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No-contract Relationships

Latham (1994) states that partnering is not a contract, where two parties agree on work-
ing alongside one another and that is as committed as the relationship gets. This in ef-
fect is one company being employed by another – a transaction rather than a relation-
ship. This in construction terms has little benefits of what effective partnering could.
This idea of partnership not being a contract was echoed in the Eagan Report (1998):

“Effective partnering does not rest on contracts. Contractors can add significantly to the cost
of a project and often add no value for the client. If the relationship between a constructor
and employer is soundly based and the parties recognise their mutual independence, then
formal contract document should gradually become obsolete”

From a legal point of a view contracts being obsolete or extinct is no more than an
idealisation as the law acknowledges partnerships through contracts [Curtis Law (2011)].
However, this proposal put forward; of making contracts obsolete, over a decade ago
by Egan was after seeing it being successful in the manufacturing industry – historically
where many of construction procurement methodology originates from.

He identified Nissan along with one of its principle suppliers Tallent Engineering Ltd to
have a successful working relationship, but with no litigating contract (Appendix B).
This relationship has developed to a level where each company has become a necessity
to the others' business functioning. It may be argued that a third party could approach
either of the companies and offer a more competitive price for their services. In terms of
litigation there would not be any legal implications for Nissan to discontinue business with
Tallent Ltd, or vice versa. However, their relationship is past the idea of low cost initiation.
Each company acknowledges this developed long-term relationship has reached a level
of comfort where Nissan would not like to take its business to another company as this es-
tablished business relationship with Tallent Ltd is for them perfect in efficiency and cost
effectiveness. Partners are well aware of the operational practice of the other and it
seems as each company offers flexibility to improve the production for its relative com-
pany. Both companies realise and acknowledge the values of such relationships and the
effort expended by its partner. There is no hesitation in compensating any extra effort
applied, should the situation arise. It would be difficult for the relationship to be matched if
one company was to be replaced, as this relationship pays constant dividends to both
parties socially and financially. This is a relationship developed on a mutual trust and
strengthened with time.
In such a case where a non-contracting relationship proves to be successful this is evident
that non-contractual relationships are not an idealisation but achievable. But a decade after
being proposed the construction industry is far from such targets. The Task Force
recognised that the construction industry in not as predictable as the manufacturing industry,
where such relationships are easier to implement. Egan identified such relationships
would be difficult as they inevitably require mutual interdependence, some continuity in
work flow and if not stability; at least greater predictability. Constructions clients re-
quire bespoke solutions, where as in manufacturing the production is mainly off-the
shelf produce, however the organisation of constructing infrastructure remains constant.
This predictability make it easier to develop a long-term relationship which would certainly
be appealing to the construction industry as it creates effective partnering arrangements.
This would generate greater continuity in workload, and with continuity comes the oppor-
tunity of continuous improvement. Evidence of this has started to materialise in pure con-
sultancies and contractors partnering up in multiple design and build projects or frameworks
- termed supply chain management (Akintoye et al. 2000).

In addition, Quick (2011) states, the U.K has a good legal environment to allow for
partnering relations to become contract free, just as Egan observed the manufacturing
industry to be. Whereas foreign countries even though they claim to stand outside of
contracts, certain laws make it very difficult to successfully implement a contract free
partnership, for example The Trade Practices Act 1974 an the Competition and Consumer
Act 2010 restrict manoeuvrability of ‘the freedom of contract’ such as in Australia.

The Economical downturn in 2007 had a substantial effect on the construction industry;
this in effect influenced views on construction partnerships. Companies have disreg-
arded their relationships with their partners, in order to tend for there own financial ex-
istence or the good impression of its shareholders. Albeit, in most cases it seems to be
only the relatively short term relationships which breakdown. These companies do not give
relationships its due credited value. The value of relationships should be treated in the
same manner they are in other industries as an asset and as any other intangible asset is
treated. This requires the companies to give relationships value which financial markets may
overlook. But they must acknowledge their speciality is delivering infrastructure cost effect-
ively and not inflating its own value to the markets. Carillion is an example of how working
on low margins to swell the order book is not financially sustainable (Economist 2018). Prac-
tices born out of panic will not ensure its future survival. Companies in the other industries
which have given value to relationships have come out to be market leaders. Naturally
companies may feel they do not want to share their profit margins with other companies but
acknowledgement is required a collaborative effort will improve the profit potentials. A
partnership allows a single entity to operate beyond its individual capabilities yet it is safe-
guarded from liabilities of its partner. Businesses wish to leverage this partnership yet are
negligent of developing this relationship to its full potential. A partnership is to be respected
if it is to succeed.
References:

Akintoye A, McIntosh G, Fitzgeral E. (2000) A survey of supply chain collaboration and


management in the UK construction industry, European Journal of Purchasing & Supply
Management, Volume 6, Issues 3
Latham, Sir M. (1994) “Constructing the Team” Final Report of the Government / Industry
Review of Procurement and Contractual Arrangements in the UK Construction Industry,
London HMSO
Economist (2018) Where did Carillion go wrong? The Economist Group Limited,
London 2018 Jan 20th Issue

Egan, Sir J. (1998) Rethinking Construction: Report of the Construction Task Force ,
London: HMSO
Curtis Law (2011) legal consultation, Blackburn, U.K.: Curtis Law Solicitors,

Quick, R (2011) legal consultation, Brisbane, Australia: QICS Legal Cost Consultants

Appendices:
Appendix A
The success of a non- contract relationship between Nissan and Tallent Engineering Ltd –
from Egan Report - Rethinking Construction: Report of the Construction Task Force – pg30

[Taken from a Design or Investigative Project – as submitted in partial fulfilment of


the requirements for the degree of MEng in Civil and Structural Engineering, University of
Leeds Title: The Development of Partnering and Alliancing in the Construction Industry
and the Effects of the Economical Down-turn on Relationship Orientated Construction
Practises By: Faizal Deriwala]