Encouraging and improving collaborative working in the UK construction industry has been a recurring theme for over 10 years. While there have been improvements in this time, our most recent survey reinforces the view formed in our 2012 survey, which suggests that while the benefit of collaboration is now widely acknowledged in the industry, few projects are actually adopting collaborative working methods.
The EC Harris Global Construction Report 2013 paints a bleaker picture; it identifies the trend that UK construction disputes tend to be ‘attributable to parties taking a less collaborative approach than other markets [countries]’. Thus, not only are we failing to adopt collaborative working in our projects often enough, we are also lagging behind the rest of the international community in this important area that has historically been championed by the UK construction industry!
These findings beg the question: how can we improve collaboration in UK construction industry?
A recent research project1 has identified that main contractors point to the nature and conditions of construction contracts used for projects as one of the factors influencing the adoption of collaborative working in construction projects. It is therefore important, as we approach the 20th anniversary of the publication of the Latham Report (which also identified the lack of collaborative behaviour in construction, as one of the main obstacles to performance meeting client expectations), to look at what still needs to be done to improve collaborative construction contracts in particular and collaborative working in the construction industry as a whole.
Does collaboration require contracts?
Many argue that ‘collaborative’ construction contracts are not important in encouraging or improving collaboration. Some hope for the ‘Utopian’ position where construction contracts become obsolete. This was the view supported in the Egan Report, which stated:“If the relationship between a constructor and employer is soundly based and the parties recognize their mutual interdependence, then formal contract documents should gradually become obsolete.” (Rethinking Construction 1998)
This assertion depends on the existence of a continuing relationship where parties are keen to maintain good relations in the light of future upcoming projects. Framework contracts which allow the engagement of selected suppliers/contractors over a period of time provide a practical mechanism for such continuing relationships.
However, while there is evidence of successful collaboration in projects2 that are not based on tried and tested contractual frameworks, research indicates that often such collaborative working involves parties to a project proactively coming together to resolve problems that arise during the works, with the primary focus on finding areas for compromise. Such collaborative working is usually spontaneous and unplanned. This is not the same as developing and establishing a continuous search for improvement and innovation which dovetails into a well developed capacity for better project execution, which is the traditional hallmark of collaborative working.
It is also a legal fact that whether parties to a commercial transaction agree to confine themselves to a written contract or not, the law will assume the existence of some form of agreement (created by actions of the parties, accepted trade and customs, oral agreement or operation of the law) and in the event of a disagreement will resolve the dispute in accordance with the terms of such agreement. In the case of Birse Construction v St David Ltd (2000), a dispute went through three court cases to determine whether a partnering construction contract existed and what the terms of such a contract were – the parties would have been far better served having a signed agreement. This provides greater clarity on the rights and obligations and reduces the probability of a court decision that is not in accordance with the parties understanding of the terms of engagement.
The Egan Report envisaged a gradual movement towards fewer contracts based on “teams of designers, constructors and suppliers [to] work[ing] together… continuously developing the product and the supply chain; eliminating waste in the delivery process, innovating and learning from experience” (Rethinking Construction 1998). The availability of regular workloads that support such multi-project collaboration arrangements is limited. Most construction projects are one-off projects with a unique amalgamation of (many) specialized firms with a varied supply chain. Additionally, the bespoke nature of construction projects means that the project team may need to change from time to time.
Based on these reasons, it is our argument that a well framed collaborative contract would be beneficial for the establishment of a clear framework on which collaboration can be organized in a construction project.
There are, of course, criticisms that construction contracts, including those that have been termed collaborative, are rigid and inflexible and institute procedures and features that do not significantly aid collaboration. If so, these criticisms serve to build the case for further research to develop knowledge on how to improve and create effective contractual mechanisms that provide the framework for collaboration in construction projects.
While the benefit of collaboration is now widely acknowledged in the industry, few projects are actually adopting collaborative working methods... we are also lagging behind the rest of the international community... these findings beg the question: how can we improve collaboration in UK construction industry?
What are collaborative construction contracts and how can they be more effective?
Collaborative construction contracts may be described as providing a mechanism for organizations involved in a construction project to work together – to proactively and jointly manage project risks – in order to achieve the common goal of effective project execution. This includes encouraging innovation and continuous improvement during the course of a project or series of projects.
However, this definition presents some difficulties. The existence of a common goal for organizations involved in a construction project is often debated. This is because construction projects are executed in phases and the supply chain, over the years, has become more specialized and at times fragmented. Parties involved in a project (especially sub-contractors) are engaged at different stages in the process, so they may have no relationship with each other or have an overall picture of the project and its interfaces. At the same time, the balance between costs and quality seems to be valued differently depending on which ‘side’ of the project a party operates from.
Even in the absence of a conflict of goals and objectives, ‘real’ collaboration and integration between parties from different specialist areas (with their own distinct practices and terminologies as there are in construction) requires significant effort.
These are the complexities that a collaborative construction contract is required to resolve to encourage collaborative working. In this context, an effective contract recognizes the peculiarities of the industry and responds to them adequately by providing a framework where the realities of daily operations at the project site are made less adversarial.
Typically, collaborative contract clauses are those which encourage team building, joint risk management, value engineering, and periodic assessment using key performance indicators.
Standard form collaborative contracts
Following the reports of the 90s (Latham 1994; Egan 1998), the choice of standard form contracts with collaborative clauses has improved. In general, the following contracts are accepted as containing collaborative clauses:
- NEC 3 suite of contracts
- JCT Constructing Excellence Contract (JCT CE)
- ACE PPC 2000
- CIOB Complex Construction Contract 2013
Also from their 2009 updates onwards, most JCT contracts have contained supplemental provisions, providing tools for collaborative working. JCT also published a partnering charter in both binding and non-binding versions.
It’s not all about ‘Good Faith’
Collaborative construction contracts are wrongly assumed to be synonymous with the rather nebulous concept of ‘Good Faith’. While ‘Good Faith’ provisions are a common feature in standard form construction contracts that contain collaborative clauses, the effect of such a provision is debatable. In the NBS National Construction Contracts and Law Survey 2013 report, Victoria Peckett examines the concept of ‘Good Faith’ in contracts and suggests that the courts are leaning towards a limited interpretation of such provisions.
There is the possibility of new legal precedence flowing from the more tightly drafted ‘Good Faith’ clauses, such as those included in JCT CE, which provides that any failure to observe the ‘overriding principle’ (working together in ‘Good Faith’ and in spirit of mutual trust and respect) should be taken into account in the determination of any dispute arising from the contract. Meanwhile, a plethora of research evidence points to the need for contract clauses that go beyond ‘Good Faith’ and provide the parties with the framework to proactively manage risks together, innovate, and improve on their contribution during a project.
Ensure that all project participants have signed up to collaborate: While this may seem self-evident... it is not being sufficiently implemented on collaborative projects. This problem is not superficial...
Paying attention to what works (improving collaborative construction contracts)
Fortunately, the academic community has devoted considerable time into studying the working of collaborative contracts in construction projects. Adding the results of this research to the findings of our survey, some areas for improvement become apparent.
- Improve the clauses on innovation: An analysis of project case studies indicates that innovative working (usually leading to savings on costs and improvement on project outcomes) is not a regular occurrence in construction projects. Even when it does occur, it would be difficult to attribute it to a well set out system that encourages and provides the framework for innovation, although this is one of the hallmarks of a collaborative project. A review of standard form construction contracts with collaborative clauses provides an explanation for this. The task of proposing innovations and the cost of investigating their viability are often assigned to the contractor (this clause may not be extended to sub-contractors). This usually comes with a provision that if cost savings are achieved due to such innovations, it would be shared by the parties. This provides no real incentive or mechanism for a contractor or sub-contractor to devote resources to investigating innovative solutions.
The starting point which may encourage innovation could be engaging contractors and specialist sub-contractors earlier in the construction process to have them input their suggestions to the design team. A framework of collaborative working, encouraging the joint investigation of possible innovative solutions, can improve the processes and reduce waste. This could dovetail to a framework for joint examination of failures during the project to ensure continuous improvement.
- Improve the early warning clauses and risks management clauses: Early warning clauses, coupled with early claims resolutions and better risk management, are one of the improvements that construction contracts with collaborative clauses have introduced to the construction process. However, some of the early warning clauses are now observed as an exception. It seems accepted that strict adherence to them will generate an unmanageable volume of paperwork. This has to be resolved. The risk management exercise also appears to be devoted to risk identification and risk shifting which in turn promotes the culture of claims.
The starting point could be to provide for a flexible and comprehensive process of risk identification particularised to the project before works commences. This framework currently available in some contracts, allows for project risks to be shared appropriately with the input of all relevant parties. This could subsequently be fed into the early warning process which would be devoted to risks that have not been identified or where the occurrence of risk requires amendment to the pre-agreed risk management process.
- Make the contract simple and suitable for small projects: One of the recurring themes of our survey is that collaboration was not suitable because of the size of the project. This is because collaborative clauses are complex (or viewed as complex), but the benefits of collaboration are evident irrespective of scale. The challenge is to draft clauses that complement the more straight-forward processes in simple projects and are suitable at that level of contracting. The repetition of collaborative clauses from major construction contracts in shorter forms is not helpful. Emphasis should be on easy-to-use tools that could encourage collaborative working in small projects.
- Ensure that all project participants have signed up to collaborate: While this may seem self-evident, especially since the idea of interlocking collaborative construction contracts was identified in the Latham Report, it is not being sufficiently implemented on collaborative projects. This problem is not superficial – consider these quotations3:
“I mean obviously if you get a Quantity Surveyor, what’s he employed to do? He’s employed to make sure that your bill is fair. How’s he going to do that? If you submit a bill... for a thousand quid, he’ll cut it down to 900 quid. So what do you do, you have to submit a bill for eleven hundred pounds so he can turn you down to a thousand pounds.”
“Once you get to the middle tier of the management, the operational tier of the management, they just revert to type and screw you into the ground. Because most of the time they’re measured on profit. Their bonus is measured on profitability. Their success within the business, their standing within the business, is based largely on profitability... Unless they can make some money out of you [the subcontractor], then they go somewhere else.”
In consideration of these, along with recent reports that some major national contractors have instituted onerous payment terms on sub-contractors, the facade of collaborative working appears to start to fade.
It is important for clients, aiming to have collaborative working in their projects, to ensure that consultants and sub-contractors on the project are signed up to collaborative working.
It should be mandatory and verifiable that all significant parties in the supply chain are procured using collaborative contracts with progressive terms.
Ensuring real collaborative working in construction projects requires significant resource investment from the client. However, this should be well compensated by better project outcomes.
Beyond contractual provisions, there remains a need to develop and improve on soft skills such as organizing effective meetings and project leadership of client representative and project managers.
Our survey reveals that Building Information Modelling (BIM) is perceived as requiring collaboration. As we move towards a more extensive adoption of BIM in projects, it is imperative that we improve on our record of collaborative working and in turn improve the contracts that deliver such arrangements.