UK: PPC 2000 Ironing Out The Risk In Contracting

Last Updated: 7 August 2001
Article by Tim Willis

Contracting is a risky business by its nature but traditional procurement exacerbated the problem. Both Latham and Egan recognised that traditional procurement practices of contractors tendering against client prepared documentation of incomplete designs inadequate surveys and contracts which simply dumped risks inevitably led to the poor relationships which plagued the industry.

The industry is being challenged to change these practices - to enter into less adversarial relationships - to manage risk fairly in its contract documents and to plan its procurement so that all concerned in the process have the opportunity to add value and are Not simply asked to sign up to a price.

PPC 2000 is a document that seeks to achieve that goal by making the Contractor ("Constructor") and other significant contributors to the process part the client team almost from day one. The traditionally Client led pre-construction phase of developing the brief and the Constructor led post construction phase are rolled into one contract but with two distinct phases. A Partnering Team sign up to a multi-party contract that requires them to go through activities according to a timetable.

The early phase is to develop a project brief to the level of a design for which full planning permission is sought and to develop a supply chain on the basis of whose prices an Agreed Maximum Price can be reached. Site investigations and other reports are procured at this stage. A risk management process requires all risks to be identified and either carried by the party most able to manage the risk or to be insured against. The Agreed Maximum Price should not include any contingency which has not first been considered in the risk management process.

The next phase-the construction phase-cannot begin until the process of phase one is complete. Before construction can commence a Commencement Agreement has to be signed and pre-conditions met. Until these are met the Partnering Team carry on with phase 1 unless the client terminates the contract. During this early phase the team are obliged to perform their roles and functions according to the partnering terms but there is as yet no commencement date or completion date for construction. Agreeing these dates as well as the Agreed Maximum Price and the Project Timetable are all part of the pre-conditions that have to be satisfied.

Once these are agreed and all planning conditions site investigations, the other matters listed in the contract are dealt with, and the supply chain built the parties sign the Commencement Agreement. From that point on the contract works in most respects like any normal construction contract.

The Constructor has final responsibility for completing the works in accordance with the partnering documents. He must also take responsibility for the partnering team members as well as his own sub-constructors. This gives the Client a single point of responsibility so that in the event that things go wrong the Client is not faced with multi-party litigation to work out who is responsible for what. The Client will simply look to the Constructor.

It is for the Constructor to negotiate how the partnering team members will meet their liabilities to him. There is provision for simple sharing of client’s losses on an agreed basis - but it is areas like this that may prove most contentious.

The Constructor gets paid the Agreed Maximum Price subject to adjustment for Changes or the occurrence of a risk event. The list is similar to the JCT relevant events but includes a number of novel features to deal with responsibilities for non -partnering team members.

There is the usual distinction between events that give rise to an EOT only as opposed to those which also adjust the contract price.

Missing from the list are discrepancies in the contract documentation and also to be born in mind is the greater responsibility of the Constructor in the event of failures by partnering team members.

There is also considerable reliance upon insurance and different options. Where the Constructor takes responsibility for insurance and in insured event occurs the Constructor will recover extensions of time but no adjustment of the Agreed Maximum Price. The insurance provisions envisage that Project Insurance may be taken out by the Client in which case insurance events will be valued as changes and paid for by the Client.

Although this is a partnering contract this is not long term relational partnering envisaged by Egan. The Partnering Team have no contractual involvement in the Project after the defects liability period ends. The team may obliged to consider strategic alliances that will benefit the Project and to have an eye open for future opportunities on further projects but no more than this.

Although reduced capital cost and whole life costs are part of the partnering targets the Partnering Team are not expressly involved in operational issues or their payment structures linked to operational performance, although Clients could seek to build this into to the payment structure.

The contract requires much to be agreed and negotiated at both the project management and project liabilities levels. It is far from standard form in that sense and recognises the considerable input that will be needed to guide the parties to a complete and functional agreement. It envisages that cost incurred early in the procurement and planning phase will be more than rewarded in reduced construction times, reduced defects and improved functionality of the end product. That message is not new for the industry but there is now a ground swell of opinion that these goals cannot be ignored and for clients who are subject to best value they are requirements they have to consider.

That said this contract will only be beneficial where there are real opportunities to integrate design on otherwise complex projects or where true strategic alliances can be built up to allow the Partnering Team to develop the process and the product over many projects.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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