should reduce the risk burden of D&B responsibility from the Constructor and reduce the coverage and cost of indemnity. To buttress this position, it is accepted that design changes are inevitable in a Project, however, to avoid the impact of material risk implications from change orders, under Clause 17, the Constructor should have the facility of recourse or veto where the Lead Designer confirms or amends a particular design. Arguably, the Constructor should not be obliged to accept design confirmation or amendment, where the implications are a greater risk burden to the Constructor without acceptance, and where the design change is not in the best interests of the Project.
Conclusion
PPC2000 'Standard form of contract for project partnering', was the first standard form Project Partnering Contract developed following the government’s intervention to endorse integrated project processes, decent and safe working conditions, improved management and supervisory skills, replacing competitive tendering with long-term relationships, and ensuring that public sector bodies should become best practice clients. The result over 10 years of market adoption has been reduced capital and whole life costs, more sustainable solutions, quicker design, supply and construction, fewer defects and better quality, fewer accidents, more predictable outcomes, and higher productivity and profitability. These achievements have emerged from a maturing market that has aimed to continually striving for a balance between power, responsibility and control. Whilst the introduction of partnering contracts has indeed been successful in readdressing authority and avoiding litigation and arbitration, the inference to draw from this paper is that partnering is not an easy option; it requires dedicated participation at all levels of a company’s organisation and the adoption of a consistently open and collaborative way of working in order to meet the team’s objectives. Pursuant to the clauses that detract from this ethos and the proposed opportunities for improvement, it would follow this point that those arrangements that tie the project participants into the fulfilment of a common goal or objective and which arrange risk and reward around the achievement of that objective in a sense that is cognisant of human nature and reflective of normal working practices are best configured to achieve project success.