Contracts: A frame of mind

What matters more in fostering a collaborative experience on a project? Attitude of the parties or contract terms?

It’s a common discussion but it really shouldn’t be. Genuine co-operation is hard to force.

Early warning mechanisms to ensure support on issues before they become antagonistic can be abused when linked to compensation. Successful relationships can result from draconian agreements.

So culture is critical. Still, having the right contract helps. The Association of Consultant Architects (ACA) and the Association for Consultancy and Engineering (ACE) certainly think so. This summer, they’ll unveil the Framework Alliance Contract, now being trialled by Futures Housing Group.

Early warning mechanisms to ensure support on issues before they become antagonistic can be abused when linked to compensation

Frameworks come in all shapes and sizes. Chiefly, they allow parties to settle terms and a basis of pricing works or services up front, avoiding the need to do so again for new activities. Instructions arrive through “call-offs” that set out project specifics and can be contracts in their own right. Scale allows for economies and the forging of close relationships.

At least that’s the theory. As long-term arrangements, their attractiveness to participants can wax and wane with the market. Anti-avoidance measures in public procurement, aimed at ensuring a level playing field, restrict the ability to build in flexibility.

On other occasions, disappointment may arise simply from one side’s pre-contract expectations being missed. The Framework Alliance Contract’s success may depend on how effectively it tackles such challenges.

The word “alliance” marks a promising start. The parties (or “alliance members”) work on improving value, sharing information on suppliers, reviewing and comparing prices and, as necessary, tendering or renegotiating subcontracts. The focus on the whole supply chain makes positive outcomes more likely.

Success criteria and targets matter, too. Defined at the outset, these are set against incentives. An alliance manager instructs call-offs (“project contracts”) for single or multiple projects and arranges and chairs core group meetings. The core group, comprising party representatives, assesses and co-operates on progress towards objectives and any early warnings. If targets are missed, it proposes rectification steps or revised targets. If the client declines these, it may terminate or take other pre-agreed actions.

The Framework Alliance Contract can cater for several suppliers or clients with project contracts awarded either directly or through mini-tender. An interesting innovation is that clients can issue “orders” ahead of project contracts. These simple directives can procure early works or long-lead items, as well as pre-construction services.

The word ‘alliance’ marks a promising start. The focus on the whole supply chain makes positive outcomes more likely

There’s also versatility regarding which form or forms of project contract can be used. JCT, NEC, PPC or other standard documents are all fair game, as well as bespoke agreements or a combination. Users of the Framework Alliance Contract may, of course, prefer to ensure consistency across key provisions.

The client can specify a minimum quantity of guaranteed work and exclusivity given under the framework. With tendering costs often significant, this option will be welcomed by suppliers.

Alliance activities are undertaken by all parties and include risk management in accordance with framework documents and a shared risk register. Nonetheless, in a multi-supplier framework it’s recognised that some matters, such as pricing, project proposals and intellectual property licensing for non-alliance activities must be kept bilateral.

A confidentiality clause governs disclosure to third parties but does not address inter-party relationships. Those would need to be dealt with through separate non-disclosure agreements.

Aside from the core group, ADR options include conciliation, mediation and, in a nod to international applications, dispute boards and arbitration. Adjudication is included where mandatory. Shorn of PPC branding and any mention of partnering or KPIs, this contract is aimed at the wider market of framework users, as well as those who usually favour JCT or NEC.

It will take effort to shift developers off their beloved custom frameworks but at least there’s now a convincing alternative for those with the desire to explore more meaningful collaborations.

Francis Ho is head of construction at Olswang LLP