New model army

The proposed 'New Model Partnering Contract' would see a virtual company formed on a project, with core staff from architects, consultants, contractors and specialists seconded onto the project.

Normal procurement routes and adversarial attitudes are thrown out of the window and in their place come payments for the secondees, payments for the physical facilities provided and rewards based on whether the owner's objectives are actually met. The model is set to be tested on demonstration projects which can be tracked on the Movement for Innovation website.

This new model is the brainchild of Working Group 5 of the Movement for Innovation, the think tank formed to implement last year's Rethinking construction report by Sir John Egan.

Working Group 5 deals with demand/supply side relationships, client role, partnering and teamwork and plays a key role in examining ways of working which will lead to bringing about Egan's wish list, namely: a 10% reduction in capital costs and construction duration, a 20% reduction in defects and accidents, a 10% improvement in productivity and profitability and a 20% improvement in predictability of project performance.

Martin Davis, vice chairman of m&e contractor Drake & Scull, sits on Working Group 5. He knows more than most that we must reduce waste, eliminate unhelpful procurement/contractual processes, reduce indecision and revised designs and do away with disputes.

"We must eliminate the social barriers which have grown up between the 'professional' and the 'contractor' as a result of the industry's wrong decision to separate design from construction," says Davis.

"Are we prepared to perpetuate the traditional procurement methods under which there is no correlation between: whether or not the owner is satisfied with his project; and whether or not each designer and each contractor makes money," questions Davis.

Davis and Working Group 5 have thrown away the old rule books and gone back to basics. What are the team trying to achieve on a construction project? Each project must examine the owner's objectives in terms of cost in use, reliability, cost effective maintenance, speed of construction, quality/sustainability, low capital cost and certainty of completion. These must come first. The interests of the team assembled to do the work, ie the payment mechanisms, must then match those of the owner.

Davis proposes doing away with the procurement packages which he says: "cause misalignment of the interests of the individual team members." Under each procurement package, each practice or company makes a commitment to do a scope of work in a given time for a given fee or price. Each individual in each procurement package knows that if the scope and/or time change, the fee or price will be affected and the bottom line will deteriorate unless there is some renegotiation.

"We must face this reality and recognise that each team member should cease being an ambassador of their procurement package and become a member of the project team," says Davis. The group has proposed the concept of a virtual company.

Core staff from each practice or company representing design consultants, construction managers and specialist contractors are seconded onto the project and the owner is also represented on the team.

But the big question remains. If the team is freed from the lump sum syndrome criticised in Rethinking construction, how does the team get paid and how do we get money, the strongest motivator, to work for the virtual company? The group proposes a three-part financial structure: payment for the team of secondees; payment for the physical facility provided and reward to the practices and companies which have seconded their people to the virtual company based on whether or not the owner's objectives are met.

“ We must eliminate the social barriers which have grown up between the ‘professional’ and the ‘contractor’ as a result of the industry’s wrong decision to separate design from construction”

Martin Davis

The payment for secondees covers the cost to the companies of employing and managing their secondees. The principle should be that the payment compensates for the secondment.

The payment for facilities provided may be via open book negotiation with the companies themselves or via competitive or negotiated orders with third parties.

The key part is the rewards based upon the owner's objectives. If low capital cost was an objective, then the team will be motivated to minimise their secondment costs and also the cost of the facilities provided.

If, however, objectives relate to performance of the completed facility, the team will need to have operation and maintenance responsibilities for a number of years. Formulae will weight results to reflect the order and degree of priority of the owner's objectives.

"Since rewards will be shared by the various practices and companies in a predetermined proportion, if one team member is failing the others will be motivated to support them as opposed to standing back and passing blame," reasons Davis.

Obviously, despite this spirit of cooperation, an underpinning contract is needed. Davis foresees one partnering contract between the owner and, collectively, each professional practice, the construction management company and each leading specialist contractor.

Under this contract the owner would define the objectives and their prioritisation, the companies and practices would commit to second people to the virtual company, which would in turn have a joint brief to meet the client's objectives.

The owner would pay monthly to each company the cost of the staff seconded that month. The team would be authorised to place orders through their respective companies who would in turn place orders on the supply chain for the provision of goods for the facility. The owner would commit to pay the amounts due under these orders.

The shares in the reward would be designated and the formulae and relative weightings set out, together with rules for time of calculation and payment.

The value/cost manager would make supply chain arrangements alongside the relevant team member and any potential disputes would be resolved proactively with adjudication as fall-back.

A single composite payment would be made into a virtual company joint bank account: as with joint ventures, no formal company will have to be constituted. Project-based professional indemnity insurance should be attainable based on no-blame, giving the owner assurance against catastrophe.

What could be easier? "Yes, these proposals are radical," admits Davis. "Much work will be needed, but the prize is huge. Trust supported by money will quickly transform the culture and fulfilment levels of the practitioners of our industry at all levels." He has a point. Surely, we'd all like to see the back of abortive tendering, protective paperwork, duplicated insurance, disputes culture....the list could fill pages, and indeed has in Sir Michael Latham and Sir John Egan's recent reports on the ills of the construction industry.