Summary of key points made during the panel discussion on 6 April 2017
Venue: Beale & Company Solicitors
Rosemary Jackson QC (Chair)
Derek Turner (Former Deputy Chief Executive and Director of Network Delivery & Development at Highways Agency) (representing the Client interest)
Steve Bamforth (Senior Partner and Group Chief Executive, Griffiths & Armour) (representing the Insurer interest)
Keith Broughton (Major Projects Operations Director, Hochtief) (representing the Contractor interest)
Tom Pemberton (Partner, Beale & Company Solicitors LLP) (representing the Consultant interest)
Introductory remarks by our Chair
Our Chair noted that this event is being held at a time of change and opportunity, with three of the main contract issuing bodies (ACE, IChemE and FIDIC) having issued new forms of professional services contract (PSC) in the early months of 2017, and with more in the pipeline, including the NEC4 Professional Services Contract as part of the NEC4 suite. However she questioned whether any new form of contract could solve the deep-rooted issues which beset the industry.
She noted that the process of procuring design services and the contracting structure within which they are delivered is invariably driven by the Client, who often chooses the design and build contracting model as the best way to achieve single point responsibility for the delivery of their project. The drawback to this model is that it requires either the novation of a pre-appointed design team to the Contractor on a fictional "ab initio" basis (where the Contractor had not had the opportunity either to select the designers or to manage their pre-novation services) or the Contractor to engage the design team on a speculative basis to prepare a tender design. Either model can result in a disconnect between the Client's brief and the methodology adopted to deliver it, largely because the respective parties' interests are not properly aligned towards successful delivery of the project.
She noted that the problem can be mitigated by including obligations on all parties to collaborate and to act in good faith (while noting the limited scope of a "good faith" obligation under English law, according to recent cases), and also by including obligations to give early warning of potential problems of the type seen in the NEC3 forms, and now also in the ACE Professional Services Agreement.
She noted that whichever model is selected, a major recurring issue in disputes is lack of clarity concerning the scope of the respective designers' design responsibilities, and those of the Contractor/specialist sub-contractors, and the interfaces between them, which often results in "gaps" in design with predictable consequences. An example often seen is the lack of a clear boundary between the design carried by a structural engineer and that carried out by the specialist steelwork contractor.
In the subsequent panel discussion, there was general agreement on the above points. There was extensive consideration of the different forms of PSC and contracting models available. The common theme was that the industry would benefit from a single, widely accepted form of PSC which commands cross-industry consensus.
The panellists all welcomed the obligations to collaborate in the new forms of PSC and agreed that the key to successful delivery is to align the interests of the project delivery team with those of the Client (although Keith Broughton noted that the different business models of a typical Contractor and Consultant can make it hard to agree "win win" contracting models which work for them both). Steve Bamforth described how this can be underpinned by Integrated Project Insurance, which is being successfully used on the trial project at Dudley College.
Picking up our Chair's point in relation to "gaps" between the respective designers' services and outputs, it was considered good practice for the Client to prepare a Design Responsibilities Matrix which identifies in one table all the design services which are required in relation to a project, and which of the designers/specialists will be undertaking those services. Where particular activities are not required these should be specifically listed as such.
A significant degree of consensus was reached around the following issues which were raised by the panellists, with some very useful observations from the floor.
Derek Turner (Client)
The Client's main concern is to obtain comprehensive, independent and non-conflicted advice. In order to achieve this, it is critical to select the best possible project team. The procedures to which the public sector is subject under the public procurement regulations and the relevant authority's standing orders often make this objective harder to achieve.
Clients should build into the procurement and delivery of their projects the discipline imposed by the RACI methodology (Responsible, Accountable, Consulted, Informed). This complements a Design Responsibilities Matrix, clarifies the roles of the various organisations involved in delivering a project, and identifies the individuals tasked with specific roles and responsibilities.
Use of an RACI matrix counter-acts the tendency for teams in large organisations to work in silos, with each department isolated from each other, which makes it difficult to determine accountability and responsibility, and can lead to disconnects between (for example) the team leading a bid and the team delivering a project. It is important to identify those individuals or teams who are in charge and accountable for key decisions.
Steve Bamforth (Insurer)
Traditional PI insurance has significant drawbacks, since it only responds to proven liabilities and therefore encourages the respective members of the project to remain in their individual silos defending their separate positions. An answer to this is provided by Integrated Project Insurance (IPI), which covers all members of the project and insures project risks on a blame-free basis, rather than liabilities. IPI thereby unlocks the key obstacles to working collaboratively and allows for a truly integrated project team, helping to deliver innovation, and provide better, more cost effective solutions. A key feature is that the parties' share of any project cost over-runs (pain share) is capped, with financial loss beyond that amount being insured so that each team knows its potential exposure.
IPI has been the basis of one of the government's trial projects at Dudley College, where it has helped to achieve substantial cost efficiencies and savings. By promoting a culture of collaboration, it is hoped that more young people will be attracted into the construction industry.
BIM Level 3 requires open access to project data such that individual project members must collaborate and not work in silos. Traditional PI insurance is not well adapted to this working environment. The IPI underpinning of the Dudley College project has enabled the use of unfettered BIM Level 3, with the result that the mistakes and teething problems which are a necessary part of any innovative project have been quickly identified and ironed out.
Keith Broughton (Contractor)
One of the main challenges facing Contractors is the short timescale within which they must bid for a project between issue of the ITT and final tender. This may be as little as 6 8 weeks, albeit that it may be for a complex project that could take a number of years to deliver.
The consultant design team has an essential role in developing the tender design and design programme, which the Contractor relies on in order to develop an overall programme and tender sum. An essential part of the process is the rapid agreement of a PSC which properly reflects the terms of the main contract. Often too much time is spent negotiating detailed contract terms, when this time could be better spent in developing the tender design, costings and programme, since failure to define these a adequately can cause very significant problems further down the line.
The protracted negotiation of contract terms often means that works commence on site before the PSCs have been agreed and signed. One way to get around this is to set up a framework with preferred consultants signing up to preagreed terms which do not need to be extensively re-negotiated on each new project.
Reaching a complete understanding of how BIM can be used to deliver projects, and the required capability to do so, is a "work in progress". Many consultants can produce 3D models, but lack the coding expertise which is needed to prepare a fully integrated model and to keep this up-to-date through the lifespan of the project.
The new forms of PSC are to be welcomed insofar as they address Client/Contractor concerns regarding management of performance, cost and programme. For example, there is a useful new requirement in ACE PSC 2017 for the Consultant to advise the Client if it considers that any change or instruction from the Client is outside the scope of the Services and will cause a change to the Programme and/or change to the level of its fees and expenses.
Tom Pemberton (Consultant)
Consultants have a similar interest as Contractors (and indeed Clients) in minimising the time and effort required to negotiate terms of appointment so that they can focus on preparing their technical and commercial proposals, and providing any pre-tender support required by the Contractor.
Clients should recognise that the period typically allowed for tenders to be issued is often too short to allow full value to be provided. For public sector procurements, the timescales are constrained by the public procurement regulations. There should be an opportunity for the government to review these following Brexit. Experience in the UK and overseas shows that the more time which is spent in project planning, including "soft" activities such as team building, as well as "hard" activities such as site investigation and troubleshooting (making use of technology such as BIM) before a project "goes live", the better the chances that it will be completed to the standard required, within budget and programme.
In relation to the terms of their PSCs, Consultants' primary concern is to ensure that their liability is covered by their PI insurance. This is also in the interests of their counter-party, whether the Client or the Contractor, since PI insurance is often the Consultant's only asset of any significant value. Too often, bespoke terms of appointment impose obligations which are potentially uninsurable so the move by the standard form issuing bodies to publish up to date forms of appointment which are more likely to command cross-industry support is to be welcomed.
A recurring requirement, particularly in the building sector, which our Chair referred to in her opening remarks, is for the Consultant to be novated to the Contractor on award of the Building Contract. This is not in the interests of either the Contractor or the Consultant since it denies them any choice in selecting their delivery partners, and puts the Consultant in a potentially invidious position of owing parallel contractual duties (particularly where the novation is "ab initio") to the Client and the Contractor whose interests inevitably may conflict.
Up to date forms of contract must be adapted to new methods of working, in which advances in digital technology and data are transforming how we design, deliver and operate infrastructure. The new forms of PSC are a move in the right direction by including provision for Building Information Modelling (BIM). However, it is likely that the professional services contracts of the future will look more like IT contracts, given the increasing onus on Consultants to process and interpret user data in order to optimise the commercial outcome for the Client. They will need to include more detailed provisions relating to data capture, protection and integrity, protection of intellectual property rights, and cyber insurance, among other things.