On 14 September 2000 Sir John Egan launched PPC 2000 The First Standard Project Partnering Contract drafted by Trowers & Hamlins (solicitors in London) in collaboration with the Association of Consultant Architects. Whilst it is, perhaps, a little early to call such a document a "Standard Form" it is good news that a contract has been produced in which the main aim would appear to be to resolve some of the longstanding issues which caused the construction industry to have such a poor reputation with regard to litigation.
THERE have been a number of attempts to identify what are the problems inherent in the construction industry that lead it to appear to be one of the most litigious industries – most people will have heard of the Latham Report and the Egan Report.
The Latham Report, entitled "Trust and Money" concluded that (as indicated by title) two principal matters were the route cause of the industry’s problems, namely a lack of trust between the various parties brought together on any project and a lack of money. In essence, with regard to the latter point, Latham felt that, in particular, developers were not prepared to pay enough for good quality buildings and that the emphasis on competitive tendering led to low price – low quality.
Somewhat surprisingly, perhaps, as his report was designed to identify the causes of the industry being so dispute orientated, he advocated a new form of dispute resolution, namely adjudication. This is now a statutory right brought in by the Housing Grants Construction and Regeneration Act 1996.
Sir John Egan’s report, commissioned by the present government, concentrated more on comparing the construction industry with other industries (not surprisingly the car industry) and one of Egan’s principal recommendations was that more attempts should be made to create partnerships within the industry – in particular, in the supply chain.
The question arises as to how such partnering can actually be implemented such that it has some force in law. There are two ways of doing this. The first is to create a partnership within the meaning of the Partnership Act 1890 and create an organisation similar to a firm of (say) solicitors, accountants or architects. I do not believe that that is anyone’s intent when they talk about "partnering".
The other means is, of course, to create a contract between the parties which obliges the parties to behave towards each other in a way that is conducive to partnering. Not many building or engineering contracts, with the exception of the relatively new Engineering and Construction Contract, seek to do that. Without a contract requiring the parties to behave towards each other in a partnering manner then the fall back position is simply that the parties simply agree to try and behave towards each other and no doubt make all sorts of hopeful and optimistic noises to that effect.
There are, it seems to me, two principal requirements for a partnering arrangement. The first is that there should be a real commitment by all parties to the project to each other and to the project such that they understand that the success of the project overrides individual parties ability or requirement to make a profit. The second is that the parties should act towards each other in "good faith".
The question of what is meant by "good faith" has not really come before the English courts and it is still unclear as to what, say, the Court of Appeal would say was the meaning or definition of an obligation to act in "good faith". However, in the fairly recent case of Birse Construction -v- St David the judge, whilst not asked to consider the meaning of good faith in order to come to his judgment, did indicate that he thought that where the parties had talked about acting in good point when it was clear that, but for that technical point, the contractor would have been entitled to an extension of time.
The next question is what sort of "partnering" can take place? It seems to me that, whilst "one off " partnering arrangements might be successful – if the parties involved just happen to get on with each other and the project runs successfully, more likely is the creation of some long term relationship where the parties can feel that, even if this project is not going particularly well through no fault of their own, it is still worthwhile working together to try and make certain that the project is successful (even if an individual party loses money as a result) because further good value work is virtually guaranteed. The feeling that "I can take a hit on this project" is unlikely to be forthcoming if there is no guarantee of more work to come.
If the parties are going to rely on something other than a general hope that they will act towards each other in a "partnering" manner then they will need a contract and, in my view, to turn a fairly normal building contract into a partnering arrangement does not require that much effort but it does need at least four main ingredients.
The first is that there should be a staggered dispute resolution process. All too often in building and engineering contracts a minor dispute arises and the only way that can be resolved is to go to arbitration. Much better to have a staggered process of notices, meetings, meetings at more senior level, mediation and only then, if that fails, arbitration.
Consequently the second ingredient is a requirement that meetings take place on a regular basis at senior level. Too often, in my experience, disputes arise because junior members of companies involved in the project are too nervous of admitting a mistake and would rather allow the company to get embroiled in a difficult dispute than admitting they have made a mistake. That is less likely to happen at a more senior level.
The third requirement is a contractual obligation to behave towards each other in good faith. There is no doubt that the courts will soon be asked to state what that means and I have no doubt that they will follow the lines indicated by the judge in Birse -v- St David.
Finally, there needs to be some form of target price mechanism whereby, instead of the usual penalties for failing to complete on time etc there are bonuses offered for completing early etc. That, of course, can be difficult where there is a finite amount of money and it may be that developers need to persuade their bank that such a term in a building contract is to everyone’s benefit.
If the partnering arrangement works then the advantages for everybody is that they are less likely to get involved in expensive litigation, there will be commitment to each other and to the project and that, hopefully, will lead to more flexibility when things do go wrong (as they inevitably do on a building contract).
Without a partnering arrangement then the old ways are bound to continue but we will have to wait and see whether the courts will enforce obligations such as good faith and whether parties will not use partnering ideas somewhat cynically. Hopefully the PPC 2000 will lead to successful projects. Of course, if it does, we will never hear about it as it will never come before the court.
Roddy Gordon of Robert Muckle, Solicitors, Newcastle upon Tyne, UK can be contacted on +44 191 232 4402