Partnerships key to success
Joanne Emerson of Norton Rose ponders on the fundamentals of partnering and why it is time to peel off the scepticism that shrouds it.
01 March 2007
To the construction industry, partnering is not a novel concept. In fact, interest in partnering and partnering-related arrangements has been on the rise in the industry since the late 1980s.
However, the industry has become disillusioned with the benefits of partnering over the years and, as a result, has for some time, treated the concept with scepticism.
So what then is partnering?
A rather loose term used to refer to any form of collaborative contracting in which two or more organisations work together to achieve a specific business objective, partnering can take the form of either strategic long-term partnering or project partnering.
Partnering requires significant cultural changes and it is often undermined by entrenched attitudes and traditional forms of relationship management in the industry. However, the benefits of successful partnering can include reduced administrative and project management costs, a collaborative and non-adversarial approach to design development and review processes, reduction in competitive tendering and bidding costs and early recognition and resolution of disputes.
Some of the characteristics which distinguish partnering from the more traditional contracting are:
• Collective performance obligations of employer and contractor;
• Open book reimbursement arrangements;
• Decision making by the “alliance”;
• A commitment to resolve issues without resort to litigation; and
• Non-traditional allocation/sharing of risks between participants.
To be successful, partnering requires, above other things, a commitment to the objectives and benefits of partnering within project management teams, mutual trust between project management teams, and discipline.
Types of partnering
There are essentially two types of partnering: strategic long-term partnering and project-specific partnering.
Strategic long-term partnering is based on a long-term relationship between construction industry participants seeking to ensure consistency and continuous improvement in performance levels over an extended period of time and in relation to multiple projects.
Project-specific partnering, as its name suggests, is related to the delivery of a single project. It generally involves agreeing to a more structured partnering relationship including more specific objectives either as part of the project contract itself or as a separate umbrella agreement. Moreover, project specific partnering will generally ‘kick in’ following a competitive tender process and the selection of the successful contractor.
The opportunities and pitfalls
The advantages of partnering are increased opportunities for financial success, lack of an adversarial atmosphere and possible reduction of exposure to litigation, cultivation of good public relations and increased prospects of repeat business, incentives for innovations (resulting in cost and time reduction benefits), improved cost, time and quality outcomes, reduced administrative and project management costs, a collaborative and non-adversarial approach to design development and review processes, reduction in competitive tendering and bidding costs (in strategic partnering relationships), early recognition and notification of disputes, better and more transparent profitability by the contractor, potential reduction in contractual misunderstandings, greater client satisfaction and increased job satisfaction.
Clearly, when a partnering relationship works, the parties have the opportunity to obtain high-value gains in terms of performance and future relationships. There are, however, common partnering pitfalls including a tendency of the respective project teams to disregard the partnering objectives if they are contained in an overarching document that is separate to the construction documentation, failure by the management teams to properly and comprehensively educate project personnel on the aims, values and objectives of a partnering relationship and, most common of all, the tendency of parties to revert to an adversarial approach when disputes arise, particularly in circumstances where specific risk allocation is inadequately dealt with in the project contract.
Partnership contracting
There are a couple of contracting options. The first option is the non-binding or binding “partnering charter” which can operate independently of the project contract. The second option is a construction contract, which reflects a collaborative contracting relationship and often includes profit-sharing and other incentives to ensure that both parties are financially motivated to their respective partnering commitments.
Partnering in practice
While the rhetoric of partnering is widespread, the uptake of partnering practices in the international construction arena has been slow and piecemeal. In the Middle East, for instance, partnering has been adopted in some contracts, but not in many1. This is despite principles of resolution of disputes in an amicable manner being recognised under Islamic law. Disparate corporate objectives, an adversarial dispute resolution tradition, a “bid low, claim high” commercial approach and a traditional enmity between employers and contractors have created barriers in the construction industry to readily adopt partnering.
Contracts will remain an important part of the construction industry. There are a number of reasons for this: rigorous due diligence procedures and more stringent financing practices, increasing contractual and technical complexity of major projects and less equitable risk sharing profiles2. Partnering is unlikely to succeed or become widespread until partnering protocols can be comfortably accommodated within traditional contracting structures. There is nothing intrinsic in partnering which is incompatible with traditional contracting structures. However, partnering participants can often view the strict terms of a traditional construction contract in the same terms as a bride and groom may view a pre-nuptial agreement - generally unwelcome, but often necessary.
References:
1 Bunni, R, ‘Contract or Co-operation’ Insight from the Middle East’, presented at a conference organised by the Centre of Construction Law at King’s College London in 2003.
2 Skeggs, C, ‘Project Partnering in the International Construction Industry’ at www.fidic.org/resources/contracts /skeggs.asp
Legal queries related to the construction sector can be addressed to Norton Rose through Gulf Construction Magazine at
editor@gulfconstructionworldwide.com
