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Partnering

This guide was last updated in November2012.

Partnering is a coming together of two or more companies to promote and facilitate the operation of their respective businesses.

Partnering can be either long-term for a specified period or can be project-specific, however trends show that strategic or long term partnering more often provides greater opportunity for improvement.

This guide looks at some of the issues that arise in partnering schemes, including the advantages and disadvantages.

What is partnering?

Partnering is about achieving the best value for all parties, using a flexible approach unrestrained by artificial (often contractual) barriers between buyer and supplier. It describes the way in which parties will conduct themselves and the behavioural attitudes that will be adopted. It is however distinct from creating a joint venture or a partnership. In addition to increasing levels of client satisfaction partnering can also be a means of securing a more stable workload.

It can involve any or all of the designer/consultants, client, main contractor and/or subcontractors, and it is an arrangement based around openness, integration and collaboration.

The theory is when partnering takes place the relationship between the parties changes from being linear up and down the contractual chain and to being based on a desire to solve issues on a more equal footing.  This might mean that the whole supply chain becomes involved in management decisions. There tend to be high level joint objectives and shared rewards for reaching them.

An example of partnering in action is a steelwork subcontractor requiring information to complete part of the design. Instead of this request being passed up through every level of the supply chain to the employer's structural engineer, in a partnering arrangement where the whole supply chain are involved there could be a direct line of communication between the steelwork subcontractor and the structural engineer.

It should be noted that partnering does not replace the need for a contract to define the legal basis of the relationship between the parties.

Background

A large part of the background to partnering can be found in the Latham and Egan reports on the construction industry in the 1990s. These highlighted that the UK construction industry was suffering from cost overruns, programme delays and poor productivity. Both reports suggested that the supply chain should be more integrated.

Since then the UK construction industry has picked up on these recommendations and moved things forward. For instance member organisation Constructing Excellence has helped to promote management techniques throughout the industry and focus in part on good supply chain management.

The industry is far from perfect though.  The Government Construction Strategy of May 2011 acknowledged that "there is widespread acknowledgement across Government and within industry – backed by recent studies – that the UK does not get full value from public sector construction; and that it has failed to exploit the potential for public procurement of construction and infrastructure projects to drive growth".

Range of partnering arrangements

Partnering may be achieved through a number of different approaches, although it is important that the parties decide if any agreed partnering principles are to be legally binding or not. If they are to be non-binding, then the language used throughout the partnering documentation must clearly reflect that intention to avoid any doubts.

In terms of overall approach, the parties might opt for either 'strategic' or 'project' partnering.

  •  Where the parties choose 'strategic' partnering, a long-term relationship is developed between any or all of a main contractor, client, designer/consultant or subcontractors to the benefit of each of the parties over the course of a series of projects. These parties will then work together to meet agreed targets which will have been formalised in a binding or non-binding partnering agreement. There will not necessarily be a guarantee of specific work.
  • 'Project' partnering, in contrast, comprises free-standing binding or non-binding 'partnering charters' for single projects.

Beyond the two overall approaches listed above, there are a range of contractual approaches to partnering:

  1. Framework agreement. Popular in the public sector, a framework agreement is an umbrella agreement which sits on top of, but does not interfere with, the underlying contracts. Framework agreements are popular in the public sector largely due to the fact that as long as the initial framework tendering process complies with EU public procurement law, individual projects carried out within the framework are not subject to another full procurement process under the EU requirements.
  2. Multi-Party Binding Contract.  Each party to a multi-party contract is in a direct contractual relationship with every other party.
  3. Construction consortium. Parties might together form a consortium to tender for a specific project or projects, often relating to major infrastructure projects. This might be for instance where the different parties have different specialist skills, all of which are required for a successful tender and by working together the group will either improve its position in the market or win a series of projects.
  4. Alliance. Usually a formal partnering structure and generally used only on major projects. Alliancing in its simplest sense is bringing together two or more businesses and joining them together to achieve a common goal.  This may be a formal joining (e.g. setting up a specific company) or something else.  There are no hard and fast rules.
  5. A non-binding 'partnering principles' document;
  6. Bolt on clauses. These are not otherwise attached to a partnering arrangement but can be added to a standard form contract as an additional extra. The idea is that all parties add the bespoke clause so that everyone has an element of partnering to their otherwise 'normal' contracts.

Partnering: The Advantages

There are many possible benefits of partnering. For example:

  • Increased customer satisfaction;
  • Better value for the client;
  • Creation of an environment that encourages innovation and technical development;
  • Design integration with specialists in the supply chain;
  • Better predictability of time and cost;
  • Shorter overall delivery period;
  • Stability, which provides more confidence for better planning and investment in staff and resources;
  • The opportunity for regular relationship/contract review points at which the parties' performance and the relationship between them can be assessed;
  • The parties jointly manage risk, often through a shared risk register;
  • The possibility to share and transfer knowledge and experience between the parties;
  • The opportunity to acquire relevant intellectual property, extensive knowledge of designs and technical expertise that will assist in performance of subsequent projects for the employer; and
  • A potential reduction in disputes which reduces the legal and administrative expense of a project and can free management for productive tasks.

Partnering: The Disadvantages

Potential disadvantages of partnering include:

  • Partnering often requires high-level management time and dedication to be successful and therefore a small project may not justify such level of management investment;
  • Whilst partnering often leads to further work from a client, this is not guaranteed.  The risk therefore is that "investment" from all parties in collaborative teams may be lost;
  • If the relationship between the employer/supply chain is too close, there is a risk that the employer can become increasingly involved in the results of shared decisions and therefore becomes less able to provide oversight, compared to a traditional 'arms -length' relationship;
  • Partnering principles need to be carefully drafted so as not to be construed as sharing any risk which has been allocated to the contractor/supply chain or employer elsewhere in the contract;
  • The parties must be careful not to create a partnership as defined by the Partnership Act 1890 (i.e. a relationship which subsists between persons carrying on a business in common with a view to profit) as this would mean that they would have joint responsibility for each others' debts, at least in relation to any project undertaken by the parties. Therefore a 'No Partnership' clause should be inserted into the agreement – although this may not be enough to prevent a court finding that a partnership does in fact exist, if all the indications of a partnership are present through the behaviour of the participants.

Conclusion

Recent trends have shown that partnering has become increasingly important in the construction industry, initially driven by the Latham and Egan reports on the industry in the 1990s and more recently, the recognised client benefits.

Although the benefits of partnering are many, the risks of arrangements being construed as binding or interpreted as creating partnerships should be considered prior to entering into any partnering arrangement.