UK: Partnering Through The Virtual Company - Are You Ready?

Last Updated: 14 October 2002
Article by Neil F Jones

The Partnering Concept

Everyone concerned with the construction industry has by now heard the word "partnering" applied to the procurement of projects. Partnering is a team approach intended to engender a team spirit where everyone works for the good of the project (and therefore of the client). However, to put not too fine a point on it, for many it has turned out to be just so much hot air.

Existing arrangements

Standard forms of contract deal with the partnering in various ways from the use of a partnering charter for JCT contracts; an optional partnering clause for the Engineering and Construction Contract form to a dedicated partnering contract, namely, the Project Partnering Contract from the Academy of Architects

All address the usual inspirational goals such as:

  • best practice, including:

- value engineering

- health and safety

- life cycle costs

- productivity and removal of waste with a reduction in defects

- continuous improvement

  • team working
  • transparency
  • appropriate allocation of risk identification and management

How well to they work?

These are worthy goals which any responsible construction client would espouse. However, the signing up ceremony is all too often followed by the parties paying mere lip service to these concepts.

Existing contracts retain a considerable adversarial element e.g. extensions of time; compensation events; the need for notices and early warnings, with dire consequences for failing to comply. Individual contractual responsibility and legal liability is retained in respect of each team member. All of this promotes a defensive approach, which militates against the openness and co-operation required to produce a true partnering approach to project procurement.

There is a (possibly cynical) belief, that people will act in their own best interests and not in the team's interest if they think that this will improve their own position. It is the "selfish gene" in operation. So if individual benefits come into conflict with what is right for the project, the project will suffer.

Is there any way of structuring the arrangements so that individual self-interest becomes synonymous with project success?

Enter the "Virtual Company!

The Virtual Company Approach

All major contributors to the construction (and possibly the future maintenance operation) of the project, such as main contractor, major subcontractors, key professionals and facilities providers, form a team which operates like the board of a company for the sole purpose of producing a successful outcome for the project for both client and team alike. The client will chair the board.

The result is that it is impossible for an individual member to succeed while another fails. All win or all lose. Profit or loss is shared on a pre-agreed basis.

The virtual company approach has been around for some time but it is currently being pursued to its logical conclusion by Working Group 5 of M4i [Movement for Innovation].

Essential elements

This approach ensures that those involved in the project are directly linked to its cost, together with a reward for meeting the client’s stated objectives. It has the following features:

  • usual concepts associated with a team working approach
  • logical restructuring of the contractual approach and arrangements
  • single multi-party contract
  • emphasis on project cost with "open book" accounting
  • no separate contracts or contract prices for individual team member’s contributions. Instead, there is one total project cost. The individual approach [the result of separate prices against specifications in individual packages rather than a single sum for the project as a whole] is simply removed as is any strict adherence to professional boundaries and traditional roles, Therefore a seamless approach is created.
  • cost reimbursement but with a difference. The greater the cost the less the available profit for the team members.
  • profit for all team members is earned by achieving the clients stated and measurable objectives e.g.

- quality/sustainability

- reliability

- cost in use

- capital cost

- time for/certainty of completion

- maintainability

- operational functionality

- low defects

- low accident rate

These are weighted as necessary, Measurable key performance indicators [KPIs] are vital,

  • profit sharing is pre-agreed by all key team players at the outset as a percentage of the total profits. Profit is the difference between the agreed project cost and the actual costs incurred.
  • if costs increase for any reason (other than the client changing its brief), it eats into the total profits and reduces profits shares pro-rata. If the project runs into total overspend, losses are also shared on pre-agreed basis, but subject to a total beyond which a new type of insurance will cut in. This will assist in the "leap of faith" which will be required to get this system tested in practice.
  • there is a true alignment of money with self-interest. No longer can any individual team member make or lose money without reference to the client’s known and stated objectives being met or not met.

Are you ready?

Logically this approach is as near to a pure team approach to project procurement as it is possible to get. The logic appears flawless. Whether an individual team member’s motive is a desire to contribute to a successful project or purely personal greed, the response has to be the same; meet the clients’ objectives as efficiently as possible or lose out.

The leap from theory to practice can only be bridged by being bold and innovative. Who will try it? Will you? Are you ready?

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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