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The structure of the provisions for payment under JCT and NEC forms on a target cost basis is similar in both forms with minor differences in drafting. Under NEC3 there is either Option C: Target Cost with Activity Schedule or Option D: Target Cost with Bill of Quantities. The different options refer to different documents used to adjust the target cost. Provision under each option is made for disallowed costs. These are costs that are not payable if not confirmed within the contractor’s accounts, or which should not have been paid to a sub-contractor or supplier, or which did not follow an accepted procedure or were not subject to an early warning. Equally, actual costs do not cover cost of rectification of defects, plant and materials not used or adjudication costs.

Under the JCT CE 2011, the payment section gives two options: payment by lump sum or payment by target cost (clauses 7.2 to 7.15). There are detailed provisions covering open book recording of costs and access to accounts, breakdowns of margins and changes to margins. There is express reference to a guaranteed maximum price and to repayments that might be necessary because of overpayments made earlier, before project completion.

6.5RISK IN COLLABORATIVE CONTRACTING

Discussion of risk within collaborative contracting is not without difficulties. In one view, risks should be shared between the parties with the aim that all parties involved will work towards the optimum solutions for the project. Another view is that the contractor should carry no risk at all as allocation of risk is divisive and contentious. Ultimately, the contractor’s income derives from clients of construction. This means that if a contractor is to underwrite such risks from within the business, prices need to be inflated in order to build up a contingency. Generally, the standard forms of contract in use anticipate that parties will adopt a risk–sharing approach. The drafting of different forms allows parties to define the extent of risk carried in various circumstances. The JCT CE11 form includes a risk allocation schedule showing allocation of risks to parties and financial effect of risks. The effect of this is to allow bespoke allocation of risks for each project. However, as noted below, provisions allowing parties to define risk can encourage situations where all risk rests alone with the contractor.

6.5.1Risk allocation

Under NEC3, the contractor lists within the contract data matters to be included within the risk register. Hence, identification of risks is encouraged before work even starts. During the project, the risk register is updated. This is intended to aid management of risk events during the project and does not interfere with allocation of risk on time, cost or design matters under the conditions. In JCT CE 2011, the risks associated with time or cost overrun, and any other risks deemed by the parties to be appropriate, are to be discussed and entered into a risk allocation schedule. This schedule identifies for the specifics of a particular project who holds contingency sums and how losses/gains should be allocated between the parties.

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6.5.2Reputational risk and continuity of work

For some parties, the main reason for using a collaborative form of contracting is to engender a new approach to contracting, often with the aim of engaging the contractor across a series of contracts. Yet the collaborative behaviour is not always successfully adopted. The risk for the employer is that the intended further project cannot be continued until a further tender exercise and staff skill development is completed. The risk for the contractor is that it is removed from the framework for the intended suite of projects. One interesting aspect of frameworks of this nature is that the contractors have obligations to employers. Failure to keep to these obligations jeopardizes the contractor’s continuation in the framework. However, this seems a one-way obligation in that employers do not take on obligations to provide continuity of work to their partnered contractors. Indeed, it would be unusual to find an agreement obliging the employer to using a particular framework contractor exclusively during the period of the framework. At best, the framework contractor earns only the right to compete in a closed tendering competition.

6.6APPROACHES TO COLLABORATIVE CONTRACTING

Collaborative contracting does not replace the more conventional procurement methods. Rather, this kind of documentation involves additional elements introduced to encourage collaborative behaviour. Standard forms available include the JCT CE form and NEC3. The distinctive requirement is that these forms require parties to work in different ways by addressing risk registers, value engineering, relief events, valuation of changes, seeking continuous improvement and utilizing workshops, all matters that might seem alien to a participant experienced with general or design-build contracting. Consequently, it may be necessary for parties considering working on a collaborative basis to undergo training in advance. It will also have to be understood that success may depend on a large volume of work initially to ensure that the project is commenced on a sound footing.

Summarizing the distinctive characteristics of collaborative contracting:

The approaches known variously as partnering, frameworks and collaborative contracting do not usually specify roles, responsibilities or payment methods, unless they are integrated into standard-form contracts. As such, collaborative contracting is an approach to relationship management that is overlaid on to a procurement method.

An emphasis on longer-term relationship, spanning more than one project, is intended to displace methods of selection that are based solely on lowest price.

The primary responsibilities that characterize collaborative contracting are obligations to negotiate and co-operate at every stage, usually with a clause embodying a spirit of mutual trust and collaboration.

Obligations relating to time, cost, quality and default can usually be found in collaborative contracts, with a wide range of potential approaches. Identifying a contract as collaborative does not imply any particular

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allocations of risk of this kind. More likely, it implies a method for dealing positively with anything that might happen, with an overriding aim of fairness and good faith orienting all parties to satisfactory project completion.

Collaborative contracting is a response to the adversarial and litigious contracting practices that came to characterize the UK construction sector in the last few decades of the 20th century. The concept covers a wide range of contracting and tendering methods, and offers a lot of flexibility in terms of how obligations and rights are defined, relying heavily on discussion, negotiation and collaboration in a spirit of goodwill.