By Upasiri de Silva –
After reading a news item about the “New Head for PPP Contracts” in the Internet edition of the Daily Mirror, I thought of discussing this very appropriate Construction process to eradicate the wide spread corruption in the huge Construction Industry. The appointee consider to be a person with experience in Management and Economics, but not in the Construction and Contract Administration field will be a hindrance to achieve the best result in the PPP system. As most Sri Lankan professionals are not experienced in handling PPP projects with other government, contractors/developers and other stake holders becoming partners. As the government has now taken a positive step to go ahead with this appointment it is an appropriate time to discuss what is “partnering” method against a ‘full turnkey’ solution’, where the people of Sri Lanka can be the beneficiaries. but the economic needs of the country may forced them to support this project by negotiating the crucial issues. By using this very appropriate construction process or method the government can meet the aspirations of the Environmentalists as well as the Development Economists to establish the ‘much needed Development Projects, in Sri Lanka’ with the developers, consultants, work people and others participating in these developments as part of our Partnering process.
The Environmentalist in Sri Lanka and elsewhere in the world is aware that the economy needs to develop a system of resource allocation among the members of a society to protect the environment. In allocating these resources the economist should consider the future members of the society or the future generations. It has become very important to consider how economists value the distant future to achieve a sustainable development, as the members of the present society; we possess the ability to irreversibly alter the resources, environmental quality and total level of welfare available to the future society. Environmental economics has always, in principle, been a central part of economics. Great economists made significant contributions to the subject of environmental economics. Their research studies discuss about important developments concerning the relationship between ‘economy and the ecology’. There is a propound implication on the way economists think about environmental issues since it goes to the heart of economic growth. In essence it is necessary to have a strong economic growth for Sri Lanka to sustain our development and the environment. Even though most Environmentalists in Sri Lanka opposed many developments projects such as the ‘Upper Kothmale Hydro Electricity Project, Samanalawewa Dam (Hydro) Project and Uma Oya Development Project’ for endangering the environment, they failed to consider that a ‘healthy economy’ is the key for them to sustain and preserve the environment. As such this construction process -Partnering – which is economically beneficial to the country will help the environmental groups to be part of this project while saving the environment they value so much in achieving a Sustainable Development.
Construction contracting is a very competitive, high-risk business. This competitiveness and the perception of conflicting objectives among owners, Government and the construction fraternity is well aware that over the last two to three decades contractual claims and disputes have taken root in the building and construction industry in Sri Lanka and significantly affected the performances in terms of productivity and efficiency. Claims and disputes have increased the completion cost of most construction projects and has become a very serious economic problem for the Sri Lankan government as well as the private sector. The present contract system we used to procure contracts, largely as a result of bad planning, poor procurement practices (faulty Procurement Guidelines), and inefficient contract administration experience of Professionals and the Technical Staff, inadequate general management and bad communication skills has affected the performance of the building and the construction industry in three ways:
*Firstly, risks and obligations are often allocated in an inappropriate and frequently unfair way between the contracting parties (consideration of risks and obligation are very rare and the client is burdened with risks and obligations in Sri Lanka) encouraged by the competitive tendering and flawed procurement process.
*Secondly, imprecise delineation of the respective roles of the various parties (due to poor understanding of the involved procurement system) in the building and construction process regularly occurs and confuses the responsibility for particular risks; and,
*Thirdly, poor project definition due to bad planning and inadequate project briefs produces defective design and other documentation.
The end result of all above is deficient contracts and poor contract administration, especially in project programming and co-ordination. All these defects normally generate claims and disputes, which in turn leads to aggressive adversarial relationship between the contracting parties in many parts of the world. But in Sri Lanka, claims and disputes has taken root as a part of the construction process. These claims and disputes adversely affect the cost and the time performance of a construction project and create adverse economic upheaval in the construction industry costing million of rupees each year. I am aware of an Arbitration before a panel of Arbitrators (with very poor knowledge in Arbitration) to settle a contractual dispute between the RDA and a contractor took more than six (6) year, and still lawyers are arguing on very flimsy technical issues, as the lawyers as well as the Arbitrators may be poor in their technical knowledge to understand these issues. This process of dragging Arbitration matters for many years can be attributed to Lawyers and retired Judges taking hold of the Arbitration system, and in my opinion this intrusion may cripple the construction industry in Sri Lanka.
In Partnering high-level participation of professional construction project participants provides potential means in reducing claims and disputes and corporation of all stakeholders to reduce settlement of disputes through Arbitration. Most Foreign Aid providers are well aware of this critical situation in Sri Lanka and try and opt to bypass the Sri Lankan Consultants in projects funded by them with their funds. But still they are forced to get the projects completed by using Sri Lankan contractors as sub-contractors.
The competitiveness and the perception of conflicting objectives among owners, contractors, architects/ quantity surveyors/ engineers, sub-contractors and suppliers has set the stage for what, at times, have become adversarial and unrewarding relationship. As such parties from all sides of the table have given up management rights and responsibilities because of the fear of risk and the threat of liabilities. To overcome these contractual problems The Associated General Contractors of America (AGC) developed a construction procurement system ware all parties to a contract become party to the process and thus named it as “Partnering”.
What Is Partnering
The Partnering concept is not a new way of doing business -some parties have already conducted themselves in this manner. Partnering is not a contract, but recognition that every contract includes an implied covenant of good faith. But for the Sri Lankan Construction Industry this may be a new construction concept or a process. [I delivered a full paper on PARTNERING to the Construction Professionals (RICS and other Professional members) on 7th July 2006 at the Committee Room C of the BMICH where over 600 professionals participated].
When the contract establishes the legal relationship, the Partnering process attempts to establish the working relationships among the parties (stakeholders) through a mutually developed, formal strategy of commitment and communication. It attempts to create an environment where trust and teamwork (what we lack in Sri Lanka) prevent disputes, foster a cooperative bond to everyone’s benefit, and facilitate the completion of a successful project.
Partnering provides mechanisms for co-operation between the participants to occur. Under a partnering arrangement all parties agree, in a formal structure, to focus on creative co-operation and to work to avoid adversarial confrontation. Working relationships are carefully and deliberately built based on mutual respect, trust and integrity. This is not only preventing disputes but encourages rational sharing of risks and the use of new technologies. The results are improved productivity and profits; with reduce costs, claims, disputes and stress. This process will prevent wide spread corruption in the construction industry especially among (few) professionals (many would be very reluctant to call them professionals) and some contractors.
The Procurement Methods and the Contract Condition now in use will hinder, prevention of corruption. The dilution of the FIDIC Contract Conditions as the present ICTAD Contract Conditions by including 20% advance payment to the Contractor when the contract is signed and to pay back the Advance payment in monthly instalments when the project reaches 95%, completion will hinder any partnering method. As the architect of this dilution Mr. R. Paskaralingam presently work as the .Economic adviser can undo it by introducing a Bank OD system for the all partners to share equal risks in lieu of an advance payment..
There are a large and varied number of forms and partnering arrangements could take. For any given organization there will be forms that are more suitable than others, that are easier to implement, and match organisational objectives better. This discussion looks at three (3) board categories, full partnering; limited partnering; and public sector partnering.
The most important key elements of Partnering are:
*Commitment – Commitment to Partnering should come from top management.
*Equity – All stakeholders’ interest are considered in creating mutual goals and there is commitment to satisfying each stakeholder’s requirements for a successful project by utilizing win/win thinking.
*Trust- Teamwork is not possible where there is cynicism about others’ motives.
*Development of Mutual Goals /or Objectives- at a Partnering workshop the stakeholders identify all respective goals for the project.
The views in the USA are generally that the full benefits of Partnering only come from long term commitment, either on a single long-term project or many different projects. A long term relationship, it is argued, is necessary to engender confidence, trust and generally positive attitudes. This belief is reflected in the definition of the concept developed by the C II task Force, which defined Partnering as a long-term commitment between two or more organisations for the purpose of achieving specific business objectives by minimising the effectiveness of each participant’s resources. This requires changing traditional relationships to a shared culture without regard to organisational boundaries. The relationship is based on trust, dedication to common goals and understanding of each others individual expectations and values.
From this definition it can be argued that Partnering relationships which do not stretch beyond the life of the current project cannot develop the necessary relationships. The finite life of single projects does not encourage the openness, sharing of responsibilities and joint problem solving capabilities vital for successful implementation of Partnering.
“Between Client and the Contractor it means that each project begins at the bottom of the learning curve rather than an empathy being built up over several projects” (Foster 1991, P. 3)
This is obviously false, as Clients and Contractors accumulate the experience of Partnering and learn precisely on a project – by – project basis, regardless of the number of projects with a particular partner.
This however is only one interpretation of Partnering. There are in fact many different possible definitions of the concept, stemming from the fact that there are many different applications and shades of Partnering. More limited forms of Partnering than that encompassed in the C II definition, which may be termed ‘full partnering’ exists. Two examples are agreements with pre-selected, preferred Contractors and project-co-ordinators and project co-ordination agreements. Under a preselection agreement the Client/Owner merely selects one or more Contractors or Suppliers that will enter into standard contract at some time in the future, while making a commitment to providing advance information on requirements to facilitate advance planning. (Loraine, 1991, P.2). It is possible to progress from such arrangements to co-ordination agreements ‘full-partnering’.
Co-ordination agreements typically make provision for the establishment of a team comprised of representatives of the Client/Owner and the main Contractor possibly with specialist Sub-Contractors to co-ordinate the carrying out of the relevant projects. Often this is done with the assistance of a facilitator or umpire, one of whose main task is to monitor performance of the projects and the carrying out by the client and contractor of their respective responsibilities.
Collaborative sourcing of materials between clients and suppliers could be another form of limited partnering (Foster 1991, P.4) Also, repeat business is a form of partnering if the repeat business is regular and based on good relations, good performances, and the ability to improve the ways of working and lead to continue improvement in performance. Such a relationship almost constitute full partnering (Taylor 1991, P.6)
Full partnering can be applied where some or all of the following conditions are met: there are either a number of large projects lasting over a number of years, or a major single project lasting several years; there is a well-planned and firmly budgeted sequence of medium sized similar projects with a long overall time duration; and projects with a high engineering content.
Public Sector Partnering
Partnering can also be utilized in the public sector. The most comprehensive partnering arrangements in the construction industry to date have been developed in the USA by the Army Corps of Engineers, a large public sector client of the US construction industry that was responsible for pioneering Partnering.
Doubts arise as to the application of Partnering in the public sector because of the high level of public accountability of Government Audit Authorities. The public interest demand ‘value for money’ in the expenditure of public funds most Sri Lankan Professionals lack any understanding, and such agencies must maintain objectivity and avoid the appearance of any impropriety or partiality. This means that normally contracts for public works are awarded on the basis of Procurement Guidelines and on competitive bidding, open to public scrutiny.
“Commissioner Ian Temby of the Independent Commission Against Corruption, Sydney Australia has stated in his findings at the conclusion of his inquiry against corruption in the construction industry “he would object strongly to any proposal which could be interpreted by public sector organisations as a way to avoid rigorous assessment of competitive tenders as the basis for selecting contractors who will be the recipients of substantial funds” (ICAC 1991, 14.7).
Competitive tendering as a form of competition precludes long-term repeat business commitments being made to select contractors and consultants (can this be due to corruption in the industry) and rule out ‘full partnering’ in the public sector, at least in its deepest and potentially most rewarding sense. Indeed it seems that as long as there is someone prepared to gamble and take unreasonable risks the competitive tendering system is itself at risk. Nevertheless ‘full partnering’ can be employed on a single project basis in appropriate circumstances.
Benefits Of Partnering
“Partnering is an opportunity for public sector contracting, where the open competitive- bid (Tender) process keeps the parties at arm’s length prior to award, to achieve some of the benefits of closer personal contact which are possible in negotiated or design-build contracts”. (Partnering -A concept for Success, 1001).
Major Benefits to the Project Owner
- Reduce exposure to litigation through open communication,
- Lower risk of cost overruns and delays, better time and cost control,
- Better quality product,
- Potential to expedite projects,
- Lower administrative cost,
- Increased opportunity for innovation through open communication and element of trust to develop value engineering,
- Increased opportunity for a financially successful project completion.
Major Benefits to the Project Contractor
- Reduce exposure to litigation or Arbitration,
- Increased productivity through issue resolution activities,
- Expedite decision making,
- Better time and cost control over project,
- Lower risk of cost overruns and delays,
- Increased opportunity for a financially successful project completion.
Major Benefits to the Project Architects/Engineers/Quantity Surveyors and other Consultants
- Reduce exposure to litigation,
- Minimum exposure to liability for document deficiencies ( a major problem in Sri Lanka) through early identification of problems,
- Enhance role in decision making process,
- Reduce administrative cost
- Increase opportunity for a financially successful project completion.
Sub-Contractors becoming part of the Partnering process will also be able to reap the same benefits as the Main Contractor.
It is my firm belief that this government will use the best qualified Professionals with experience in handling Partnering Contracts for the betterment of the country than using people with any industry experience. I used ‘limited partnering’ system to develop and construct the Ranawiru housing which, I had the honour to formulate the Contracts, Bill of Quantities and all other necessary documents to establish the initial stages on track for Ippologama 1620 houses on behalf of the SEC. and for the development of Hambantota, the North, the South and the East as this process will expedite the construction process as well as it will reduce the construction cost of all our developments to make the Sri Lankan construction industry a more productive industry.
*Upasiri de Silva – Chartered Quantity Surveyor, Chartered Project Manager & Development Economist