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Jun 25 2013

One in five UK construction joint ventures ends in dispute – what can be done to prevent this?

According to a recent report by consultants EC Harris, one in five UK construction joint ventures (JV’s) ended in a formal dispute between the main parties in 2012.

These findings would appear to support the results of AECOM’s recent 2013 Blue Book report titled Collaboration: Making Cities Better where they revealed that Europe was the second most adversarial market following Australia’s.

EC Harris’s report details how the value and duration of UK construction disputes rose dramatically last year with the average JV dispute now costing £17.7m, a threefold increase on the £6.6m figure which was reported in 2011. In addition, the duration of JV disputes have increased from 8.7 months to 12.9.

According to the report the top five causes of JV construction disputes in the UK during 2012 were:Construction dispute

  • Failure to properly administer the contract
  • Failure to understand or comply with contractual obligations
  • Employer imposed change
  • Conflicting party interests
  • Incomplete and/or unsubstantiated claims

All of these causes share a common theme in that they represent a failure of the JV partners to effectively communicate. This isn’t surprising when you consider that such companies are more familiar with established communication systems and approaches that focus either upstream to a Client or downstream to the supply chain.

A JV partnership requires parties to exchange information on an equal level and this is where a lack of experience and ambiguity over roles, obligations and procedures when communicating, can undermine the whole endeavour.

So, what steps can be taken to improve JV communications and mitigate the risk of disputes? Here are a couple of suggestions;

1: Underpin the Joint Venture with a collaborative contract

For many years the UK has been leading the way in designing and implementing jct-major-project-construction-contract-guide-2011collaborative contracts on the back of the Latham & Egan reports in the 90’s. The NEC3 (new engineering contract) and JCT Major Projects are two such examples. Using a collaborative contract doesn’t guarantee success, as the EC Harris report mentions:

“failure also stems from clients being advised to adopt contracts such as NEC3 without fully appreciating the level of administration and involvement required to effectively gain the benefits of using such a contract form.”

To make them succeed, they require willing and able project parties who can implement and adopt a series of integrated communication processes that map the principles and terms of the contract. Over step the mark and warning bells are rung instantly, thus encouraging the parties to resolve the issues before they become significant.

Collaborative contracts are widely adopted on many major UK infrastructure projects, servicing joint venture schemes such as London’s £14.5bn Crossrail scheme and Terminal 2 at Heathrow Airport.  All projects at the London 2012 Olympic Games were delivered on time and within budget using the NEC3 as their base.

2: Use a common technology platform to administer and manage project communication

In EC Harris’ report one of the recommendations to remedy JV disputes is “The use and application of a common platform and information sharing system.”

Web-based document management systems have long been available to support the specifics of the construction market to ensure project teams effectively share the very latest design and construction information. Coupled with workflow management functionality, end-to-end processes can be implemented online to aid collaborative working and/or contract management communications.

The prescriptive nature of some collaborative contracts demand strict levels of project discipline and can often generate high levels of administration. This paperwork can be manually administered, but a contract management application represents a faster, more accurate and considerably cheaper solution.

Project workflowsBy implementing an application which has been configured to automate and manage communications in line with the specifics of the contract, the project team can get on with managing the contract. The platform should manage contract communications between the JV partners in addition to those upstream with the Client and downstream with the entire supply chain, thus providing effective governance over the contract.

Using this approach means that JV parties can report, view and manage contract related communications as and when they happen in compliance with the contract, reducing the likelihood of disputes between the partners. With a jointly procured and independent application (not owned by one of the JV partners) all participants can interact, safe in the knowledge that the system is working in accordance with the prescribed contract in a secure and auditable manner.

Some platforms combine all operational processes to allow JV partners to integrate Scope, Money, Time and Quality in one system. By uniting all aspects of the contract in a single platform JV’s can achieve greater control and visibility over the status of their project or programme, providing improved management of risk.

Successful examples of joint ventures taking this innovative approach to avoid dispute include:

  • Connect Plus, a £5bn Design, Build, Finance and Operate (DBFO) consisting of Balfour Beatty, Atkins, Skanska and Egis providing the operation and maintenance of the M25.
  • The Northern Electricity Alliance – a contractor consortium responsible for delivering part of a £2.5bn infrastructure upgrade programme for National Grid. The alliance consists of Siemens, Murphy’s & Parsons Brinckerhoff.

 

 

About the author

Michelle Mason

Michelle Mason leads the UK and MEAP Marketing team, with far too many years in B2B marketing to mention. A CONJECT newbie, Michelle is eagerly climbing a steep learning curve.

View my LinkedIn profile:
http://uk.linkedin.com/in/michellemason04

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