Construction Law International homepage  »  September 2020

 

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Before we try to predict medium-term and long-term changes to the construction sector that may result from Covid-19, we should first recognise the ways in which the industry and its clients have responded quickly and responsibly to the unprecedented challenges created by the pandemic. For example, in March 2020 the United Kingdom government issued Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the COVID-19 emergency, encouraging construction clients and teams not to endanger the viability of projects and businesses by rushing to terminate contacts.¹ In the same month, a transnational webinar organised by the Brazilian Institute of Construction Law explored ‘Collaborative approaches to dealing with Covid-19 in Construction Projects’ and offered detailed recommendations on how to organise and implement the work of a ‘crisis committee’.² Also that month, the Austrian Society of Construction Technology established common guidelines agreed among leading developers, contractors and consultants for the treatment of fixed costs, delay costs and disruption costs arising from Covid-19 in new tenders.³

Constructive responses to Covid-19 at personal, corporate and governmental levels illustrate how a collaborative approach can be adopted in adversity, but they also raise the broader issue of why this collaborative approach is not the commercial or legal norm. They lead us to question why systems of collaborative risk management are still not widely understood and why the attractions of risk transfer under more arm’s length procurement models continue to prevail. To put it bluntly, for many years the construction industry and its clients have largely ignored compelling evidence that procurement using the incomplete data of a single-stage tender is essentially a massive gamble supplemented by wishful thinking.⁴ In the UK this anomaly was underlined following the Grenfell Tower disaster of 2017, when the Hackitt report Building a Safer Future urged an overhaul of procurement systems in order to avoid the present ‘race to the bottom’ where ‘the primary motivation is to do things as quickly and cheaply as possible rather than to deliver quality homes which are safe for people to live in’.⁵

This paper will consider how the fixed paradigm of traditional procurement and contracting could change as we recover from the effects of Covid-19 and how new procurement and contracting models could help to bring the industry up to date and make it better equipped to deal with future risks. We will examine the impact of evolving contract theory on construction procurement and the application of collaborative models that open the door to more effective risk management. We will also look at the impact of collaborative procurement on the efficient use of digital technology and offsite manufacture.

It has been suggested that the seemingly illogical preference for single-stage procurement models, with their in-built risks arising from inadequate exchanges of crucial data, is driven not only by clients but also by their advisers, insofar as ‘clients tend to fixate on lowest initial tendered price and this is often perpetuated by their advisers, who, in a traditional procurement model, are implicitly employed (at least partly) to manage a fixed and adversarial transactional interface between clients and industry’.⁶ If this criticism is justifiable, it may result in part from the constraints of low fees and client demands, as well as from the limited exposure of advisers to liability for the consequences of their recommendations.⁷ Whatever the reasons, for so long as clients and their advisers remain unwilling to invest time and effort in more detailed procurement planning, then simplistic reliance on arm’s length, single-stage procurement models is likely to continue without deeper analysis of the scope for improvements.

The weaknesses of single-stage procurement procedures as a basis for achieving improved value and reduced risk are closely linked to the contracts to which these procedures give rise, and a McKinsey Global Institute report in 2017 found that poor productivity can only be properly addressed if we ‘rewire the contractual framework’.⁸ If a phenomenon such as Covid-19 requires projects to be being suspended and sites to be shut down, then contracts that state only the time and cost consequences of termination or suspension do not help us to mitigate the commercial effects of demobilisation or to preserve commitments and relationships among the members of the supply chain. Hence, we need to look for other contract mechanisms that can enable intelligent joint risk management by team members working together.

Commentators have distinguished between those risks that can be managed by an ‘authoritative’ approach, for example, an instruction issued by a project manager, and other risks that involve less obvious answers and demand a structured ‘collaborative’ approach so as to avoid simply ‘muddling through’.⁹ To enable this structured approach, the ISO 44001 international standard for collaborative business relationships describes how a collaborative team should ‘establish and record the process to be used for joint risk management’ and should use a joint risk register ‘reviewed at planned intervals as defined under the governance structure and appropriate actions addressed’.¹⁰

At a time of crisis, when the parties are tempted to run for cover and pass responsibility to someone else, there is a need for these collaborative risk management systems to be clearly set out in a contract. Relevant provisions in the NEC4¹¹ and PPC2000¹² contract forms include early warning provisions that trigger structured meetings, where the parties are required to seek ways to resolve risk issues using a shared risk register. For example, to encourage a more collaborative response to an unexpected event, NEC4 requires the parties to give early warning of any matter that could increase agreed costs, cause delay or impair performance of the works in use.¹³ An early warning leads to a meeting at which the attendees are required to cooperate in:

• making and considering proposals for how the effects of each matter in the early warning register can be avoided or reduced;

• seeking solutions that will bring advantage to all those who will be affected; and

•  deciding on the actions to be taken and who, in accordance with the contract, will take them.¹⁴

The Arcadis 2020 Global Construction Disputes Review suggested that: ‘Greater use of collaborative contracts, i.e. PPC2000, TPC2005 and FAC-1, might provide more confidence in project delivery. However, this can only be driven by owners and their representatives.’¹⁵ The case studies herein illustrate the use of collaborative risk management provisions in the PPC2000 project alliance contract and in the TPC2005 and TAC-1 term alliance contracts.

First, the University Hospital Dubai, a $900m multiparty project alliance, was on site in 2009 when the effects of the global financial crisis hit the United Arab Emirates. The team working on this project deployed the PPC2000 systems for early warning, core group decision-making and agreement of actions set out in a shared risk register.¹⁶ By these means:

• ‘Risk management had to cover the design and construction, the operation side of running the hospital and the business that controlled and funded the hospital, including corporate and clinical governance. These were all linked through joint risk management so that changes in any one of them could be examined to see if they affected any of the others, and so that the agreed course of action to overcome the problem could be reviewed to ensure that it did not cause a problem elsewhere’; and

• ‘When the credit crunch first hit Dubai the other 89 projects being undertaken for Dubai Holding were immediately suspended or terminated. The University Hospital Project kept going for a further 18 months, the team members having met and agreed a plan of action to use unamortised advance payments to continue the project and pay all parties from those funds.’¹⁷

The PPC2000 joint risk management systems enabled the team to make intelligent decisions together and to mitigate the effects of a global crisis. Even when eventually the client had to close down the University Hospital Dubai project, nevertheless ‘it was brought to an amicable termination with sufficient funds to pay all parties the monies that they were owed’.¹⁸

FIDIC contract forms do not provide equivalent joint risk management techniques, which arguably leaves the parties more vulnerable to a fragmented and defensive approach.¹⁹ For example, at the same time as the University Hospital Dubai team were agreeing their joint approach to risk management, the other 89 projects suspended or terminated by the same client were mostly governed by FIDIC-based contracts that only allowed for unilateral instructions issued by the project engineer. The suspension or termination of these contracts did not provide for joint planning or prior agreement among the project team members and instead ran the risk of misunderstandings, withholding of payments and disputes.

The second case study illustrates how housing clients and teams responded to Covid-19 using equivalent joint risk management systems under the TP2005 and TAC-1 term alliance contracts.²⁰ By reference to the alliances established by Central Bedfordshire Council with Engie, by St Albans City and District Council with Morgan Sindall and by Victory Housing Trust with Jeakins Wear, Shane Hughes of Savills reported how in response to Covid-19:

• ‘Service Providers under a Partnering or Alliance form raise an Early Warning for an extension of time that is assessed in the normal way’;

• ‘Likely outcomes are that reasonable Site Based Overheads are paid provided the Service Provider mitigates their costs wherever possible’;

• ‘Service Providers are paid up front or on demand so they can pay their supply chain promptly’;

• ‘Those staff who have to be furloughed by contractors are paid their full wage’; and

• ‘Clients get it and are mostly supportive of Procurement Policy Note 02/20 (Supplier relief due to COVID-19) as they firmly encouraged to do.’²¹

Yet why do we need to contractualise the details of a collaborative risk management approach when it is arguable that team members collaborate every day on projects all over the world? Can we not just agree to act in ‘good faith’? Unfortunately, the suggestion that good faith is the key to collaborative procurement, and the implication that there is no need for more rigorous collaborative contractual relationships and processes, can obscure a clear vision of how improved systems deliver results. In addition, the many conflicting court decisions, both in common law jurisdictions where good faith may be agreed or implied and in civil law jurisdictions where good faith is often a statutory obligation, reveal how this well-intentioned principle is open to different interpretations as to how it should be applied.²²

Even an express good faith clause in a construction contract is difficult to interpret in practice. For example, when the English courts attempted to construe an NEC good faith clause that it was claimed required a party in dispute to seek agreement regarding the applicable tribunal, the judge observed that even a general obligation to act fairly ‘is a difficult obligation to police because it is so subjective’.²³ In another English case examining a good faith clause in TPC2005, it was held that the requirement for a team to ‘work together and individually in the spirit of trust, fairness and mutual co-operation for the benefit of the Term Programme’ did not oblige the client to act reasonably when exercising a discretionary right of termination.²⁴

Therefore, we need to look more closely at the relationships and processes that collaborative contracts can create, and to use the principles of contract theory when assessing what type of contract can provide the detailed machinery that supports collaborative risk management. The basic contract types governing construction transactions comprise:

• a ‘classical contract’ describing a complete transaction ‘which entails comprehensive contracting whereby all relevant future contingencies pertaining to the supply of a good or service are described and discounted with respect to both likelihood and futurity’.²⁵ An example is a contract for the sale and purchase of bricks collected from a builders’ merchant; and

• a ‘neoclassical contract’ describing a more complex transaction where ‘not all future contingencies for which adaptations are required can be anticipated at the outset’ and where ‘the appropriate adaptations will not be evident for many contingencies until the circumstances materialize’.²⁶ An example is a typical construction contract where routine construction phase interactions require detailed procedures to govern assessment of progress, interim payments, changes and unforeseen events.

Against this backdrop, some collaborative approaches to procurement have been linked to a more open-ended model of contractual governance classified as a ‘relational contract’, under which:

• as in the case of a neoclassical contract, adaptations will be required so as to meet future contingencies;

• unlike a neoclassical contract, the parties ‘do not agree on detailed plans of action but on goals and objectives’;²⁷ and

• unlike a neoclassical contract, a relational contract reflects only the commencement of the relationship and is followed by ‘a complex succession of exercises of choice and agreement’.²⁸

A joint venture contract has been seen as relational because it has the following features:

• ‘A long-term business relationship’;

• ‘Investment of substantial resources by both parties’;

• ‘Implicit expectations of co-operation and loyalty that shape performance obligations in order to give business efficacy to the project’; and

• ‘Implicit expectations of mutual trust and confidence going beyond the avoidance of dishonesty’.²⁹

Macneil also envisaged that ‘standardised construction contracts’ can be ‘relational agreements containing a great deal of process planning’.³⁰ However, it is harder to reconcile the open-ended nature of a relational contract with the very specific rights and obligations on which the members of a construction team need to rely. Also, a relational contract categorisation does not capture the collaborative machinery through which the parties complete, exchange and agree the data that will equip them for effective risk management when unforeseen issues arise.

Macneil recognised that a contract can have ‘enterprise planning’ functions,³¹ and he suggested the following enterprise planning techniques to govern the completion of missing details and to reconcile potentially conflicting interests without resorting to negotiation: (1) joint dealings with third parties by way of mutual, non-negotiating activities that resolve an issue to the extent that the parties pursuing these activities do not perceive the need for negotiation.³² For example, while a project team may be aware of scope for negotiation of outstanding costs, many elements of those costs can be completed without negotiation by using an agreed system for subcontract tendering after a main contractor has been appointed;³³ and (2) persuasion by creating a business case for a particular course of action, sufficient to demonstrate to all parties the benefits of that course of action to the project as a whole, rather than leaving particular team members to negotiate prices or look for alternatives. For example, a construction contract can provide a system whereby a main contractor builds up a preconstruction business case for the use of an in-house team or a preferred subcontractor whose work it believes will benefit the project and will be in the interests of all other team members. Presentation of a business case for approval by the other team members gives the main contractor the opportunity to demonstrate the cost and qualitative benefits that justify its proposals.

Clear machinery set out in the contract can establish the means to agree design, cost, time and risk data that was not available at the time when the contract was entered into, and in this way a collaborative contract can avoid the challenge that it is unenforceable for uncertainty or incompleteness.³⁴ For example, the English courts have recognised that ‘there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later’.³⁵ Where these enterprise planning activities and interactions are set out in a contract, the features of this contract can lead to it being categorised as an ‘enterprise contract’.³⁶

An enterprise contract can provide for a succession of choices in order to accommodate and utilise increasing information. However, unlike a relational contract, an enterprise contract creates the machinery by which joint activities govern the development of all or most of the increasing information and minimise the role of negotiation when the parties make choices as to how the increased information should be used.An enterprise contract thereby maps out the stages of its evolving scope in provisions that go beyond the reactive adaptations of a neoclassical contract. To achieve timely progress and a clear understanding among its parties, an enterprise contract requires a clear brief and a timetable of actions that are more precise than the open-ended goals and objectives of a relational contract.³⁷

In establishing detailed plans of action, an enterprise contract:

• provides for default rules to fill information gaps and provides processes that incrementally increase the quantity and quality of that information;

• deals with contingencies in respect of unknown matters and also sets out processes and interfaces that achieve future expectations and agreed objectives; and

• uses conditions precedent to be satisfied before proceeding from one stage to the next and also provides systems that give a clearer structure to the activities that enable progress.³⁸

Enterprise contracting is already familiar to the construction sector, for example, in a design consultant appointment that usually contains incremental processes for:

• the creation and submission of design data in successive levels of detail and for successive interactions with other parties who provide contributions, comments and approvals;

• recognition of approved design data as the basis for each next stage of the design services, being data was not in existence at the start of the previous stage; and

• recognition of approved design data as the basis for an appointment relating to administration of the construction phase of the project.³⁹

In the context of a two-stage collaborative procurement model, we can see detailed enterprise processes set out in PPC2000, which the 2008 Arup report described as ‘a procurement system that provides the processes and mechanisms for planning, procurement and delivery of construction works.’⁴⁰ PPC2000 describes enterprise planning which is integrated through a multiparty ‘Partnering Timetable’ and governs:

• development, exchange and agreement of designs in successive levels of detail, linked to third-party approvals;⁴¹

• selection of subcontractors and suppliers, to be appointed by main contractor, and the establishment of their costs through enterprise planning by way of subcontract tenders and business cases;⁴²

• early joint risk management assessing the impact of shared design, costs and supply chain data on issues of quality, safety and sustainability;⁴³ and

• agreement by the team members that the agreed data is sufficient for the project to proceed to construction.⁴⁴

Identification of potential areas of risk and the agreement of actions to reduce them are important features of collaborative procurement. Contractual processes can enable alliance members to identify, assess and prioritise risks as early as possible and to establish what actions, if any, can be taken to reduce or eliminate them.
For example:

• main contractors ‘should quote any risk contingencies at the point of selection so that joint risk management activities during the Preconstruction Phase can seek ways to reduce or eliminate the need for these risk contingencies’;⁴⁵ and

• ‘The analysis and management of risks relevant to the Project should be by a methodology agreed by the Partnering Team prior to signing the Project Partnering Agreement and reflected in activities described in the Partnering Documents, for example the preparation and agreement of a risk register with an agreed action plan as to how Partnering Team members will deal with the risks identified and any prospective risk contingencies.’⁴⁶

A collaborative team can use the information built up, exchanged and agreed under an enterprise contract to:

• honestly identify risks and how these risks will be perceived by other parties, for example, a consultant putting itself in the place of a contractor and by a contractor putting itself in the place of a subcontractor;

• estimate to the best extent the likely costs of perceived risks, whether those costs can be accurately identified or will be estimated by way of a risk premium and what additional steps can be taken to identify those costs more accurately;

• establish the steps to be taken to eliminate or reduce risks and their costs, or at least to identify them more accurately;

• provide for insurance of risks wherever affordable and appropriate;

• agree the sharing or apportioning of residual risks according to who is most able to manage those risks and who is most able to afford the cost of risks that cannot be managed; and

• recognise that pricing by consultants, contractors, subcontractors and suppliers will take account of how the team members approach each of the above actions.⁴⁷

The collaborative costing of a project enables careful review of risk contingencies. For example, on the St George’s Hospital Keyworker Accommodation project the team agreed for ‘preconstruction work to be carried out at the same time as a final Agreed Maximum Price (AMP) was being agreed in which all risks had been quantified’.⁴⁸ This gave the team ‘the incentive to be proactive in managing risk and expenditure so as to earn rewards available through the shared savings mechanism, openly reviewing buying gains obtained through subcontractor and statutory authority orders. Monthly critical analysis ensured that financial risks could be eliminated or quantified. This proved highly successful, allowing the client to instruct changes which increased the quality of the project further, safe in the knowledge that costs would be confined within the AMP.’⁴⁹

In the joint management of risks, team members may be tempted to populate a risk register with unnecessary contingencies. For example, on the Bermondsey Academy project a ‘risk sub-team’ incorrectly assumed that their job was to imagine and cost every conceivable possibility, and the wider team had to agree a better-informed approach that enabled unnecessary risk contingencies to be removed.⁵⁰

Where the proposed project workflow is sufficient to justify strategic procurement under a framework contract or term contract, then enterprise contracting can also govern the procedures that lead to the award of successive projects or tasks.⁵¹ In addition, the enterprise-planning processes of a framework contract can be used to build up additional design, cost and risk data during the selection and mobilisation of the team for each project and to agree and embed lessons learned for later projects. Long-term collaborative contracts such as the FAC-1 framework alliance contract⁵² and the TAC-1 term alliance contract⁵³ set out enterprise features that govern:

• exchanges of design, cost, risk and time data through contributions and interactions between alliance members that establish the scope for greater consistency and greater efficiency and that are encouraged by agreed incentives;⁵⁴

• a timetable in respect of those exchanges and interactions;⁵⁵

• reviews after completion of each project or task so as to ensure that improvements can be applied in the later projects or tasks;⁵⁶ and

• joint risk management activities including assessment and agreement of actions, timelines and related risks.⁵⁷

The detailed enterprise contract features in FAC-1 and TAC-1 describe how alliance members work with each other, and with supply chain members outside the alliance, to create opportunities for improved value in exchange for improved mutual commitments. This process is known as ‘supply chain collaboration’ and follows UK government procurement guidance⁵⁸ in setting out a sequence whereby alliance members:

• review and compare the value offered by supply chain members;

• review the potential for more consistent, longer-term, larger-scale supply chain contracts and for other improved commitments and supply chain working practices;

• jointly undertake enterprise planning by renegotiating or retendering supply chain contracts; and

• agree more consistent, longer-term, larger-scale supply chain contracts and other improved supply chain commitments and working practices.⁵⁹

The potential of long-term collaborative contracts is particularly evident when the team invest in offsite manufactured approaches, often known as ‘modern methods of construction’ or MMC. The potential benefits of MMC were summarised in a 2018 UK House of Lords report as:

• better quality;

• enhanced client experience;

• fewer labourers and increased productivity;

• more regional jobs away from large conurbations;

• improved health and safety for workers;

• ensure buildings meet quality assurance standards;

• improved sustainability; and

• reduced disruption to the local community during construction.⁶⁰

These benefits are all the more attractive in a post-Covid-19 world, and Mark Farmer as the UK champion of housing MMC has emphasised the ‘crucial need to adopt an integrated procurement model in order to deliver projects more efficiently’, for example, through increasing ‘pre-manufactured value’ by moving processes from the final site into controlled manufacturing environments’, failing which ‘the construction world will become an increasingly difficult place to make money and survive’.⁶¹

Examples of how a long-term alliance can enable MMC procurement include the award by the Royal Borough of Greenwich of a £320m programme of modular housing works using the TAC-1 term alliance contract, with a five-year term extendable to ten years and governing all aspects of design, planning, manufacture, delivery and installation.⁶²

In 2019 the UK Crown Commercial Service (CCS) awarded a £1.2bn FAC-1 modular framework alliance to 24 suppliers spanning education, healthcare, housing, defence, commercial and retail, and linked to call off by individual users under TAC-1 term alliance contracts.

The FAC-1 and TAC-1 forms were selected as the basis for the CCS modular procurement, and for its £30bn construction alliance and its £2.8bn consultant alliance, in order to:

• share and monitor learning between projects and programmes of work;

• agree and monitor techniques for better team integration;

• share and agree other improvement initiatives created with contractors and other supply chain members.⁶³

Another collaborative enabler of improved risk management after Covid-19 is the more effective use of building information management (BIM) and other digital technology. The future outlined in BIM2050 included the prediction that ‘design consultants and principal contractors will be appointed simultaneously, early in the lifecycle, to enable concurrent working at outline business case stage’.⁶⁴ Only early, direct contractual relationships between the members of an alliance can support this proposed level of team integration, enabling collective BIM decision-making under ‘multi-party contracts to discourage legal disputes and costly litigations’.⁶⁵ An alliance contract can bring BIM contributors into relationships that set out value-adding digital activities and processes that use BIM to build reliable shared data and mutual confidence, and that consider the operational impact of BIM on those who will repair, maintain and operate the completed projects.

A framework for the adoption of BIM with collaborative procurement in Australia recommended:

• ‘Early engagement of facilities management professionals at the design and planning stage to minimise overall operational lifecycle costs of the asset/facility’; and

• ‘Comprehensively contractually binding BIM Management Plans […] completed jointly by a project owner representative, design team and contractor’.⁶⁶

Alliance contracts that have been proven to support BIM include PPC2000 in the UK and comparable multiparty contracts such as ConsensusDocs in the United States, the latter with a BIM addendum providing that ‘each Model Contributor shall be responsible for the Contributions it makes to a Model or the data that is developed as a result of that Contributor’s access to a model’.⁶⁷ A 2016 King’s College London BIM research report explored how an overarching multiparty umbrella contract could:

• set out who works with whom and at what level of responsibility, so that the contributions to BIM under bilateral contracts can be drawn together more effectively; and

• create mechanisms that ensure stronger commitment to shared objectives and collective self-regulation, as well as improved transparency and efficiency, through the ability to share BIM data on mutually agreed terms.⁶⁸

PPC2000 has been recognised and proven as an effective multiparty contractual integrator in respect of BIM contributions.⁶⁹ As an alternative, so as to draw together a range of two-party contracts, FAC-1 provides for BIM to integrate the agreed approaches to design, supply chain engagement, costing, joint risk management and programming, with relevant clauses and guidance governing:

• data transparency and team integration through direct relationships under the multiparty structure and agreed objectives;⁷⁰

• agreed software and clarity as to reliance on data in the communication systems and template documents;⁷¹

• mutual reliance on agreed BIM deadlines, gateways and interfaces in a timetable of agreed alliance activities;⁷²

• flexibility to agree any combination of BIM contributions;⁷³

• flexibility to bring in BIM contributions from specialist subcontractors, suppliers, manufacturers and operators;⁷⁴

• direct mutual licences of intellectual property rights;⁷⁵

• integration of BIM management with governance and clash resolution through the core group and early warning provisions and through the alliance manager;⁷⁶

• flexibility to obtain BIM contributions from additional alliance members involved in the occupation, operation, repair, alteration and demolition of completed projects;⁷⁷ and

• potential for BIM to enable learning and improvement from project to project and from task to task.⁷⁸

It is important to note that the BIM international standard ISO 19650⁷⁹ emphasises repeatedly the importance of collaboration in ways that reveal how two-party traditional contracts and bolted on two-party BIM protocols have fallen far behind the needs of the industry. For example, only a multiparty instrument such as FAC-1, PPC2000 or Consensus Docs can embody the ISO 19650 requirements for:

• an ‘overall asset or project risk assessment, so that the nature of the information delivery risks, their consequences and likelihood of occurring are understood, communicated and managed’;⁸⁰ and

• a BIM ‘federation strategy’ that is agreed collaboratively and that explains in detail how BIM ‘information containers’ relate to each other, how they connect the delivery and operation phases of an asset and how they are updated as new task teams are appointed.⁸¹

The global transformative potential of MMC and BIM and the terrible global reach of Covid-19 both underline the value of collaborative contracts that cross legal boundaries in order to ‘rewire the contractual framework’ in line with the McKinsey recommendations. For example, FAC-1 includes no express English law provisions and has already been successfully translated and adapted for use in numerous civil law jurisdictions.⁸²

Clients and teams worldwide have a unique opportunity to ensure that the recovery from the impact of Covid-19 is accompanied by a fundamental rethink of prevailing procurement and contracting practices. For example, in May 2020 the UK Construction Leadership Council published a ‘Roadmap to Recovery’, with strategic priorities that include increased prosperity, decarbonisation, modernisation through digital and manufacturing technologies, and delivery of better, safer buildings. The three phases of the Roadmap to Recovery are:

• ‘Restart’: increase output, maximise employment and minimise disruption over a period of 3 months;

• ‘Reset’: drive demand, increase productivity, strengthen capability in the supply chain, over a period of 3 to 12 months; and

• ‘Reinvent’: transform the industry, deliver better value, collaboration and partnership, over a period of 12 to 24 months.⁸³

It is essential that the reinvention phase of a roadmap to recovery in every jurisdiction takes full advantage of the collaborative tools and supporting evidence that are available through published contract forms such as FAC-1. This will enable clients and their construction teams to embed their mutual commitment to systems of timely planning, data exchange, integration and incentivisation that are proven to deliver better value and to underpin effective
risk management.

 

Notes

1 For the full guidance see www.gov.uk/government/publications/guidance-on-responsible-contractual-behaviour-in-the-performance-and-enforcement-of-contracts-impacted-by-the-covid-19-emergency accessed 11 June 2020.

2 For the full proceedings of this webinar see www.youtube.com/watch?v=L0nXcwuspOw&feature=emb_logo accessed 11 June 2020.

3 These guidelines were reported by Mathias Fabich of the Porr Group to a June 2020 meeting of the Transnational Alliancing Group, a forum established by the King’s College London Centre of Construction Law and bringing together leading construction lawyers and professional bodies in twelve jurisdictions.

4 As made clear in reports such as H Banwell, The placing and management of contracts for building and engineering work (1964); M Latham, Constructing the Team (1994); and Construction Leadership Council, Procuring for Value (2018).

5 Dame Judith Hackitt, Building a Safer Future – Independent Review of Building Regulations and Fire Safety: Final Report (May 2018) https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/707785/Building_a_Safer_Future_-_web.pdf accessed
11 June 2020.

6 Mark Farmer, Modernise or Die (2016).

7 Few English court cases have found consultants to be liable for the failings of a recommended approach to procurement, although there are some notable exceptions such as Plymouth and south West Cooperative Society v Architecture Structure and Management [2006] EWHC 5 (TCC).

8 McKinsey Global Institute, Reinventing Construction Through a Productivity Revolution (2017).

9 Dr David Hancock, Tame, Messy and Wicked Risk Leadership (2010).

10 ISO 44001 ‘Collaborative business relationship management systems – requirements and framework’ (2017).

11 NEC4 Engineering and Construction Contract (2017).

12 PPC2000 Project Partnering Contract (2013).

13 NEC4 cl 15.1.

14 NEC4 cl 15.3.

15 10th Annual Global Construction Disputes Report: Collaborating to achieve project excellence Arcadis (2020) www.arcadis.com/en/united-kingdom/our-perspectives/2020/june/global-construction-disputes-2020 accessed 11 June 2020.

16 D Mosey, Collaborative Construction Procurement and Improved Value (2019) s 18.10 case study.

17 Ibid.

18 Ibid.

19 The FIDIC Second Edition 2017 introduced early warning at cl 8.4 but with no related provisions for a risk register or a forum through which to consult on an early warning and to agree appropriate actions.

20 TPC Term Partnering Contract (2005) and TAC-1 Term Alliance Contract (2016).

21 D Mosey, ‘Intelligent risk management in response to COVID-19’ (LinkedIn, 3 April 2020) www.linkedin.com/pulse/intelligent-risk-management-response-covid-19-david-mosey accessed 11 June 2020. Shane Hughes is also Chair of the UK Alliance Steering Group.

22 As reviewed in detail in D Mosey, ‘Good Faith and English Construction Law’ (2015) International Construction Law Review 34(4); and in S Jackson and B Fuchs, ‘Good Faith: An Anglo-German Comparison’ (2015) International Construction Law Review 32 (4).

23 Costain Ltd v Tarmac Holdings Ltd[2017] EWHC 319 (TCC), para [123], [2017] 2 All ER (Comm) 645, [2017] 1 Lloyd’s Rep 331; by reference to NEC cl 10.1, requiring the parties to act ‘in a spirit of mutual trust and cooperation’.

24 TSG Building Services v South Anglia Housing [2014] EWHC 2061 (TCC).

25 O E Williamson, ‘Transaction – cost economics: the governance of contractual relations’ (1979) Journal of Law & Economics 22 (2), 233.

26 Ibid.

27 P Milgrom and J Roberts, Economics Organisation and Management (1992).

28 I R Macneil, ‘Economic Analysis of Contractual Relations – its Shortfalls and the Need for a “Rich Classificatory Apparatus”’ (1981) North Western University Law Review 75(6).

29 H Collins,‘Is a Relational Contract a Legal Concept?’ Contracts in Commercial Law (2016).

30 I R Macneil, ‘The Many Futures of Contracts’ [1974] Southern California Law Review 47.

31 Ibid.

32 Ibid.

33 See also below regarding the system of ‘supply chain collaboration’.

34 In Alstom Signalling Ltd v Jarvis Facilities Ltd [2004] EWHC 1232 (TCC) where Mr Recorder Reese QC held that: ‘Neither party could thwart the agreement by refusing to negotiate in good faith and/or by refusing to allow an Adjudicator or a TCC Judge to resolve the matter.’

35 Lord Justice Lloyd in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601 (CA).

36 A contract subtype that was not expressly recognised by Williamson or Macneil but which emerges from King’s College London research. This subtype was first identified by D Mosey, ‘The origins and purposes of the FAC-1 Framework Alliance Contract’ (2017) International Construction Law Review 34(4).

37 See n 16 above, s 8.5, 8.6 and 8.7.

38 Ibid, s 8.5.

39 Ibid.

40 Arup Project Management, Office of Government Commerce, Partnering Contract Review Report (25 September 2008) http://ppc2000.co.uk/wp-content/uploads/2016/12/partnering_contract_review.pdf accessed 12 June 2020.

41 PPC2000 (2013) cl 8.

42 PPC2000 (2013) cl 10.

43 PPC2000 (2013) cls 8, 12, 14 and 15.

44 In this respect PPC2000 (2013) is also a relational contract in that it provides for certain matters to be subject to unanimous approvals by a ‘Core Group’, acting through a quorum of those members who attend the meeting (PPC2000 (2013) cl 3.6), and in that proceeding to construction requires all team members to sign a ‘Commencement Agreement’ (PPC2000 (2013) cl 15 and Appendix 3 pt 2).

45 D Mosey, Project Procurement and Delivery Guidance: Using Two Stage Open Book and Supply Chain Collaboration (King’s College London, HMSO 2014)  https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/325014/Two_Stage_Open_Book_Guidance.pdf accessed 11 June 2020.

46 Guide to the ACA Project Partnering Contracts PPC2000 and SPC2000 (2003).

47 See n 16 above, s 18.5.

48 Ibid, case study.

49 Ibid.

50 Ibid.

51 For European public sector clients, framework procedures are outlined in Reg 33 of the Public Contracts Regs 2015 or their equivalent. By setting out the rules governing the award of project contracts, a framework contract clarifies rights and obligations that may otherwise be implied but open to dispute.

52 FAC-1 Framework Alliance Contract (2016).

53 TAC-1 Term Alliance Contract (2016).

54 Cls 2.4 and 6 of FAC-1(2016) and TAC-1 (2016).The prospect of a significant workflow is a significant collaborative incentive that should motivate the parties to seek improvements in advance of and separate from the award of specific project contracts.

55 Cls 2.5, 2.6 and 6.1, and Sch 2, of FAC-1 (2016) and TAC-1 (2016).

56 Cls 2.1, 2.2, 2.3 and 14.2, and Sch 1, of FAC-1(2016) and TAC-1 (2016). Measurement of improved value across the alliance as a whole, linked to its continuation or extension or to other agreed incentives, should motivate the parties to share the feedback necessary to agree these improvements.

57 Cls 9.3 and 9.4, and Sch 3, of FAC-1(2016) and TAC-1 (2016).

58 See n 45 above.

59 Cl 6.3 of FAC-1(2016) and TAC-1(2016).

60 Off-site manufacture for construction: Building for change House of Lords Science and Technology Select Committee (19 July 2018) https://publications.parliament.uk/pa/ld201719/ldselect/ldsctech/169/169.pdf accessed 11 June 2020.

61 See n 16 above, Introductory review.

62 See case study at http://allianceforms.co.uk/news-and-users accessed 12 June 2020.

63 See n 16 above, s 10.10, case study.

64 Construction Industry Council, A Report on our Digital Future (2014).

65 Ibid.

66 Strategic Forum for Australasian Building and Construction Industry, as referred to in Centre of Construction Law and Dispute Resolution, Enabling BIM Through Procurement and Contracts (King’s College London, 2016) www.kcl.ac.uk/law/research/centres/construction/enabling-bim/ebimtpac-form accessed 11 June 2020.

67 ConsensusDocs 301 BIM Addendum (2016).

68 See n 66 above, Enabling BIM.

69 For example, in UK Government and Constructing Excellence case studies at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/325950/Cookham_Wood_case_study__CE_format__130614.pdf accessed 11 June 2020; and https://constructingexcellence.org.uk/wp-content/uploads/2015/12/Trial-Projects-North-Wales-Prison-Case-Study_Final.pdf accessed 11 June 2020.

70 FAC-1 (2016) multiparty structure, Sch 1 Objectives and cl 13 confidentiality.

71 FAC-1 (2016) cl 1.9.3 communications and Sch 5 Template Project Documents.

72 FAC-1 (2016) Sch 2 Timetable and cl 6 Alliance Activities.

73 FAC-1 (2016) multiparty structure, cl 1.11 and Appendix 2 Joining Agreement.

74 FAC-1 (2016) cl 6.3 Supply Chain Collaboration.

75 FAC-1 (2016) cl 11.

76 FAC-1 (2016) cls 1.6, 1.7, 1.8 and 3.

77 FAC-1 (2016) cl 1.11 and Appendix 2 Joining Agreement and recognition of Operation as a feature of Improved Value.

78 FAC-1 (2016) Sch 1 Success Measures and Targets.

79 ISO 19650 ‘Organisation and digitalisation about buildings and civil engineering works, including BIM’ (2018).

80 ISO 19650-1 cl 6.3.1.

81 ISO19650 -1 cl 10.4.

82 FAC-1 (2016) has been translated into Bulgarian, German, Italian, Portuguese (in Brazil), Russian and Spanish (in Chile, Peru and Spain) with amendments for use in those jurisdictions. See allianceforms.co.uk.

83 Construction Leadership Council, Roadmap to Recovery: An Industry Recovery Plan for the UK Construction Sector (1 June 2020) www.constructionleadershipcouncil.co.uk/wp-content/uploads/2020/06/CLC-Roadmap-to-Recovery-01.06.20.pdf accessed 11 June 2020.

 

David Mosey is the Director of the Centre of Construction Law and Dispute Resolution at King’s College London. Professor Mosey can be contacted at david.mosey@kcl.ac.uk.

 

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