Viewpoint: Are you ready for change?

Will Hughes, School of Construction Management and Engineering, University of Reading,

UK.
Construction Products. Nov/Dec 2002, p4-5.
New ways of working promise cheaper, better and quicker buildings for clients, as well as
increased profits and repeat business for everyone in the supply chain. While everyone is
keen to be seen as part of the solution rather than part of the problem, there is more to
innovative working practices than simply agreeing with the latest trend in construction
procurement.
Since the influential reports by Latham and by Egan, there have been many initiatives in the
UK. These are aimed at improving procurement practice and encouraging collaborative
working relationships. In the light of these developments, researchers at the University of
Reading have been examining how people in the construction industry feel about the way that
contracts should be drafted1. In a survey of nearly 200 construction industry clients,
contractors and consultants, detailed questions were asked concerning contract drafting
policy, to see whether people really meant what they said when they agreed with moves away
from adversarial contracting.
Although everyone agreed that life would be much better if there were no commercial
disputes, and no one disagreed with the sentiments of collaborative working practices, the
research revealed that, overall, people in the industry are fairly neutral about a spirit of
partnership. In addition, the majority felt that authoritative contract management would
improve performance and almost all respondents expected contracts to provide the means to
protect their financial interests. There was almost unanimous support for the idea that each
party needs to understand its contractual obligations before commencing work on a project,
and to plan for all eventualities. There was general support for hard rather than soft
contacts in that the respondents felt that contracts should provide recourse for dissatisfied
clients, they should limit parties behaviour, they should require contracting parties to keep
each other informed and they should be clear about the consequences of non-conformance.
The researchers also found that drafters of standard-form contracts should not seek to create
forms that are applicable to all types of project. It was clear that many respondents also felt
that unequal bargaining power may lead the more powerful contracting party to introduce
malicious amendments to standard forms. Respondents were ambivalent about standard-form
contracts in that while they saw that standard forms have disadvantages, bespoke contracts
are no better.
It was clear that most of those surveyed expect contracts to provide them with clear legal
underpinning for their commercial deals. This would appear to make it difficult for reformers
to reduce our dependency on contracts and encourage more collaborative working practices.
Despite this, there have been huge changes in some quarters, notably with PFI and Prime
Contracting, both of which alter the basis of contracting in significant ways. But they do not
alter the fundamental fact that contracts, of themselves, do not embody a spirit of trust. In
fact, a contract is a document that enables people to enforce promises when things are not
going according to their expectations. Thus, if things work well, collaboration and trust
1

Will Hughes and Yasuyoshi Maeda (2002) Construction contract policy: do we mean what
we say? RICS Research Papers. 4(12), 1-25. (available from www.rics-foundation.org)

should help to reduce adversarial attitudes. But when relationships turn sour, contracts still
need to be sharp enough to provide a clear recourse against parties who behave badly. In
other words, trust is not embodied within contracts, but in the way that people behave in their
dealings with each other.
The researchers who undertook the survey into attitudes towards contracts are now engaged
in a major research project about the cost of procurement throughout the supply chain in
construction. The aim of their current research is to test the business case for the kinds of
change envisaged by the likes of Latham and Egan.
The most obvious developments to procurement practice have occurred in the public sector
where headline-grabbing PFI projects have provided the industry with completely new
opportunities. Most notable among these is the move away from contracts and from deals
based upon purchasing a product for a price. Those who have moved from construction
contracting into the new territory of service provision have found that they are making deals
based upon the quality and longevity of the service that they provide, whether hospital beds,
prison cells, schools or roads. A contract for the provision of a service is wholly different
from a contract to provide a building. For those who are moving into service provision, and
away from traditional contracting, this is a very different type of business. But even in their
role of service providers, they still need to procure a building and all of the parts that go into
it. So further along the supply chain, the suppliers of materials and products may not
perceive very much difference because they still sell materials and products to builders.
The ultimate development that could arise from PFI would be if the notion of service
provision was passed down the line to suppliers. But when they sell their products, not all
manufacturers will be completely willing to move away from the traditional sale of
products ethos. If the idea of service provision is to percolate down the supply chain, then
product suppliers might be asked to rent, rather than sell their products and provide a full
maintenance and repair service to back it up. Is the construction products sector ready for
this? How should the performance and maintenance of products and components be
specified and contracted for over the life of a facility? If the suppliers retain ownership and
earn income from service provision, they will find themselves in ownership of large
quantities of assets installed in someone elses building. Will these things have value to
anyone other than the building owner? Indeed, is it plausible to expect these firms to retain
so many assets on their books? The feel-good factor is very significant in getting people to
adapt to changing procurement practices. The push from large customers is also large. But
there are some very interesting questions connected with the way that product manufacturers
will need to adapt and structure their businesses to provide a service rather than sell a
product.
Research into procurement practice and its impact on the business of construction is
continuing. The research team hope to begin reporting their findings a year from now. If
you want to take part in this research, they would be pleased to hear from you2.
If you want to continue to play an active part in innovative procurement practices, have you
thought about what these new approaches might mean for your business? Is this sector ready
to move away from contract for sale and towards contracts for service provision? Are we
doing enough towards implementing the new agendas, or are they asking too much?

Telephone Dr Will Hughes on 0118-931 8982 or E-mail w.p.hughes@reading.ac.uk