UK: Alliancing Thriving Post Recession

Last Updated: 16 July 2015
Article by Cecily Davis

In the second part of her article on alliancing Cecily Davis examines some of the legal and cultural obstacles to its successful spread in construction. The thirst for this more collaborative way of working is strongly in evidence, she argues, despite a recent rise in disputes.

KEY POINTS

  • An increasing willingness to pursue relationship contracting or alliancing is evident
  • What stunted the growth of alliancing in the UK – cultural or structural issues
  • Heathrow T5 is now used as a learning piece by many academic institutions
  • The Cardiff Bay fiasco is very largely recognised as being the beginning of the end of non-contractual partnering
  • For alliancing to work, the parties must accept a no dispute concept June 2015

The end of the Great Recession has not been without difficulty for the construction industry. One curious but perhaps unsurprising side effect of recovery is that there would seem to be a return to the dispute feast that had been rested when money was in shorter supply. Those under bid contracts and over ambitious programmes have, indeed, come back to bite both employers and adjudication continues to power on. It seems fanciful then to suggest that against the backdrop of a renaissance in construction disputes there rests an increasing willingness to pursue relationship contracting or alliancing but, nonetheless, this would appear to be the case.

Alliancing as described by the European Construction Institute is a form of longer term partnership on a project in which a financial incentive scheme links the rewards of each alliance member to agreed overall objectives. A project alliance operates very differently to a traditional contractual structure and offers flexibility and adaptability.

In Australia something like a third of public sector projects are procured using alliancing as their base. This is a significant proportion and way in excess of that to which the UK is able to point. The interesting question of our time might well be what stunted the growth of alliancing in the UK and, if we believe that it can offer advantages to both public and private sector procurements, what can we do to encourage its use. Is our underlying reticence towards alliancing cultural or structural?

It is well understood and also well documented that the oil and gas industries, with BP at their forefront, used alliancing as the preferred route for procuring the delivery of North Sea oil. Testament to the success of the procurement method must be that the company has introduced it to other sizeable projects such as the Grangemouth refinery petrochemical construction project. The project had a value of over £500 million and was the first system successfully to produce higher grade synthesised ethanol.

Many praise BP's Bob Scott, project manager for the Hyde and Andrew Alliances, with the vision to pursue alliancing. In 1994, he committed to writing some of the thoughts he had on the alliancing contracts he had put in place in a paper entitled Partnering and Alliancing Contracts, A company viewpoint:

'The overwhelmingly attitude was that BP knew best and we could not rely on contractors and suppliers to deliver, unless we finely detailed our requirements then employed large teams to monitor check and police them at every stage. Of course there were many reasons why these attitudes and practices in doing business with our contractors and suppliers had developed over the years. Nevertheless it seemed clear that they were a root cause of high costs and taking action to produce changing them was perceived as a prerequisite to us achieving our goals.

Features in common

In particular relationships with our contractors and suppliers seemed to exhibit the following features: Short term and essentially adversarial in nature. Unaligned objectives. Accountabilities not clearly defined.'

Paul Roberts, during his time as project manager at Honda UK Manufacturing espoused the virtues of a 'one team one goal' culture and in doing so secured for Honda the British Construction Industry Award in 2002 for the European Car plant project.

Many of those who worked with Honda in the construction and ongoing maintenance of the facility spoke positively about their improvements to their own downstream supply management. Paul Roberts was evangelical about the benefits which Honda gained from the partnering approach.

Few projects have had the coverage that the Terminal 5 project for BAA has had some 14 years after its commencement. The project was about the need to increase the capacity of Heathrow Airport. It was an exceptionally complex scheme involving 16 projects and more than 140 sub-projects. The complexity of building between one of the world's busiest airports and the UK's business motorway should not be underestimated. It is now used as a learning piece by many academic institutions promoting collaborative contracting and project management. The success of the Heathrow project was measured largely on the absence of subcontractor claims, the very low incidence of health and safety issues, and the successful delivery on time and on budget. Its effects in the industry could be felt through the material successes that were the 2012 Olympics and Crossrail. Many cite the project as the beginning of the change towards relationship contracting witnessed in the UK construction industry since the encouraging principles set out Egan and Latham.

In the years since Latham and Egan wrote so enthusiastically about partnering thoughts about how best to achieve some of the benefits promised have matured. Egan felt that there was much to be said for a more moral based non-contractual style. He considered that no more than a charter of some sort for the way to resolve contentious items or matters was required.

Examples

There are many examples of failed non-contractual partnering arrangements that draw into relief the need to put in place a proper framework. One such example is the unfortunate tale of the Cardiff Bay Development project where St David's Ltd and their contractor Birse Construction signed a charter with a number of stated aims. These included the promotion of trust, integrity, openness and honesty, the maximization of profits, and enhancing the reputation of all involved. The charter, with its ambitious and laudable aims was signed in May 1997. In November the parties expressed a common aim to execute the contract before the Christmas break and by March of the following year the client was notifying that LADS were to be deducted. In the summer the contractor had, according to the client, abandoned the site. It was the contractor's position that there was no contract in place and so it could not be in breach and could not have abandoned the contract. The contractor brought a claim in the Technology and Construction Court arguing that it was due a quantum meriut. The Cardiff Bay fiasco is very largely recognised as being the beginning of the end of non-contractual partnering; suffice to say that reliance on a partnering charter is now rare. There is much more commonly a familiar contract amended to give teeth to the virtues articulated in historical charters. The Heathrow project referred to above is recognised as being the point of origin for something more robust and project allianced based.

The no dispute concept

The construction industry is often characterised by the very high level of distrust, much more so, it is felt than the majority of other industries. It is often described as being the industry with the strongest culture of distrust amongst its members (see Wood and McDermott, 1999). It is then easy to see that, as the very centre of an alliance agreement is the commitment by the participants to the 'no fault, no blame' concept, this itself forms a barrier to the willingness to embrace the benefits alliancing can deliver. For alliancing to work, the parties must also accept a no dispute concept which at its most basic is an acceptance that in the event of an act or omission by an alliance party, there is no enforceable action in law or in equity. The only exception to this is typically in the sphere of what is referred to as wilful default. The relevant provision might look something like:

'No failure by a Project Alliance Party to perform an obligation or discharge a duty out of under or in connection with this Alliance Agreement will give rise to an enforceable action at law or in equity save where that failure constitutes Wilful Default'.

The Australian experience

In Australia where alliancing has been more established for some time, the enforceability of the 'no dispute' clause was the subject of much academic debate. Originally the received view was that a no default clause would be unenforceable on the basis that it was void for seeking to oust the jurisdiction of the courts. In Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 the court considered:

'It is not possible for a contract to create rights and at the same time deny to the other party to whom they vest the right to invoke the jurisdiction of the Court to enforce them'.

This early view has now been replaced with a more progressive interpretation based on the court's reluctance to strike down bargains which parties have made in good faith. In Kymbo Pty Ltd v Paxton Management Pty Ltd [2001] NSW SC 792 it was suggested:

'Courts are reluctant to hold void a provision which the parties intended to have legal effect particularly if there has been partial performance of the terms of a contract from which the party resisting specific performance has derived a benefit.'

The concept of wilful or deliberate default/breach under English law has been the subject of several cases, yet there has been no consistent approach as to its scope. Potentially the concept is a broad one, and may be interpreted as including any deliberate act which results in a default under or repudiatory breach of the contract.

UK approach

In the UK the additional dimension that makes the 'No Dispute' clause interesting is the existence of the Housing Grants Act and the right it gives any party to the contract to adjudicate a dispute at any time. Many have relied upon the attitude towards cl 66 of the ICE (7th edn) to support an argument that the UK courts would not and indeed could not approach no dispute provisions in the same way as has become the case in Australia. It is contended that there is a distinction to be made between the timing of bringing a dispute between a forum and the existence of a dispute to begin with. It is difficult to conceive that a provision in a project alliancing agreement which sought to support the no dispute provision would be considered against public policy. However, if there is real appetite in the UK to push toward the Australian model then there is a need properly to understand how the courts would view the project agreement complete with its no dispute provisions.

Consider circumstances in which a party terminates a contract early without any default by the other party, where it has no express contractual right to do so. Or a contract which contains performance guarantees which are subject to liquidated damages, or a requirement to expend a specified amount remedying defects, following a failure to meet the required performance. The party which has given the performance guarantees may refuse to carry out any further work once the financial cap on liquidated damages or spending has been reached. Both of these scenarios are capable of constituting wilful or deliberate defaults/breaches.

Consequences of wilful default

So what might be the consequences of the occurrence of wilful default? We might expect that the defaulting party might no longer be able to participate in the alliance, that there might be suspicion of payment and there might be an indemnity from the defaulting party to the non-defaulting parties. Whether the indemnity would be capped and cover or limit economic loss would be for negotiation.

In the UK it is probably Network Rail that is most strongly working toward a process of collaboration and alliancing with its suppliers. The Stafford Area Improvements Programme represents a real 'pathfinder' project for many of the new processes which have been developed within the organisation to get alliancing traction in the industry. This project is said by many to be the most sophisticated form of alliancing and collaboration in the UK at present and it is certainly the case that Network Rail is investing well in its future development and success.

This article was first published in the June issue of the Construction Law Journal.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.