Tender Proposal Higher Education to Business (HK2B) Innovation Grant
Development Project: Employer Engagement - Workforce Development - Leadership and Management
Project Title: Creating a Fair Risk Profile in Non-Standard Contract Terms at the Main Contractor/Specialist Contractor Interface
Introduction
The Construction Industry is notorious for having a high incidence of conflict. The resulting disputes are a drain on the construction industry's profitability and reputation. The most recent RICS Contracts in Use Survey indicates that 92% of projects use standard forms of contract. Standard form contracts contain carefully balanced risk allocation profiles between the parties aimed at fairness and minimising conflict - why therefore is there such a high incidence of conflict and what can be done about it?
On closer inspection the contracts used by the industry are far from standard and the risk allocation can often appear one-sided. Bespoke contracts and/or heavily amended standard forms are increasingly the norm at the main contractor/specialist contractor level of the supply chain.
Bespoke/heavily amended contracts or Main Contractors' own Terms and Conditions ("MCTC") often deal with matters not covered in standard forms. Examples include -attendances and facilities, obstruction and clearance, protection of works and liability for damage, visits and previous surfaces, bonds and warranties. These non-standard items in a building project are fertile ground for disputes. Being non-standard the provisions are often overlooked and lead to a disproportionately high proportion of the conflicts experienced on a project.
Purpose of the Project
The Project seeks to create a consensus between main contractors and specialist contractors on the appropriate arrangements for non-standard items contained in MCTCs. The output from the research project will be a user-friendly scorecard backed by both parties at the operational level which will facilitate fair negotiation and set an industry standard by which MCTCs can be judged. The idea is not to be prescriptive on what non-standard terms must state, but to provide a datum point beyond which additional risk items can be measured and priced accordingly.
Why UWE?
The Faculty of the Built and Natural Environments have had strong links with the construction industry over a long period. The Faculty has been focusing on researching the relationship between main and specialist contractors since the mid 1990s and has produced reports nationally and regionally on this critical part of the supply chain. The particular themes picked up on in this project are in keeping with other current projects, in particular:
- The work lead by Martyn Jones into the development of Frameworks for Local Authorities in the South West
- The PhD being undertaken by Xianhai Ming into the wider aspects of the relationship between main and specialist contractors including risk
Why now?
This project is particularly important at the present time in the industry given the current attempts by main contractors to introduce Supply Chain Management downstream in the supply chain. This experience has been far from smooth thus far and any resources that can ease the transition from adversarial to collaborative practice would find a favourable reception.
The resource provided by this project will promote the collaborative agenda to the construction industry in the following regards:
- Improve relations between main contractors and specialist contractors removing
mistrust and the incidence of "risk dumping" - Encourage specialist contractors to take more care in analysing the terms and
conditions which they are asked to sign - Promote the incidence of risk sharing and risk allocation between the parties from the
starting point of an equality in bargaining power
A Demand Led Project
The University of the West of England has close links with representative bodies for both main contractors and specialist contractors and is ideally placed to carry out this project. Seven main contractors are members of the University's Employers' Consortium - a CKE sponsored initiative created in 2007. The Consortium has provided a forum for engagement with key employer stakeholders to the success of the construction related degrees. It is entirely in keeping with expanding the brief of the Consortium to research led projects such as this proposal. The Wiltshire branch of the Chartered Institute of Building has also expressed interest in becoming involved hi this project.
Research projects have been ongoing in the last two years with the Confederation of Construction Specialists (CCS). The results of a project examining Specialist Contractor engagement with partnering were published in 2007 (Mason, J. (2007) "The views and experiences of specialist contractors on partnering in the UK" Construction Management and Economics 25(5) 519-527).
In November 2007 The CCS commenced a campaign aimed at improving the position of its members with regards to the fair allocation of risk. Following a presentation of the ideas behind this project, £1000 has been made available towards the costs of the research project.
At the CCS Annual Meeting on 30 April 2008 six member organisations listed below committed themselves to supporting the project in the following terms:
"/ am writing to confirm my support in the above project proposed by the University of the West of England.
Our experience has been that we are regularly required to work on either heavily amended standard forms or Main Contractor's own forms of contract. These terms and conditions frequently contain one-sided allocations of risk and the potential for disputes to arise is commonplace. This scenario is particularly true in relation to non-standard items.
It would be extremely useful to have available to us a scorecard against which a reckoning could be made as to the fairness of any given terms or set of terms. This reckoning would enable us to negotiate fairer contractual terms based on the guidance given by the scorecard.
The scorecard would need to be based on our experiences as specialist contractor and I am willing to provide information and assistance for the duration of the project. "
- Ken Hooper, Business Manager of PSB Car Park Ventilation
- Paul Winfield, Company Secretary of Colt International Limited
- Peter Hucker, Managing Director of Daly Engineering Services Limited
- Peter Lewis, UK Commercial Manager of Chubb Fire Limited
- John Kelby, Managing Quantity Surveyor of Tarmac Precast Concrete Limited
- Dean Walton, Director of Alumet Systems (UK) Limited
The Business cards of these institutions are appended to this document.
New Development of Existing Activities
"Analysis Notes" are a regular feature in the monthly newsletters of the CCS. These articles contain a critique of MCTCs sent in by CCS members. Typically, the article bemoans one-sided terms and conditions and counsels its members to re-negotiate before signing the terms. However, at the time the advice is received it is too late for the member to put the advice to any positive use.
This project will build on the body of knowledge contained in the "Analysis Notes" and convert it into a tool for usage at the critically important pre-contract negotiation stage. The second stage of the project will then be to present the findings of the specialist contractors' views on what constitutes a fair balance of risk between the parties in relation to non-standard contract terms to a representative body of main contractors. The University's Consortium of Local Employers and/or the local branch of CIOBare ideally placed to reply to the specialists' recommendations. The final stage of the project would be to produce a consensus of a fair risk profile.
Tangible Outcomes
A real improvement to the construction industry is deliverable by identifying non-standard items and presenting a consensus of their corresponding fair risk profile. It is not the intention of this project to produce another new standard form of contract. Obviously "one size does not fit all" but the dialogue surrounding the justification for departing from the profile and the appropriate recompense should lead to a better understanding between main contractors and specialist contractors.
At the end of this project both parties will have an important new resource available to them. It will be extremely beneficial for specialist contractors to know that they are not on their own when negotiating with a main contractor and that they can have recourse to a pre-agreed approved risk profile. Neither will it be the case that the Main Contractors will be presented with a specialist friendly set of terms and conditions - their views will be sought and the profile crafted accordingly. The later phases of this research will see a genuinely representative risk profile being made available with the views of both tiers of the supply chain having been given equal weighting.
A by-product of the research will be a reduction in bad practices on both sides of the divide and a reduction in unethical behaviour.
Budget Required
A considerable amount of work is required to complete the three stages of the project being:
i) Identification of non-standard terms by reference to "Analysis Notes" and collating
specialists views on the fair risk profile
ii) Presenting the findings to a representative body of main contractors (through the UWE Consortium) and collating main contractor views on the fair risk profile
iii) Combining the results of the two studies and producing a user-friendly scorecard for the industry's use
The envisaged timescale for delivery of the project is 12 months.
Jim Mason, UWE