Chartered Institute of Arbitrators Summer Seminar
“Frameworks, Alliances and Term Contracts – Typical Pitfalls and New Solutions”
Friday 1 July 2016
Professor David Mosey
Director, Centre of Construction Law and Dispute Resolution
King’s College London
©David Mosey 2016
1
What is a framework agreement ?
An agreement governing a long-term relationship which
gives rise to a procedure for award of specific work under
supplementary contractual commitments
Frameworks may provide for a minimum volume of work
committed by the client or for no guarantee of work
whatsoever
Framework agreements are designed to create long-term
relationships which can be a basis to develop an agreed
joint strategy, joint cross-project activities, im[ropved
value and the capture of lessons learned
But frameworks are also used to exercise greater
commercial leverage without aligning expectations
And what is the difference between a framework and an
alliance?
Frameworks and alliances
A framework agreement is “an agreement between one
or more contracting authorities and one or more
economic operators, the purpose of which is to establish
the terms governing contracts to be awarded during a
given period, in particular with regard to price and, where
appropriate, the quantity envisaged” Public Contracts
Regulations 2015
“An alliance in general terms is a collaborative and
integrated team brought together from across the supply
chain. The team share a set of common goals aligned
with customer and client outcomes and work under
common incentives” Infrastructure Client Group
Alliancing Code of Practice, 2015
What is a term contract?
A term contract is a long-term contract that is not a
framework agreement, because it does not lead to other
contract awards
Instead it contains sufficient detail as to the nature and cost
of the works/services/goods covered to create a basis for
orders to be placed
Term contracts frequently used for responsive repairs,
cyclical maintenance and a programme of minor projects but
are increasingly linked to capital projects e.g. through BIM
Term contracts can provide a basis for a system of agreed
continuous improvement and shared rewards
But term contracts are also used to attract investment in
bids and mobilisation without that investment being
rewarded 4
Aligning differing commercial interests
MacNeil I.R.(1974) Southern California Law Review “The
Many Futures of Contracts”, identified “enterprise
planning” , namely agreed joint activities in place of
negotiation
Phelps S. (2012), in “Emergence of social networks via
direct and indirect reciprocity ”, considered the impact of
reciprocity created and sustained through “social
networks” , based on the parties’ wish to preserve a good
reputation
Trivers R. (1971), in“The Evolution of Reciprocal Altruism”
, described “social darwinism” by which both parties can
benefit from apparent altruism- if they have the information
that enables them to recognise a more profound view of
enlightened self-interest, making calculations that
“take the altruism out of altruism”
Good faith and good business Overriding duty of a company director to “act in a way
that he considers, in good faith, would be most likely to
promote the interests of his company” ,while also
fostering “business relationships” and “maintaining a
reputation for high standards of business conduct” -
Section 172.1 Companies Act 2006
Williamson O.E.(1985) “The Economics of Capitalism”-
the “subversion of morality for profit” -there is no
universal business morality to constrain economic
opportunism (as distinct from legitimate self-interest),
except through contracts, other binding legal obligations
and the shared principles of trade
Degrees of honesty ,calculations and optional gestures
are all variables which are subject to external influences
and also to the risks of error/misunderstanding
What legal rights do frameworks create? Unlikely to create unconditional entitlement to be awarded
work on a specific project-right of first refusal enforceable
and , if agreed compensation for non-award, not seen as a
penalty - Coneco v Foxboro Great Britain (1992)CA Con.
Law Yearbook 1994
Binding commitments of client and consultant/contractor to
observe agreed procedures under “tender contract” -
Blackpool and Fylde Aero Club v Blackpool BC [1990] 1
WLR 1195
Claims for inadequate framework rules- Henry Bros v
Department of Education N.I. [2011] NICA 59
Breach of a framework agreement can form the basis for
claim for loss of chance consequent on future expectation of
work - Allied Maples v Simmons & Simmons [1995] 1WLR
1602
“Effectiveness of frameworks”
Appendix G in UK pan-industry “Procurement/Lean Client Task Group” Report 2012 examined evidence taken from a range of Government frameworks, identified features of effective frameworks and commented on the problems arising on others
Concerns expressed where frameworks are:
implemented as a “short-cut to market” without “demonstrable business need”, or
are implemented by advisors/consultants not familiar with or committed to “collaborative partnering processes”, or
are implemented by “less expert clients” who believe lowest cost tendering equals best value, or
where clients do not understand the benefit of retaining certain risks on “more complex schemes”
8
Ministry of Justice new build alliance
frameworks
MoJ new build alliance frameworks
“Solid governance structure through a Strategic Core Group comprising representatives from the MoJ and the Alliance suppliers”
KPI information and cost analysis “made available to all schemes”
“Individual project appointments made via mini-competitions or by direct appointment” under a “standard two stage selection process”
“Standardised suite of processes and contract templates are used to ensure consistency and ease of use” plus “Early engagement of the supply chain is encouraged by the two stage approach”
Major benefits “include reduced operating costs estimated at £10m, reduced burden on industry tendering of around £30m and procurement risk mitigation of about £2m”
Total cost saving of £42m
10
Implied trust and confidence
L. B. Merton v Stanley Leach [1985] 32 BLR 51 - Vinelott
J.: “There is an implied contract by each party that he will
not do anything to prevent the other party from
performing a contract or to delay him in performing it”
and an implied “duty to do whatever is necessary in
order to enable a contract to be carried out ”
No special need for “trust and confidence” arising by
reason only of a long term relationship (e.g. for highway
maintenance and repair) Bedfordshire County Council v
Fitzpatrick [1998] 62 Con LR 64 (TCC)
But note also Yam Seng v ITC [2013] EWHC 111(QB) as
to relational contract (for distribution of branded
toiletries) “based on trust and confidence and
expectations of loyalty” that are “implicit in the parties’
understanding” and “necessary to give business
efficacy”
Trust and confidence under long-term
contracts
Compass Group v Mid-Essex Hospital NHS Trust [2012]
EWHC 781 (QB), where Court of Appeal restricted good
faith to the clause dealing with “efficient transmission of
information”
TSG Building Services v South Anglia Housing [2013]
1151 (TCC) , where Justice Akenhead held that good faith
clause did not create any constraint on the right of
termination at will in despite being part of a long –term
partnering contract
Success and collaboration under long-term contracts
depends on what the parties agree to do, not only on their
declarations and aspirations
12
Frameworks, alliances, term contracts
and “Supply Chain Collaboration”
Client(s), Tier 1
Contractor(s) and
Consultants agree scope
for achieving
savings/improved value
through improved mutual
commitments with Tier
2/3 Subcontractors and
Suppliers
Timetabled processes
led by Tier 1
Contractor(s) to obtain
and agree new
proposals from Tier 2/3
Subcontractors and
Suppliers
Improved mutual
commitments and
consequent savings/
improved value
captured in Supply
Chain Agreements
Scoping of Supply Chain
Collaboration
Supply Chain
Collaboration process
Decision to build
Supply Chain Collaboration case study
Hackney/Haringey- £200m housing programme
Early joint appointment of comprehensive
range of tier 1 contractors and SME tier 2
and tier 3 sub-contractors and suppliers
Substantial savings achieved firstly at main
contractor procurement (16%), and secondly
through joint working with Tier 1 and tier
2/tier 3 Supply Chain members (14%)
Reduced waste through lean programming,
value engineering and rationalised
specifications
Substantial time savings through new pricing
and mobilisation systems
New opportunities for SME subcontractors
and suppliers, and substantial employment
and skills improvements
Key features under two linked framework alliances :
Project Horizon - a local government call-
off contract and alliance
https://www.gov.uk/government/publications/procurement-
trial-case-study-report-highways-maintenance
Project Horizon- breakdown of savings Surrey County Council with Kier, Aggregate Industries and
Marshall Surfacing
“TPC2005” contract set out clear processes and timetable for
performance improvement and change
Team motivated by prospect of contract extension, plus client offer
of £100m of additional work subject to demonstrable delivery of
£115m of value
Agreed cost savings of 15% included breakdown offered by Tier
2/3 subcontractors/suppliers (against previously quoted rates) in
return for:
Greater involvement in planning work and developing continuity
of work - 2%
Agreed minimum annual volume of work - 5%
Agreed minimum size of individual works orders -2%
Prompt(er) payment by Tier 1 Contractor -1%
Storage facilities in available space at Client depot -2%
“Something in it for everyone”
Surrey gets £120m of work for £100m plus other
improved value
Kier, Marshall, A.I. get £100m of work and agreed
basis for savings
No savings if CPs not fulfilled by Surrey and Kier
Kier likely to get contract extension
Marshall and A.I. likely to share in extension
Surrey gets happy residents and councillors get
votes
17
What is FAC-1? FAC-1 Framework Alliance Contract integrates Alliance Members, including in-house or external Alliance Manager, under a single multi-party contract with:
agreed Objectives, Success Measures, Targets and Incentives linked to Improved Value
agreed Alliance Activities including Supply Chain Collaboration
gateways set out in a shared Timetable
creation of Project Contracts under Direct Award and/or Competitive Award Procedures
option to issue of Orders in advance of Project Contracts
engagement with Stakeholders and option of Additional Alliance Members
joint Risk Management, collaborative Core Group governance and non-adversarial dispute resolution
flexibility of Legal Requirements and Special Terms
FAC-1 framework alliance
Integration with Project Contract Conditions
Improved Value at strategic level achieved through agreed Alliance Activities and other collaborative systems that precede and accompany award and implementation of Project Contracts
FAC-1 is not itself a Project Contract form and is designed for use with any one or more sets of Project Contract Conditions.
Cross-reference to applicable Project Contract Conditions included in description of Template Project Documents
For example, FAC-1 is compatible with all and any combination of the following standard form Project Contract Conditions:
the FIDIC, ICC, JCT, NEC and PPC contract forms, sub-contracts and term contracts
the ACA, ACE, CIC, FIDIC, JCT, NEC, RIBA and RICS consultant appointments.
Alliance Activities/Supply Chain Collaboration
Alliance Activities under FAC-1:
agreement of improved, consistent working practices
improved links between Project Contracts
other agreed systems by which collaborative working may
achieve Improved Value.
Supply Chain Collaboration under FAC-1 enables Alliance
Members to:
revisit competitive proposals obtained when Alliance
Members are selected
seek improvements through new ways to engage with tier
2/3 Supply Chain members under a system monitored by
the Client
All Alliance Activities include agreed actions set out in
FAC-1 Timetable
FAC-1 Core Group
FAC-1 provides for a Core Group of named individuals or
agreed alternates who reach decisions unanimously by
Consensus of those members present at a meeting
Core Group supports collaborative implementation of FAC-1
and seeks an agreed course of action following Early
Warning, to be given by Alliance Members if any matter
adversely affects or threatens the Alliance or the Framework
Programme or any Alliance Member’s performance
FAC-1 also provides a range of options for non-adversarial
dispute resolution, including appointment of an Independent
Adviser to provide impartial and constructive advice/support
to the Core Group, or appointment of a Dispute Board or a
Conciliator
FAC-1 : what next?
FAC-1 developed and finalised to reflect consultation with over 120 organisations
FAC-1 available in hard copy from the Association of Consultant Architects - 01959928412, email-office @acarchitects.co.uk
FAC(S)-1 simplified version omitting provision for Additional Clients
FAC-1 early adopters have commenced procurement and more trials are under consideration
FAC-1 guide scheduled for publication 2016
TAC-1 Term Alliance Contract scheduled for publication and trialling 2016