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In this assignment I will discuss the use of partnering agreements in the construction industry. I will also attempt to examine how partnering agreements can be used as an essential tool in the development of cost saving and increased quality for a client of a construction project. The issues discuss in this assignment will argued in balance of partnering agreements advantages and disadvantages.
Partnering Agreement Defined
Partnering is defined by the Constructing Excellence Association as "a management approach used by two or more organisations to achieve specific business objectives by improving the efficiency of the parties' resources. It requires that the parties work together in an open and trusting relationship based on shared objectives, an agreed method of problem resolution and an active search for continuous measurable improvements."
It can either be project specific, the arrangement runs until the end of the project in question. It may be a long-term arrangement, where the agreement is for a specific length of time, which may cover a number of projects. The long-term arrangements usually allow for better opportunity for improvements.
And according to the Constructing Excellence Association it promotes improved performance through the collaboration of business relationships, based on best value rather than lower cost.
Partnering agreements are used to create a team spirit of trust and co-operation between the client and construction team. With the aim to build a working environment that is transparent on all levels to help parties work towards their common objectives. A partnership requires that the parties involved understand what the partnerships objectives and priorities are. Also the goals that have been set to achieve the sit objectives to insure the parties are all aiming in the same direction for success.
This statement is supported by the Latham report which states "the parties agree to work together, in a relationship of trust, to achieve specific primary objectives by maximising the effectiveness of each participant's resources and expertise"
The relationship between the parties in the partnering agreements can vary between short term agreement such as single project or long term partnering relationships which parties work closely together for a prolonged period of time, which requires a lot more trust and communication between the parties.
Advantages of Establishing a partnering agreements
It is claimed (by constructingexcellence.org.uk) that partnering agreements have a large variety of benefits which are:
Staff satisfaction and development.
The main drive for staff satisfaction relies on the determining and drive of each individual that is involved within a Partnering agreement. Also the size and scale of the project is also a factor. This is hard to measure as it is dependent on each individual.
Development is mainly aimed at the personal development of the individuals participating. This is difficult to measure based only on one project and it various for each individual.
The creation of an environment that encourages technical development and innovation.
The main key to creating such an environment depends mainly on the cultural issues which i will discuss later in more detail.
Increased customer satisfaction.
This depends on how well the project has been executed, taking factors such as the measure of success of integrating Partnership into an organisation. This is classed as an output, but if the input of the project at the start is not correct, or problems arise, then this cannot happen.
Creates a better understanding between the partners and therefore helps with driving down of costs.
The key to driving down costs is the true Partnership and the understanding and communication between the concerned organisations.
Elimination of duplication.
The elimination of duplication helps to reduce costs avoiding wasting resources and time
Better estimation for time and cost.
This is difficult to produce based on one project, but with the experience gained from previous mistakes or miscalculations, this can certainly occur.
Shorter delivery periods.
Initially this is not possible, but over time, with improved understanding and improved processes, this can also occur.
Better value for the client.
Based on the other benefits evaluated value is better
But, before these benefits can be enjoyed by the client there are important areas that will need to be considered. And mutual values that need to be established and defined before a client enters into a partnering agreement. I will discuss these below.
The present instability of the world economy has forced client to be much more carefully analyse every element of their business strategy is carefully asses for benefits of added value potential to any project to make as much profit as possible whilst proactively look for ways to create financial security within the construction industry. By making continuous improvements to promote growth this must be determined by suitable Key Success Indicators (KPIs) to measure the client performance in the construction industry to determine there weakness and strengths to choose the best partnership possible to make them more efficient in the market. Some experts of Partnering conclude with some positive results but, it is important to know and understand several of the issues in measuring the performance of Partnering and selection of partner.
A client must first determine that they partnering will be more beneficial to its organisation, before starts to travel down the line of trying to seek a suitable partner The Company must first start to have a full self assessment to evaluate if they really require a partner. To determine that areas of the company benefit from partnering and that type of company would be most suited to help the client project successfully meet its objectives. Which may not be possible with one organisation as specialist within curtain areas may be the best option to insure objectives are met. For example are there specialist skills required for a project that the client is missing and would it be more time and financial efficient to get these skills from a partnering source rather then training a work force their self.
A Partnership is feasible option if after the self assessment it is determined that outside assistants will help the client complete its objectives that need to be completed. It may be that an organisation is required to help with technical knowledge, expertise or enterprise within a certain field that a partnering organisation could help with due to its business network which is not available to the clients to aid in a projects financial success."Partnering agreements was confirmed to help a project have more financial success and substantial benefits which is suggested by Egan (1998) is research established 10% reduction in capital cost and construction time, 20% reduction in defect, 10% increase in turnover and profit"
In any form of partnership trust is one of the founding elements to any successful relationship and within business specially the construction industry confidence team members have the ability to carry out their duties as required is very important for health and safety and the general success of a project. This confidence can be founded on the repertation on a protenial partner for selection due to a companie having a vast amount of prior expernece of a client projects which has cause the company to have a greater network of companies that they have a relationship with which can be utilised by the client which I have stated earlier.
The most important element for the partnerships health longevity is communication to insure all members in the partnership understand that the aims and objectives are for the team. And also to communicate issues that have the potential to become problematic. A process for the resolution of such issues will need to be established into the culture of the partnership to ensure resolutions are for found quickly and efficiently to avoid individuals within partnership pointing the finger of blame for failures within a project. All decisions on these issues must be made jointly as a team so divisions of loyalty between the parties do not escalate an issue into a dividing dispute. Firstly, issues should try to be resolved by the lowest level of management before being passed further up the chain of command in the partnership.
Its important to note the evidence that supports Partnering Agreement as being harmonious, in study on satisfaction if parties in partnering agreements "Chan found (2001) used satisfaction level of working relationship as a KPI 78.2% of the partnering project members strongly agreed they were all happy with the working relationship with the parties within their partnering agreement". And it was also found in a study by "Chan et al (2001) using dispute magnitude as a Key Performance Indicator to compare project performance between partnering and non-partnering project that 86.7% of the partnering projects had less or equal number of disputes than an average project"
A partnering agreement is not the easiest type of contract to to set up and maintain due to the changes that may need to be made to the customs of parties. To accommodate each companies differences. The full support, backing and commitment of all those that will be involved the Partnership will be needed for the client project to be successfully productive.
Advantages of partnering
There are a Varity of benefits that can be gain from a client entering in to a partnering contract. The performances Advantages that can be capitalised on using a partnering agreement are
improved communication which breeds a fewer conflicts creating a faster project completion,
greater client satisfaction due to the client having more input in the project throughout all stages of decision being made,
Increased turnover potential and reduced legal liability.
reliable amount of design information
In a long term relationship with the client the contract can become reliant on the client for work and due to the lack of tendering process the contract price can be con uncompetitive and unmotivated to compete project in the fastest time possible but, to counter this type of be attitude adopted by contractors the client can create a competitive between a number of contractor to tender for work to get the fastest completion times and best quality possible. In a case study this is the tactic that J.sainsburys used:
"J Sainsbury's were having problems with some contracts they had partnering agreements with not performing to their expected standards of time quality and cost. To create a competitive business environment between the contracts. Sainsbury's used their power as a major client in the construction industry by reducing the number of contractor working with them partnering and the setting measurable performance targets within rewards for good performance, this action influenced a 30% reduction in J Sainsbury's time and cost between 1991 and 1998".
The effect of J Sainsbury's measuring performance using Key performance indicators it which gave the the contractors knowledge of where they and their competitors are failing this system changed their behaviour creating a competitive culture within the business environment which is called the "Hawthorne effect" (Mayo, 1933).
The "Hawthorne effect" (Mayo, 1933). Means the performance of an individual on a high profile project is dramatically improved through the knowledge and experience of the individual, that their performance is being monitored, known as obtrusive observation.
It is suggested by Mayo that Partnering contracts tend to attract individuals within each organisation, who have an interest in working with others and have a positive attitude and are interested in achieving individual and projects goals within a construction project.
Disadvantages of partnering
What has been discussed above is essentially what should happen in theory when entering Partnership agreement. But in reality the process that have produced the benefits a that have been mentioned above do not always go to plan. This next section shall discuss more of what actual happens within the real world when dealing with a Partnership.
The contractual and legal aspects of Partnering as dependent on the law of the country where the project will be applied. This means that the partnering agreement cannot be universal due to different the civil and common law systems through the world. A particular partnering agreement can only be used within the country that it's created in.
There is nothing to say that a construction contract should have a good faith clause included in today's common laws.
The use of Estoppel and waiver may be used between the parties may make representations to each other which do not conform to the contract. This could leave them vunrable if their was a legal dispute because they may not be able to prosecute under the principles of this practice.
Confidentiality statements - To have a success Partnership require some confidentiality, limiting the amount of confidential information to certain individuals.
As Partnering consists of interrelated business processes, occurring simultaneously within the overall project framework, which makes it difficult to highlight the benefits or problem plus allocate them to a particular Partnering process.
Each company within a Partnership will all have different objectives. The success of the good Partnership can only be measured if all the objectives have been achieved.
I conclude that Partnering has become a positive development within the construction industry and it has the potential to improve construction projects which is evident in the case study. There is sufficient evidence through theory and mainly practical use the implementing Partnering does in improve the performance.
I have discussed most of the issues that arise from the implementation of Partnering. It has attempted to show how a client can gain various benefits in areas of efficiency and cost. As well as the theory behind the implementation of Partnering, there is also a realistic view, highlighting the practical advantages.
Also highlighted within this paper are the areas that are of concern, such as the cultural areas, which have an effect on the relationship between the client and the contractor. Negative results may occur when introducing a Partnering agreement to a client and contract that do not have the experience within a partnering contact and a foundation of trust before joining a partnering agreement.
http://www.ukprwire.com/Detailed/Business/Construction_Disputes_to_Become_More_Complex__89997.shtml (Latham, Sir, Michael (1994) Constructing the team: joint review of procurement and contractual arrangements. London H.M.S.O )
http://www.scribd.com/doc/41754683/John-FY-Yeung Partnering For Construction Excellence-A Reality Or Myth? by John FY-Yeung