Building contracts and tenders

If you are working for a registered social landlord (RSL) – whether as an external consultant or in-house – then some different considerations may very well come into play.

Sir John Egan's report for the Construction Task Force in 1999 (Rethinking Construction) looked into the way in which construction and maintenance contracts were procured and, in essence, concluded that the traditional methods of procurement were not satisfactory for the 21st century and that things could be done better, and differently.

The EU Procurement Directive 2006 developed this view further, by coordinating procedures for the award of public works contracts, public supply contracts and public service contracts.

The essence of the Egan Report, as far as RSLs are concerned, is that by developing long-term collaborative working relationships with its partners in the construction team an RSL should be able to ensure a long-term flow of work, which would:

• establish groups of suppliers and constructors and their subcontractors; and
• work with consultants who will invest in a long-term relationship.

The theory is that suppliers, constructors, subcontractors, consultants and the RSL will be locked into a process that should engender trust as projects are developed. In addition, having constructor input from an early stage will assist with evolving a competitive build or maintenance price. The concept works through a Framework Agreement setting out the roles and inputs of the various parties – similar to a contract, but different from it in spirit and some fundamentals.

Under this system, 'core groups' (equating to a construction team/project group) are set up for each scheme. The core group develops the design and acts as a discussion forum for the resolution of problems and the airing of any issues before they become a show-stopping significant obstruction to the process.

Budget or target prices are set periodically, and the team is intended to work in collaboration to meet or even beat the budget price. The budget figure is affirmed as an AMP – Agreed Maximum Price – for each project. A policy of 'pain and gain' can be applied to incentivise the team with a greater share of the profit where there is any saving from the AMP, or a reduced profit in the event of overspend.

All team members share in revenue or reduced profit – so collaborative working is essential for each party to maximise a return.

The most common form of Framework Agreement is probably the ACA Partnering Agreement, although many RSLs use an adapted form prepared by their own legal advisers.

The JCT has issued a new form of partnering agreement within the 2011 Suite of contracts – the JCT Framework Agreement 2011 (FA).

However, many people think that the JCT version is not a true framework document; rather, it is a template for collaborative working (i.e. similar but not quite the same as the long-term commitment made within a real Framework Agreement).

The JCT's Framework Agreement is available in 'binding' and 'non-binding' versions. Essentially the non-binding is a statement of intent by the parties to it. Although this is a looser agreement, it may avoid any conflict between the normal JCT contract terms, which operate under the Framework.

Is partnering the most appropriate form of contract?

'Pure' partnering may not be the most appropriate method for RSLs or similar organisations such as local authorities. Use of carefully drawn up traditional contracts may be equally if not more effective by providing a clear boundary of relationships, timetable and a basis for competitive tendering. In this respect the JCT FA might well offer an advantage.

If approached in the right (honest and genuine) spirit this can be conducted in accordance with the NJCC form of single or two-stage selective tendering. With a list of regular tenderers this can be a profitable experience for all concerned, where working relationships and genuine collaboration can still be developed outside of the FA partnering system. Note that the Official Journal of the EU (OJEU) rules for publication of tenders will probably apply, whether or not a framework is used.

There can be a temptation to let maintenance work on 'schedule of rates' terms, i.e. a previously agreed hourly rate for the labour force which is then totalled for (usually but not always) smaller repair and reactive maintenance jobs.

Where time permits, it is probably usually much better to price against a specification, otherwise there is a temptation for the work to expand and fill the time available – at considerable cost later.

The JCT DB may be particularly appropriate in this situation, where a social housing client is likely to be risk averse. For example, if the employers requirements are properly drafted and accurately define the brief then much of the risk (which should be minimal anyway) can be assigned to the contractor.