Prime contracting is the MOD's attempt to apply Rethinking Construction. But contractors have complained loudly that it transfers too much risk to them. So, is it going to be Egan-compliant?
It is well known that major public clients such as the Highways Agency, NHS Estates and Defence Estates have launched procurement initiatives that reflect their stated desire to implement the Latham and Egan proposals.

For its part, Defence Estates is developing a contractor-led process known as prime contracting. The draft core conditions and summary guidance for the contract were unveiled at the Movement for Innovation conference in May and can be viewed at www.defence-estates.mod.uk.

Defence Estates maintains that it is applying partnering principles to the prime contracting framework. However, the industry has already expressed fears that the form simply offloads risk on to the contractor. Given all this, how far is the contract "Egan-compliant"? An Egan-compliant contract will probably contain at least the following features:

  • An agreement by all parties that they will abide by the principles of partnering. The GC/Works/1 contract, for example, was revised to cater specifically for partnering obligations.

  • The sort of contractual solutions, such as the use of early warning meetings or the treatment of changes or variations to the project in an open, quotation–based approach, that encourage sharing of information and transparency of relationships between the parties. A major element in a successful contractual relationship is the early and full exchange of information, and this should be encouraged in the contract.

  • A sensible and user-friendly dispute resolution process aimed at keeping the dispute away from the doors of the court or the arbitrator's conference room for as long as possible.

    So how does the contract, and more specifically the conditions that apply to major stand-alone works, measure up? These can be found as schedule B to the prime contract document available on the Internet.

    Much is made of the supply-chain management that the prime contractor is to undertake. This is the right approach and one also adopted by NHS Estates' Procure 21 initiative. Having said that, supply-chain management on the contracting side does not equal a partnering arrangement. There is nothing in the contract that indicates an acceptance of partnering principles in black and white: no partnering charter, let alone a contractual partnering arrangement. Why not?

    The pricing model is based on something called a target cost incentive fee. This is stated to be an arrangement under which the parties share, on a predetermined basis, any excess or savings of actual costs. This risk/reward strategy is good. The emphasis on the early involvement of the contractor in the process is also commendable. This is to be achieved through an integrated project team that will consist of full-time members of the authority and, after contract award, the prime contractor and its supply chain become full members. I hope this means that the prime contractor has plenty of time to have a useful input into the construction process at its earliest stages and that its appointment will not take place too late in the process for any effective costs savings to be made.

    There does not seem to be any mention of the use of meetings as early warning mechanisms (as in the Engineering and Construction Contract) or as a way of keeping a watching brief on the project generally (as in GC/Works/1). This is a pity. It may be that detailed provisions regarding meetings have yet to be fully drafted and that they do not figure in the core conditions at present. The change procedures set out in clause 6 of the contract, with the emphasis on agreed quotations, mirror the developments in contracts such as the ECC, GC/Works/1 and the amendments to the JCT.

    The dispute resolution mechanism is set out in schedule 1. This involves a dispute review board that may recommend two consensual dispute resolution options – mediation or conciliation – or two non-consensual options – expert determination or arbitration. If the parties are not prepared to agree to mediation or conciliation, the board can make a binding decision as to whether the dispute is to be resolved by expert determination or arbitration. Although no member of the board can sit as a mediator or conciliator, a member may be "single expert" and it appears that, if arbitration is chosen, the board itself becomes the arbitral tribunal.

    This whole process appears to me to be rather ponderous. Why is the board taking all of these decisions? Can the parties themselves not agree on whether they wish to mediate or conciliate and, in the absence of that, whether they wish to have an expert determination or go to arbitration? A multistage dispute resolution process with options for mediation or conciliation would, it seems to me, achieve much the same ends. What happens if the parties disagree with the board's recommendations? It appears that they do not have any recourse to the court. Might this contravene article 6 of the Human Rights Act? And what about adjudication? After all, this is a construction contract. Why not include, for the sake of clarity, provisions dealing with adjudication? In any event, there is a rather confusing reference in clause 5.2 to the "adjudication process" and to the decision made by the "adjudicator", both in the context of expert determination.

    It might be an idea to change the terminology here so as to avoid further confusion (on my part at least).

    These are evolving documents and not by any means fully drafted but in terms of their Egan compliance, they score on some points but miss on others. Risk allocation needs to be addressed. It would be heartening to see some more extensive partnering arrangements, particularly if that is a stated aim of the contract, and the dispute resolution procedure could do with a review.

    What’s in the prime contract draft?

  •  The contract makes much of supply-chain management but does not contain any acceptance of partnering principles or a partnering charter
  •  Under the target cost incentive fee, all parties share any savings or extra costs
  •  Clause 6, which discusses changes, mirrors the provisions in GC/Works/1 and amended JCT contracts
  •  Disputes are heard by a dispute review board
  •  The board can recommend mediation or conciliation. If the parties do not agree to either, it will choose expert determination or arbitration

    • Postscript

    Simon Lewis is a partner at solicitor Dickinson Dees in Newcastle upon Tyne