Construction Partnering

What is Construction Partnering?

Construction partnering originated in the United States during the early 1980s. It was developed in connection with procurement as a technique for reducing the cost of contract disputes through improved communications, processes and relationships across the project team.

Construction Partnering is premised on delivering the best possible value for all parties. It adopts a flexible approach that is free from contractual barriers between buyer and supplier. A partnering agreement describes how parties will behave and conduct themselves with the intention that any agreement will lead to increased client satisfaction and security of future workload for the supplier.

A partnering agreement can involve the entire supply chain, including the design team and consultants, the main contractor, and subcontractors. The agreements are based around openness, collaboration, and integration.

With partnering, the linear contractual chain is replaced by a desire to solve issues on a collaborative and equal footing. With this approach, the entire supply chain is involved with key decisions and can provide specialist input when required.

Generally, there are two types of Partnering – “Strategic Partnering” and “Project Partnering”.

• Strategic Partnering facilitates the development of a long-term relationship amongst the project team: contractor, designer, consultant, clients, and subcontractors. Generally, large clients with a high volume of work will use strategic partnering when they require a fast turnaround.
• Project partnering is formed around freestanding and non-binding partnering agreements or charters for single projects.

Which parties can be included?

There is no restriction on the type of party that can enter into a partnership agreement. A client may wish to partner with a design team or certain members of a design team only. Conversely, a client may partner with a contractor to agree a schedule of rates that can be applied to most construction works. A partnership may include Architects, Project Managers, Quantity Surveyors, Mechanical and Electrical Engineers, Structural Engineers, Main Contractors, and Specialist Subcontractors.

What Types of business use Construction Partnering?

Retailers that build multiple, similar projects in the vicinity of one another will typically use construction partnering. When a team are fully aware of what is required, the projects can start and finish in a matter of weeks. Under these circumstance, partnering ensures optimised organisation and procedures are retained within the team from project to project.

For some retailers, there’s a requirement to carry out works in live trading environments. Where this is the case, partnering is advantageous because the appointed contractor will build experience working for the retailer in this specific environment. Conversely, a constant cycle of appointing new contractors outside of a partnering agreement would result in variable costs for the works, fluctuating programme durations, and various exclusions over the risk profile of any given project.

Student residential providers may appoint contractors on a partnering basis for rolling refurbishment of their properties. This may constitute works to a different floor during every summer break, or a set of rooms. Much like retail, the fast paced programmes and restrictive working conditions make partnering an excellent choice as opposed to a traditional tendering route.

Partnering is also a good option for “mega projects,” often on infrastructure projects with a long duration and high value. Within these projects, clients may see them as “too big” for any one contractor and therefore contractors may combine as a Joint Venture. An example of this is the Aberdeen bypass, a new bypass road for Aberdeen with an estimated cost of £745m that stretches 36 miles. The actual cost for this project is reported to be over £1bn and talks are on-going over liability for the extra costs. The construction team were made up of a partnership between Carillion, Galliford Try, and Balfour Beatty. Incidentally, following the collapse of Carillion, it was reported that Galliford Try were hit with circa £40m of additional costs and Balfour circa £30m.

Is it suitable for SME developers?

Partnering is a good option for developers carrying out repetitive work at various locations where speed and quality are equally important. Each individual project may be of low value, but the combined value of multiple projects will allow for economies of scale. For example, an SME developer may carry five schemes per year, each at £250k contract value. Every scheme requires a design, cost plan / budget, structural engineering input, services in put, and planning approval, all before the scheme goes out to the market for tender. From these five disciplines, if a developer had a team of 2-3 consultants to tender each discipline, that would be 10 to 15 enquiries, meetings, fee proposals, and reviews to carry out. This is all for one project. In this example we have 5 projects, therefore 75 fee enquiries per year, potentially 75 different contacts across all disciplines.

Then comes the contracting and the supply chain. Each contractor looking at these schemes might not be fully engaged as the value is relatively low, therefore why risk losing other work for a one off smaller project. The winning contractor would also need to provide resource to deliver and manage the works and ad hoc work will likely be less attractive than repeat business. If each scheme is tendered to a minimum of three contractors, who have a supply chain for each construction activity, then as with the professional services above, its fair to say the resource pool becomes very large and reduces the chance of success for all involved.

Now, if that same developer had a strong pipeline of work for the short to medium term, spending circa £1.5m per year on developments and fees, then a partnership agreement and tendering process could provide benefits as the entire project process is extended and working relationships grow and strengthen.

What are the benefits of Construction Partnering?

Major clients across a breadth of sectors have adopted partnering due to the proven long-term benefits that can be achieved via this procurement route. It’s reported that savings of up to 40% on cost and 70% on time are achievable. In contrast, there is also evidence that smaller one-off developers have little to gain from the process of partnering.

Contractors working under partnering agreements are likely to benefit from the continuity of work, although it is unclear whether the contractor’s margin is increased due to partnering. Benefits of partnering may include, but are not limited to, the following:

• Greater client and user satisfaction with the product
• Elimination of barriers that have developed between consultants, contractors, and specialists
• Replacement of a blame culture with a trusting environment
• Dramatic reduction in waste through less reliance on tendering, using techniques including value engineering and risk management, getting things done right first time, and through lean thinking
• Sharing knowledge
• Potential for reduction in disputes which in turn reduces legal and administrative costs of a project
• Design integration from specialist supply chain early in the project
• Parties jointly manage risk and often rewards, providing “win-win” scenarios for all involved that are incentive based

What are the drawbacks of construction partnering?

For partnering to be successful commitment is needed at all levels within an organisation to make the programme or project a success. Setting up a partnering agreement is a time-consuming process, which in itself generates front-end expense.

The repetitive nature of partnering work may contribute to high staff turnover and this can frustrate the partnering process on many fronts. Departing staff will have built up knowledge and efficiencies within the partnering team and the new staff will be out of sync with this.

The commercial risk on rates within the agreement is borne by the Contractor. Often, Clients and Developers write hefty damages for delay into the agreements as contractors appointed on partnering agreements will likely need to deliver schemes to short deadlines on a pre agreed schedule of rates. Whilst the contractor may be able to generate profit from the schedule of rates, some may face difficulty in buying trades for pre-agreed rates, especially if these have lower turnovers.

Partnering agreements and project requirements can lead to spikes in workload. For example, retail may be geared towards complete refurbishments or open stores on the run up to busy shopping periods, whereas hotels may look to complete in time for peak tourist seasons. Whilst this can be managed, it isn’t uncommon for the developer’s business requirements to change over a short period of time, and the result may be deferred works or works brought forward from the original plan.

Should parties to a partnership not perform as expected, the developer may find themselves with sub-standard products or having to reassign schemes from one contractor to. Projects may also need to be reassigned if key personal leave businesses. Partnering works at its best when teams gel and have completed a number of projects together. Conversely, Contractors may become stuck in a partnership that has ceased to function efficiently and might struggle to terminate the agreement.

About Jon Williams