Alliancing and collaboration – walking the walkNovember 2023
The benefits of alliancing and collaborative contracting
The potential benefits of alliancing and collaborative contracting in construction are now well established in the UK. In addition to allowing the delivery of projects which are so challenging or innovative that other procurement and delivery routes are not practicable, alliancing and collaborative contracting have brought a host of other benefits. Across a range of projects and sectors, collaboration has delivered measurable cost savings and programme efficiencies, has allowed the expertise of specialist sub-contractors and members of the supply chain to be harnessed and has has driven real innovation in design and delivery. More recently, strategic alliancing has been recognised as having unique potential for clients to deliver social benefits and environmental goals across programmes of works.
In the UK, a growing body of evidence and experience has been developed over the (almost) thirty years since the Latham report “Constructing the Team”. Latham quoted with approval Washington DC’s Dispute Avoidance and Resolution Task Force’s 1994 report which criticised adversarial attitudes in US construction, especially between main contractors and sub-contractors, and argued that “A positive alliance of these parties constitutes an indispensable link to a successful project”. Latham’s report concluded that contractual structures which drive teamwork and create ‘win-win solutions’ were key to the effective delivery of projects.
Around the same time, works to extract oil reserves at Andrew Field in the North Sea were one of the earliest examples of collaborative contracting and strategic alliancing. A relatively small oil field, BP initially decided it was uneconomical to recover reserves at Andrew Field. Subsequently, however, it was able to assemble an alliance of seven contracting parties, all sharing in project risks and rewards. That project, sometimes credited as the birthplace of ‘partnering’, was driven by necessity – a collaborative approach and sharing risks and rewards was the only way to make the project viable.
In the intervening thirty years in the UK, the use of NEC contracts has continued to expand in the public sector (despite ignoring Latham’s recommendation to change the name . . .) and new standard form contracts have been published building on Latham’s principles including, most notably, the ACA’s project partnering contract (PPC2000) and related contracts leading to publication of the Framework Alliance Contract (FAC-1) in 2016. Over that same period, successive academic and government reports including last year’s ‘Construction Playbook’ and ‘Constructing the Gold Standard’ review of public-sector frameworks have continued to emphasize the virtues of contractual structures which encourage and rewards collaborative behaviour among a project team including clients, contractors and consultants and other stakeholders. In practice, that most often means early structured early involvement of a main contractor and specialist sub-contractors, obligations to act in good faith, shared management of project risks and gain/pain share.
At this point, there is no shortage of evidence that, when used properly, alliancing and collaborative contracting can deliver huge benefits to clients and projects. The Cabinet Office and Constructing Excellence’s trial projects demonstrating two stage, open-book procurement methods between 2013 and 2018 delivered audited savings between 8% and 26% on highways and prison projects. Particularly given the current pressure on budgets and ongoing challenges of a turbulent statutory and financial environment, all sectors of our industry should be giving serious thought to collaborative approaches.
It is worth acknowledging that although there are no intentionally ‘adversarial’ contract forms in use, contract terms do inevitably drive, discourage and reward particular behaviours. While it may be possible for parties under any contract to behave in a manner which we may recognise as collaborative, much of that collaboration tends to happen at an informal, operational level. For example, an employer may choose not to exercise its right to issue notice of intention to deduct liquidated damages if it considers that the contractor is doing everything possible to achieve practical completion. In those circumstances, however there is always the potential that a change in personnel (or attitude) could result in an abrupt change in approach. More fundamentally, that approach does nothing to realise the potential benefits of genuine collaboration.
Most recently, the London Publishing Partnership has published Professor David Mosey’s handbook to FAC-1 drawing on experience of successful projects delivered through collaborative contracting under FAC-1 frameworks and providing examples of good practice. Two clear themes emerge from this new book and the previous reports. First, that contract terms absolutely do drive and discourage ’contracting style’ (provided that they are actively used by parties rather than remaining in the proverbial desk drawer) and so contract choice and drafting are fundamentally important.
The second big theme, and one which resonates very powerfully with many of our clients, is that the potential benefits of alliancing and collaborative contracting will only be realised if the parties properly engage with the potential of the chosen contract terms. Put simply, choosing a collaborative form of contract is certainly necessary but absolutely not sufficient by itself. While the drive toward collaborative contracting has been very successful in encouraging clients (especially those in the public sector) to adopt NEC and other more collaborative forms of contract, it has arguably been much less successful in ensuring that the full potential of those contracts is used effectively to deliver savings, efficiencies and other benefits to clients, construction teams and wider stakeholders.
‘Walking the walk’
Many of the examples of poor practice which our clients come across arise from an apparent disconnect between a client’s headline choice of contract and desired risk profile so that the choice of contract is not reflected and reinforced throughout the contract documents. One frequent issue under FAC-1 alliances arises where the detail of the incorporated Objectives, Success Measures, Targets, Incentives, Risk Register and Template Project Documents are unclear, incomplete or inconsistent on tender issue. These are all key contractual documents which are central to the operation of the FAC-1 and should be drafted in a way which supports clients’ strategic aims and which facilitates and rewards effective collaboration. They should not be treated as analogous to forms of collateral warranty or performance security for example which may not materially vary from project to project.
One huge advantage of FAC-1 is its flexibility and the Handbook is full of examples demonstrating the breadth of sectors where it is in use and the variety of contract forms which can be used as Project Contracts. A disadvantage of that flexibility can be that procuring organisations are tempted to keep all contracting options open, especially where a framework will be available for use by multiple clients. Our view is that clients will gain the most advantage from alliancing and collaborative contracting where framework agreements and project contracts present a coherent risk profile and approach across the programme. While the Procurement Act 2023 may provide more flexibility around call-off contracts, procurement compliance should not be the sole aim of contracting authorities and central purchasing bodies.
Another frequent issue is that client organisations choose a form of contract which is intended to facilitate collaborative contracting but include amendments and/or special terms which fundamentally alter or are inconsistent with the published contract. For example, an NEC4 ECC, Target Price with X12 (multi-party collaboration) or X20 (KPIs) included but which also incorporates Z clauses designed to create a risk profile equivalent to that under a JCT Design & Build contract. This may be because clients feel obliged to be seen to be using a particular contract but are in reality uncomfortable with the risk allocation under that contract or simply because of a desire to carry on with ‘business as usual’. Whatever the reason, these ‘hybrid’ contracts can often produce the worst of both worlds.
As Latham wrote in 1994, “implementation starts with clients”. While choosing appropriate contract forms is certainly a necessary first step, clients must go further and fully embrace collaborative contracting if they are to actually realise the full potential benefits of alliancing and collaborative contracting. In particular, by ensuring that the full suite of contract documents reflects a coherent and committed approach which allows the parties to “work together and individually in the spirit of trust, fairness and collaboration” for the benefit of the project or programme (FAC-1, cl. 1.1).Download PDF