What about the implementation: documents and risks?
The Construction Playbook sets out the Government’s guidance on sourcing and contracting public works. It notes from the outset that it is focused on getting projects and programmes right from the start, and that it champions innovation and use of technology, including modern methods of construction and implementation of the UK BIM Framework.
There is an interesting reference to an intention to use standardised contract terms and limit changes to the drafting, although it remains to be seen what form and content such contract terms will take. Whilst awaiting these (which in any case form just one part of the process), the industry and contracting clients are seeking to understand the aims of the Construction Playbook. But, to date, there appears to have been little consideration of the actual method of implementation from a contractual and legal perspective. What documentation will be needed? What are the new legal and contractual liabilities, roles and responsibilities that will arise? What risk management steps do parties need to take as a result?
This article seeks to examine a few of the areas within the Construction Playbook to highlight the issues that may arise, and the need to carefully consider the legal and contractual impact. By doing this, one may ensure clarity and common understanding, and avoid disputes and unnecessary loss of time and money.
Modern Methods of Construction (“MMC”)
The use of MMC has been growing within the construction industry for some time; see for example the various research publications issued by the UK Government. The Playbook points out the need to reimagine procurement to support investment in MMC, by adopting longer term contracting for example, and/or by building on the presumption in favour of offsite construction. The Playbook also announces that the Government will look to procure construction projects based on product platforms comprising standardised and interoperable components and assemblies, the requirements for which will be part of a digital component catalogue.
While the active move towards MMC is a necessary and important progression for the construction industry, the Playbook necessarily does not go into the detail of implementation, and there are potential complexities that need to be overcome for MMC to be successful – without leading to confusion or unintended liabilities.
Taking the intention for product platforms as an example: who will be responsible for compiling and updating the digital component catalogue? To what extent are parties responsible to guarantee the interoperability of their components and assemblies? To what extent are the design team responsible compared to the components’ manufacturers, for errors, flaws or failure of the MMC components to fit or function as expected?
It will be important for parties to consider these issues up front, to allocate risk and roles clearly and appropriately, as well as arrange the design process to suit the requirements of MMC – there would likely need to be a design freeze earlier in the process to enable components to be manufactured with confidence.
Early engagement and outcome-based approach
The Playbook points out that clear, outcome-based specifications will facilitate innovative, cost-effective solutions. It urges contracting authorities to consider how they can continuously improve their approach to innovation, including considering any unintended conflict between the approach to innovation and the commercial conditions around this. It says that a shared focus on outcomes, rather than scope, will unlock innovation and drive continuous improvement.
A shift to outcome-based specifications would benefit from a corresponding shift to a more outcome-based procurement model, rather than the costs-based approach more common at present. KPIs and other outcome-based measurements may feature more heavily in contracts than they do currently.
The question of how these measurements are set, and how they are then measured, will become a vital consideration. What if the KPIs or other outcome specifications become unrealistic or unreasonable?
As the Playbook recognises, a wide range of stakeholders may need to be involved to create appropriate design objectives, requirements and specifications; this may include end users given the end product must, after all, suit them. However, how many projects have an identified end user and stakeholders at the early design and tender stages when requirements are crafted? Does the agreement have sufficient flexibility to enable parties to collaborate to continue to innovate to reach a positive outcome, whilst reasonably protecting their positions?
The Playbook recommends the specification of consistent standards for products and interfaces – to reduce unnecessary bespoke solutions and enable efficiencies. In going down this path it will be important for parties to remember, among other things, to be wary of fitness-for-purpose design obligations or strict warranties to achieve certain standards as these could fall outside many professional indemnity insurance policies. Obtaining appropriate professional advice is vital when pursuing a brave new way of interacting or procurement to ensure parties rights and risk allocation is as intended, and equally importantly, falls within their insurance cover if something goes wrong.
The Playbook acknowledges that intellectual property rights are a relevant issue to consider, including how it might arise from the contract. The contracts will need to be clear in where the intellectual property rights sit for the various elements, and when such rights transfer (if they are intended to). What are the best arrangements for intellectual property rights to minimise cost and time, but maximise other aspects like efficiency and innovation? What rights are needed to fully benefit from the intellectual property created at future stages of the project?
The most perfect, collaborative contract will be of no assistance if parties are not open to working collaboratively, and continue the traditional adversarial mindset and passing down of risk
It is helpful that the Playbook goes on to emphasise that intellectual property rights should be managed with clear responsibilities set out in the contract. Contracts are still often only considered late in the day, or their importance disregarded entirely, to the detriment of all parties as the project progresses. Delivery model assessments The correct delivery model approach can make a significant difference in determining whether innovations like digitisation and MMC are maximised and successful. The risk and value profile needs to be considered early, but also reflected in complimentary terms within the contracts to ensure intentions are fulfilled. Are risks allocated to the parties best able to manage and mitigate them? The Playbook notes that an effective commercial strategy will include aligning commercial considerations such as the form of contract, payment approach and performance management with the delivery model.
The processes and procurement methods envisaged by the Playbook will produce more data and interactions than in traditional contracting models. The (relatively new) role of Information Managers could be of great assistance to manage this in an orderly and risk-managed fashion.
The Playbook explains that the government wants to create a contracting environment that delivers a sustainable, resilient and effective relationship between contracting authorities and the supply chain, focused on outcomes, and that creates long-term value for all.
This will, realistically, require a shift away from costs-focussed tendering towards more value-based and outcome-based tendering, which is in line with the rest of the Playbook’s proposals. The Playbook’s proposed use of Project Scorecards, which will form part of contractual documentation, is an interesting suggestion. They are intended to inform contractual processes and form the baseline for robust post-completion evaluation. Whilst the Playbook is correct that the right KPIs will incentivise delivery of the things that matter and promote good relationships, as mentioned above, it may be tricky to set the correct KPIs.
The Playbook acknowledges that KPIs must be quantifiable and measurable, but what is quantifiable and measurable will vary from project to project and parties may have different understanding of how they should be complied with. The measurement of the KPIs will be equally important and will need to be transparent and fair.
Guidance at tender stage may be helpful, as will setting out the processes for fulfilment within the binding contractual documentation, to ensure a level of consistency and understanding. As regards the Scorecard itself, whilst being a contractual document, how will it interact with the rest of the contract terms? Will it be, in essence, a collation of KPIs that need to be fulfilled in line with a party’s other contractual obligations? Does the Scorecard take precedence over other contractual documents and terms?
The Playbook mentions, on a number of occasions, the importance of collaboration to deliver intended outcomes. This is an accepted fact, reflected in the widespread adoption of the more collaborative way of working demanded by BIM and in various respected reports – most recently the Farmer Report: Modernise or Die.
The Playbook suggests that standardised contracts or standardised contract terms can be used to help simplify and speed up procurement procedures. However, the construction industry already predominantly uses standard form contracts (albeit often with projectspecific amendments). The shift will therefore be in parties adopting collaborative processes and terms within their documentation, although this needs to be accompanied with the correct mindset. The most perfect, collaborative contract will be of no assistance if parties are not open to working collaboratively, and continue the traditional adversarial mindset and passing down of risk.
The proposals of the Playbook appear to lead to more framework contracts than individual tenders, thereby enabling parties to develop collaborative, close relationships over time and develop and refine their requirements and ways of working. The processes and documentation of the BS EN ISO 19650 will be one of the keys to effective contracting in the manner envisaged by the Playbook. Indeed, the Playbook recognises this in requiring the adoption of the UK BIM Framework which primarily consists of the BS EN ISO 19650 standards and supporting documentation. It also makes various references to processes that are integral parts of the BS EN ISO 29650 processes such as capturing lessons learnt and feeding this back to improve processes.
The Construction Playbook is a tremendous and vital step by the Government in providing proactive supportive messaging for the development and innovation within the construction industry. It is important to use this opportunity to progress these areas albeit in an informed way, to avoid undoing the potential benefits and alienating participants. This includes putting in place the right, clear processes, terms and documentation so all parties know what is expected, and who is responsible for what, when and how. This will – at the very least – minimise potential misunderstandings as we increasingly move towards the future of the construction industry.
May Winfield is global director of commercial, legal and digital risks at Buro Happold. Connect with her on Twitter @Buildlaw_Arttea