Building alliances

The NEC has issued a consultation draft of a multi-party project alliance contract. This is interesting on many levels, and the promotional firepower of NEC should focus attention on the full potential for this type of contract. Previously the NEC had set out collaborative principles in Partnering Option X12, but they had stopped short of following the multi-party structure first introduced 17 years ago in the PPC2000 Project Partnering Contract. As author of PPC2000, I have seen the wealth of evidence demonstrating how multiparty alliance contracts deliver improved value and reduce disputes, not least in recent UK government trial projects using this form (see “Forming frameworks”, Building, 19 May 2017, page 40).

So, what does the NEC alliance contract offer that PPC2000 users such as the Ministry of Justice and City of London Corporation have not already established? There are two major departures from the PPC2000 approach, one very bold and one relatively timid.

The bold NEC move is to limit each alliance member’s liability for loss and damage only to claims that arise from its “wilful default” (clause 81.1). The philosophy behind this limitation is that collaborative working can be undermined by the fear of claims, and alliance clients using bespoke contracts have reported that a limitation of legal liability helps to cultivate more efficient and innovative practices. This sounds very attractive but in a standard form it needs to be explored in more depth.

Alliance members need to rely on each other to work efficiently as a team, and a significant limitation of liability may not inspire confidence as to each party’s expertise

Firstly, the words “wilful default” are not clearly defined in English law and could, for example, result in exclusion of liability for gross negligence. The scope for different interpretations may lead to confusion and may even generate the disputes that NEC hope to avoid. The amount of litigation surrounding the words “good faith” reminds us that well-intentioned words still need clear definition.

Secondly, alliance members need to rely on each other to work efficiently as a team, and a significant limitation of liability may not inspire confidence as to each party’s expertise. It is not clear how the NEC alliance will meet liabilities not picked up by its members, but in simple terms a client may be concerned if it is required to pay more for defects in the completed project.

PPC2000 has shown that alliance members sign multi-party contracts without the need for special limitations on their duty of care, that they accept liability for their work and that they expect other team members to do the same. Robust mutual reliance is entirely compatible with the shared objectives and incentives of an alliance, and has been proven to reduce rather than increase the risk of claims and disputes.

While NEC have been bold in their limitation of alliance members’ liability, their alliance contract is more cautious in its approach to early contractor involvement (ECI). There is an ECI option but its operation is rudimentary, with no separate pre-construction phase programme, no provision for early work with subcontractors and no consensus before commencing work on site.

The 2011 Government Construction Strategy and its programme of trial projects have illustrated direct links between collaborative working and ECI. To treat ECI only as an option leaves unanswered the question of how a team can build strong alliance relationships if they do not work together during the preconstruction phase of the project.

It is this early specialist input that tests and complements consultant designs and that enables a thorough review of cost, time and risk options

The NEC alliance also omits PPC2000-type machinery for systematic early engagement with subcontractors. It is this early specialist input that tests and complements consultant designs and that enables a thorough review of cost, time and risk options. Consultation on the NEC form may need to examine whether more detailed provisions are required so as to avoid missed opportunities.

Similarly, the absence of a separate ECI preconstruction programme means that the new alliance contract fails to embrace a recognised NEC strength, namely detailed provisions for the management of time. ECI provides no guarantee of the construction phase going ahead until detailed design, cost, time and risk data have
been developed through agreed alliance processes. Successful ECI therefore depends on alliance members committing to separate deadlines and interfaces governing their agreed preconstruction activities.

As regards the move from ECI to the construction phase the NEC alliance contract makes this an option exercisable unilaterally by a new party known as the “Client’s Representative” (clause 29.10). There is no provision for consensus among alliance members on this crucial decision, which may leave consultants and contractors nervous that they can be obliged to proceed to construction before they are ready.

The NEC alliance contract is out for consultation with the caveat that it should only be used with caution (front cover) or not at all (page v). Based on strong evidence as to what successful project alliances can achieve, I hope that the NEC consultation will breathe new life into this procurement and contracting model.

Professor David Mosey is director of King’s College London Centre of Construction Law