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Could Partnering Work for You?

There is considerable waste in the way that we procure and maintain most new facilities in Hong Kong, according to advocates of partnering. Partnering - a non-contractual arrangement between parties involved in a particular project, has been used in the territory's construction and project management industry with some success, saving money and reducing construction time. But will it translate to the property and facility management fields? BSP investigates....

Partnering was undertaken by the MTR Corporation (MTRC) for its Tseung Kwan 0 Extension, a largescale construction project which commenced in 1998. Introduced on a post-contract project basis - which meant it wasn't part of the tendering process - partnering applied to contractors that had already committed to working with the MTRC under the terms of a hard contract and were then invited to "have a go at partnering".

According to Bryan Clifford, managing director of John Carlisle Partnerships (SEA), which worked with the MTRC to implement partnering on the Tseung Kwan 0 extension, that project represents a successful example of partnering because it finished four months ahead of schedule and the MTRC saved HK$l billion. "In hard numbers, the total saving was about HK$15 billion - but the corporation obtained a lot of other savings in terms of interest rate reductions and suchlike," he says.

The MTRC also encountered significantly fewer claims than on previous projects and enjoyed quicker resolution; had access to fit-out contractors up to 10 weeks earlier than anticipated; opened the railway four months ahead of schedule; settled 60 percent of final accounts before project completion; and experienced a significant improvement in quality with no physical defects identified during statutory inspections.

From a property and facility management point of view, however, the starting point of partnering would be to get the design and build project teams to think about maximising best value over the lifetime of the building. "Having done that, you then want a team that is going to maintain and operate that facility over that lifetime. Here there is huge potential because of the lifetime of the building," says Clifford.

If, for example, as a property management company you seek to develop long term relationships with key maintenance contractors who are going to clean the building, maintain it and supply security services and common services, then think about:

• how you can work on a more long-term basis with them
• how you can measure their performance
• how you can incentivize improvements against that performance

According to Clifford, this could lead to opportunities where these contract maintenance companies work together as one team rather than individual companies and think of themselves as the maintenance team for a particular property. "If they work together and support each other then they will find opportunities to make savings by identifying some of the duplication in their roles."

Does this all sound idealistic? Well, the MTRC took a chance on partnering and it paid off. Prior to construction of the Tseung K wan 0 extension, the corporation concluded that the traditional approach to project procurement led to conflict, waste and inefficiency. Projects achieved the required functional performance but were expensive in capital, operating and maintenance costs. A local construction industry that was perceived to be overly competitive, over-regulated and lacking incentive to collaborate or improve did not help. In short order, the MTRC decided that partnering was not a quick-fix route but a commitment to improvement in project management over time, and that it should be introduced in stages.

Internal buy-in and understanding was obtained first by a series of workshops, followed by external understanding and commitment. Partnering then formally commenced with independently facilitated workshops on individual contracts involving MTRC staff, contractors and consultants. These workshops were used to develop an understanding of common goals and aspirations, which were then set out in "Partnering Charters".

Partnering monitoring systems were developed and monthly review meetings held with contractors. These allowed the monthly measurement of performance against mutual objectives, an open exchange of views on how well teams were doing, and common agreement on barriers to achieving objectives.

Interfacing contractors also attended workshops, which evolved into monthly meetings that often focused on specific areas such as tunnels or stations, rather than individual contracts. Forums were established by the MTRC and contractors that related to topics like safety, waste reduction, and E & M works. These forums met regularly to discuss common mistakes, potential improvements and carry out problem solving. The formal workshops and forums were supplemented by informal social events like barbecues, junk trips, and soccer tournaments with the costs shared by the workshop and forum partners.

Communications between the parties involved in the project improved and as a result there was less paperwork and more discussion, a clearer understanding of individual and common goals, shorter response times, faster approvals, higher approval rates and less reworking. Some 18 months after the project commenced, the MTRC developed incentivised commercial arrangements on several contracts with final accounts agreed, target costs set against risk schedules and pain share/gain share systems introduced where the MTRC and contractors agreed to share savings or cost overruns.

According to the John Carlisle Partnership (JCP), such agreements changed traditionally tendered contracts into incentivised target cost arrangements, which proved successful and resulted in savings against the targets. In fact, every such arrangement ended in a gain share situation.

"I'm not quite sure how much waste there is to knock out in facility management but certainly in construction projects, where most of our experience is, it's about 30 percent and it's mainly in human effort," says Clifford. That waste of resources occurs in the duplication of roles, and in doing things that add no value to the end result that everyone is trying to achieve. It is also waste in terms of delivering projects that do not provide an efficient operating environment or at least an environment that could maximise the potential of the people who live and work in those buildings.

Most people know that the waste exists but seem unable to make the changes to take it out. Clifford's advice is to sit down and think about what you do every day. If it doesn't add value to the end result that you are trying to achieve then 30-40 percent of what you do is a waste of time.

Clifford says the starting point is to challenge belief systems, about the way you work with colleagues and partners, and as individuals. "Think about your attitudes, relationships and behaviours. The typical attitude is one of working independently of the team, trying to control others, having short term outlooks and relationships. It's a matter of changing that behaviour so that people start to build cooperation and trust. Then they can be trusted to do their very best at an economical cost, and new ways of working can be introduced to strip out the waste."

The new ways of working are about negotiating contracts with incentives rather than going through competitive tendering; having long term relationships where you can introduce continuous improvement programs; and being willing to strip out duplication and unnecessary processes.

Typical projects in Hong Kong often see more people from the client side supervising the work than the contractors have people managing it, says Clifford. "If you had a contractor you could trust who provided you with a reliable, good service then theoretically you wouldn't need those people supervising," he says.

"But because there's a lack of trust we go through these expensive and competitive tender processes to drive down the price and then put in large teams to control the contractors to try and force them to work for the price they bid, which is impossible to deliver the service at."

Clifford says that Hong Kong companies and organisations have been doing competitive tendering for so long that it is now just part of the process but that in many cases it doesn't deliver good value. There are other forms of procurement, he says, that in the long run will produce substantially better value and are based on cooperative working practices. "Far better to structure the procureI:Ilent process properly, choose people who are capable of providing the service and work with them to improve it. Trust what they do, strip out the duplication and give them opportunities to bring their innovative ideas into the way the building is managed," he advises.

Changing the mindset of the entire supply chain, however, is idealistic to say the least. There may be waste along the supply chain in the form of lost opportunities and not having long term relationships, but isn't there waste involved in trying to get the supply chain to buy into the idea of how they work together?

If the leaders of each organisation fundamentally understand the importance of it then generally, says Clifford, everyone else falls into line. But it needs the leaders to take it onboard and change, then promote that mindset change throughout their organizations. Alongside this, you also need to coach people about the changes in the ways that they are being asked to work together.

With the MTRC Tseung Kwan 0 extension project, JCP ran partnering workshops for all the project teams. There were 17 civil engineering projects and the same number of mechanical and electrical. These were followed by a cooperation workshop between the contractors so that contractors who had previously been competitors now met to share ideas about suppliers and methods. Some months later, projects were incentivised.

But there is a downside to partnering and that is that there is a contradiction in having a traditional contract while your "Partnering Charter" tells you to do something completely different. "It seems inherently dangerous and potentially productive of a hugely complex factual matrix in the event a dispute emerges, to have a set of contract documents saying this is how things will work, and evidence of partnering style behaviours that are in practice completely contradictory with that," says Paul Starr, cohead of construction at law firm Mallesons Stephen Jaques Asia in Hong Kong.

In Australia, for example, partnering has been replaced by alliancing, largely because partnering isn't contractual. "The fact that partnering involves a practical 'overlaying' of certain 'win-win' closer relational behaviours without in any way reflecting these in the underlying contractual documents, meant confusion in the field, as the documents said one thing and deployment of partnering said do something else," adds Geoff Wood, alliancing partner at Mallesons Stephen Jaques in Sydney.

"As well, of course, parties risked enhanced legal exposure as the more frequent interplays, meetings, etc, that partnering involved meant lots of opportunities for allegations - after things went awry on a project - of statements and acts amounting to actionable false and misleading conduct under trade practices legislation, for example." Wood says that the penny eventually dropped with Australian businessmen that if, as many clearly did, they wanted to conduct their business relationship in a closer, less adversarial and more cooperative, risk sharing way, it made more sense to draft the contract documents in a way that accurately reflected these intentions, attitude to risk sharing (rather than traditional allocation) and the type of administrative structures that would be used day to day.

Indeed, some alliancing models are more radically structured than others - some completely discard traditional risk allocation, while others retain it, for example. But all reflect common alliancing features such as management committees with equal party representation at all levels, unanimous decision making, and remuneration structures that dispense with hard dollar, lump sum contracting, instead having basic reimbursement of all contractor costs, plus a fixed fee for profit and overheads, and then fee modifiers (up or down) for measured performance against key performance indicators that focus on the key drivers of cost, quality, time and safety for a successful project. The fee would only change for major scope changes.

"The more radical alliancing contracts are drafted so as to have the parties agree that, absent wilful default, they cannot take action against each other, even where one has been clearly negligent," says Starr. "Obviously, while if it works this precludes contractual and perhaps tortious actions, no contract drafting can exclude statutory causes of action which remain available. But obviously the intention is to keep the parties focused on mutually finding an acceptable solution to problems, instead of running off to sue each other. Partnering failed to address this."

The long-term nature of relationships in Hong Kong's property management industry suggests that the industry should be well-suited to a relational contracting approach, but this might be more related to alliancing than partnering.