Partnering Progress, published in The Financial Times
By David Nicholson | Published in The Financial Times
A major corporation embarking on a multi-billion pound construction project might reasonably be expected to know how to deal with its own contractors. Yet in April this year, Hong Kong's Mass Transit Railway Corporation (MTRC) called in the small Sheffield-based consultancy John Carlisle Partnerships to do exactly that for its current metro building programme.
The HK$30bn (pounds 2.34bn) Tseung Kwan O extension is now under construction, with completion expected in December next year, when its seven stations will welcome more than 700,000 passengers annually. In the meantime, John Carlisle Partnerships will take the various international contractors, including the UK's Kier alongside various Hong Kong, Australian, French, Korean and mainland Chinese companies, through the principles and practice of partnering.
This form of organisational change was pioneered by John Carlisle and others in the 1970s in response to a perceived conflict between clients (i.e. developers or corporations) and contractors, whereby price had become the overriding factor, leading to disputes over 'claims', as contractors tried to claw back profits after submitting low bids to win business. The situation worsened in the 1980s as compulsory competitive tendering racked up the pressure on contractors to underbid. An army of lawyers and quantity surveyors then mopped up the mess as budgets and time-scales over-ran and each side blamed the other.
"It was partly to do with society becoming more litigious," says George Marsh, chief executive of Midlands-based construction group Gallifords. "Contractors' claims didn't exist in the 1960s. I would say there's been a 20 or 30 year cycle in which construction became very adversarial and people are now trying new ways of working."
In recent years, according to John Carlisle, "construction firms were spending 7% of their turnover on conflict and making profits of just 1%." This, in an industry which accounts for 10% of the UK's GDP, was a dire state of affairs. Partnering evolved to bring all parties together to form common goals, to integrate design and construction into a co-operative marriage by involving contractors at an earlier stage, to set up mechanisms to resolve disputes and to share the risk and rewards of projects.
The results have already surprised the MTRC in Hong Kong. "In one of the tunnelling contracts we have already seen savings of around HK$40m (pounds 3m), which we can directly attribute to partnering," says project director George Turnbull. Contractor Dragages et Travaux Publics was invited to contribute design suggestions for the Hang Tau Station and tunnel: its suggestion to redesign the 'cut-and-cover' box into a top-down diaphragm wall construction provided much of the savings, which will be split between MTRC and the contractor. It also reduced the construction time by five weeks.
This is Hong Kong's first construction sector partnering exercise and is being watched with interest by the other players. In the UK the practice is much further advanced, as successive government reports have driven home the message that co-operation and supply chain management are crucial to cost reduction and quality in the industry. Last year's Egan report built on the foundations laid by the 1994 Latham report and the Department of the Environment, Transport and the Regions lines up firmly behind partnering: the DETR publication Rethinking Construction stresses partnering's advantages and the Movement for Innovation (M4I) presents it as a central methodology.
Shonagh Hay, head of business development at Carillion (the construction services company spun off from Tarmac) and chair of an M4I working group, also calls herself a 'partnering champion'. She is currently at Devonport Dock Yards, where a re-fit is equipping the docks for Trident submarines. "In a conventional contract, between 9 and 12 per cent of management time is spent on commercial and contractual work," she says. "Partnering allows the management team to be open and put issues on the table." On just one aspect of the Devonport project, savings of more than 25 per cent, equal to more than pounds 1m, have been realised since partnering began in November 1998. Carillion suggested an innovative cofferdam construction, which was then agreed by Devonport Management Ltd operations director Archie Walker. "Because all parties share the pain and gain, you can concentrate on the real issues," says Mr Walker.
Such percentage savings are common, if the figures released by companies such as John Carlisle Partnerships are to be believed. "We reckon that companies working with us save at least 10 per cent a year on their turnover, meaning pounds 300m," says Mr Carlisle. Shonagh Hay has details of a partnership between contractors Schel, Carillion and Sainsbury's, formed in 1996 and delivering more than 40 per cent savings on the cost of building new supermarkets.
While partnering stresses the importance of developing 'win/win' relationships and forging trust and openness, there is naturally a loser in the equation. In the construction industry, this is the quantity surveying (QS) profession. Heavy workloads resulted from disputes over contractor claims; 'man marking' became common, where both the client and the contractor would hire a QS to keep an eye on the other party. Partnering generally does away with such duplication, greatly reducing the need for a QS.
Like a cornered tiger, the QS profession is becoming tetchy and seeks to dismiss partnering as a passing fad. "I don't think supply chain management [one of the central tenets of partnering] has any real life in it over the long term," said Martin Bishop, group chairman of international QS consultants Franklin and Bishop in an interview with Contracts Journal in August this year. This brought an astonished response from Bernard Rimmer, general manager of construction at Slough Estates. "That's absolutely diabolical," he says. "You are never going to drive out waste without management of the supply chain."
Dr Rimmer acknowledges that there has been "quite a lot of disappointment" with partnering. Some contractors have taken the practice to be 'cost plus', meaning that overages will be borne by the client. "The industry is very good at putting itself down," he says. "Partnering threatens certain basic control functions, such as lawyers and QSs, because you have direct communication between parties. So when there are difficulties, they are rapidly pointed out by those professionals."
Vassos Chrysostomou, director of the Building Research Establishment (BRE)'s Centre for Performance Improvement in Construction, views the old guard of clients, contractors and associated professionals as an endangered species: "They are dinosaurs who are going to find themselves extinct very soon," he says. "Interdependability and partnering through the supply chain is the way to succeed in construction. If you understand the new thinking, it's like discovering a new country. Some people will be left behind."