- Partnering enables parties in the construction supply chain to collaborate to improve both delivery to the end customer and their own bottom line, adding value not cost.
- Partnering encourages disputes in the supply chain, adding cost not value.
Much has been written on the benefits of partnering but little about its problems. I have advised on a large number of partnering projects, and in many of these cases the adoption of partnering has actually encouraged the development of disputes.
One arose out of a profit-share arrangement. The parties agreed to take certain steps to generate a financial return, which would then be shared. Guess what? The steps were not taken (at least, that is what one party alleges) and the financial return not made. This dispute was referred to arbitration in 2000 and there have been two substantive hearings and a number of procedural hearings since. The legal cost claims of the parties now exceed £1m.
Another dispute arose out of a partnering arrangement whereby a series of contracts were to be let on a cost-reimbursable basis with a ringfenced percentage for the supply chain overhead and profits (at least, that is what one party alleges). The parties disagreed as to the valuation basis of their contract and the matter is set to be resolved before the court. The legal costs on both sides could run into the tens if not hundreds of thousands.
In a third dispute, the parties agreed to work in a spirit of mutual trust and co-operation. But arguments arose over the allocation of commercial risk events and the valuation of certain impacted risks. The risk/reward formula has become inoperable. Mediation attempts having failed, arbitration now seems to be inevitable. The costs of a full set-piece battle on contract interpretation, establishing breach, entitlement to certain heads of claim and quantum will absorb significant time and money.
The common theme to all these disputes (a few examples among many) is that partnering means different things to different people. The third example, in particular, goes to the heart of the matter. When the construction supply chain and its customers decide to go ahead on a partnering basis, both sides hope to benefit. And so they should – in a perfect world. But what if partnering is used cynically? What if one party decides to use the guise of partnering to saddle the other with all, or most, of the risk? What if the wording of the partnering agreement is vague, or the thinking behind it is, shall we say, a little careless? In all of these cases, danger signals should be flashing in your mind before you put your signature to any irrevocable document.
Some parties appear to consider a mere reference to "partnering" as some kind of phylactery. Somehow, interface clashes, underdeveloped designs, scope disputes and the like are expected to evaporate in an atmosphere of mutual co-operation. Other parties may be less naive yet fail to devote sufficient thought to structuring their arrangements so that required outcomes can be delivered by the supply chain.
Applied with insufficient care, partnering may serve only to blur the boundaries of expected behaviour, and allow uncertainties to creep into the process. In commercial life, uncertainty is a fertile breeding ground for disputes.
Indeed, the term "partnering" is probably not an entirely helpful one. Although formal definitions exist, these are usually long on aspiration and short on detail. There is little point in providing for parties to act in a spirit of co-operation unless this behaviour is aligned to a desired outcome. Equally, an objective measurement of outcomes is required if parties are able to trust the process to which they submit.
It is sometimes said that customers of the construction industry get the industry they deserve. If customers use partnering in ill-defined ways, they can hardly complain that they end up with disputes – and the disputes industry won't be complaining either. The answer to my opening question is therefore that both propositions are true. Whether both propositions are commercially sustainable is another question.
Jonathan Hosie is a partner in solicitor Hammonds specialising in construction and engineering projects.