A more collaborative way of working makes for better-run, more efficient projects – and it all starts with how you word the contract, says Mark Castle
It’s been a common refrain on these pages that there’s not enough collaboration in the construction sector.
Collaboration is not merely a nice thing to have. Finding better ways of achieving it between clients, consultants, contractors and the supply chain is at the heart of changes that need to take place if we are to transform the sector and escape operating on wafer-thin margins.
Nowhere is this lack of collaborative working more obvious than through a legal lens, where we see a range of contractual practices that actively inhibit a spirit of collaboration.
A confrontational contractual and commercial approach creates myriad inefficiencies and frictions, resulting in a downward spiral of extra costs, lower margins, and a further desire to shift risk in a way that is inequitable at best, and unreasonable at worst
Although the industry has had standard forms of contract such as JCT and NEC in place for years, we commonly see amendments more than doubling the number of pages in contracts. This has become seen as normal, the result of a history of project and relationship conflict and – given that low profit margins mean no margin for error – a desire to pass risk onto others in the value chain.
Of course, there are reasons why this way of doing business in the construction sector has evolved as it has. We are dealing with very big and complex projects, subject to a multitude of risks both within and beyond our control, and those risks have to be managed somehow. Add to that the fact that public sector work – representing a significant proportion of the investment in the built environment – is subject to intense public scrutiny about appropriate use of taxpayers’ money.
Creating a new normal
But we have to face up to the fact that a confrontational contractual and commercial approach creates myriad inefficiencies and frictions, resulting in a downward spiral of extra costs, lower margins, and a further desire to shift risk in a way that is inequitable at best, and unreasonable at worst.
I won’t claim that the solution is simple. There are a number of elements that must come together in the bigger picture to drive a more transparent and collaborative approach, if we are to see a seismic shift in industry performance, including integrating design work at all stages in the process and ensuring sensible cost plans from consultant quantity surveyors.
Creating a new normal in contractual practice will be essential.
That is why Build UK is leading the way with the publication of a recommendation on best contractual practices that identifies six terms that should not be included in contracts, in order to improve collaboration across the sector. These are: fitness for purpose, unquantifiable risk, specified perils, breach of contract, uncapped liabilities and performance securities.
This recommendation, which is available on the Build UK website, represents months of work with representatives across the sector and a concerted effort to articulate common ground between clients and the supply chain, which ultimately can encourage a fairer allocation of risk and deliver better project outcomes. The approach has been designed to ensure compliance with competition law, and specialist legal advice on this has been obtained.
Contractual terms to avoid
Build UK’s recommendation identifies six terms that should not be included in contracts, in order to improve collaboration across the sector:
- Fitness for purpose
- Unquantifiable risk
- Specified perils
- Breach of contract
- Uncapped liabilities
- Performance securities.
Non-binding but widely supported
To be clear: it’s a non-binding recommendation. Build UK members must consider on an individual basis whether they wish to reject the terms in their own contracts and Build UK will not be monitoring or enforcing implementation of the recommendation.
From our consultative work so far, we have seen that there is wide support for not using these six contract terms. True, what we are recommending will require change; some clients and contractors are using these terms. But we are hopeful for widespread adoption.
Ultimately, by eliminating what Build UK and its members perceive to be poor market practices, the industry can spend less time negotiating contracts and become more sustainable in terms of productivity, innovation and profitability.
In the bigger picture, it will directly take us a step towards achieving targets in the construction sector deal, the government’s strategic roadmap for putting construction on firmer footing.
There are many other reforms needed in the way we work, but if we can begin to reset the norm for fair contractual practice, it will be a great start.
Mark Castle is chairman of Build UK and deputy chief operating officer for construction at Mace