Managing Risk in Partnering Contracts

Scotland
Misapprehensions/”folk wisdom” as to the true nature of a contract can often lead parties into difficulties on projects; take misunderstandings as to what is a “Partnering” contract.

Partnering could be understood to mean a relationship based on collaborative working, characterised by a greater degree of openness, communication, mutual trust and sharing of information.

On that basis you can see why NEC3, with its focus on collaborative foresight provisions allied to Core condition 10.1 (which sets out that the parties shall act in a spirit of mutual trust and co-operation), is sometimes misunderstood to be an example of a Partnering contract. NEC3 however makes clear that it is not necessarily a Partnering contract; it only has a separate (relatively brief) Partnering option that can be selected if desired.

If you want to see an example of a true Partnering contract then look instead to the terms of PPC2000, the first standard form contract that is specifically designed to provide a firm, detailed foundation for the partnering process and integration of the project team under a single multi-party contract and which has established a firm following in certain sectors such as social housing.

Avoiding such misunderstandings can be important as, for example, Project Managers sometimes incorrectly believe that NEC3 as a Partnering contract gives them powers that they don’t actually have (and that a true Partnering contract doesn’t provide for anyway) or that a Partnering contract provides for a looser approach to contract mechanisms.

Take Risk Registers for example; both NEC3 and PPC2000 provide for their use as effective tools in managing risk. A misconception under NEC3 that sometimes arises however is that at the risk reduction meeting following on an early warning, the parties sit down and discuss anew who bears a risk on occurrence of an unexpected event. This may be due to:
Grey Square
clause 16.3 of NEC3 referring to risks being discussed at this meeting and then clause 16.4 talks about the Project Manager revising the Risk Register to record the decisions made at each risk reduction meeting; or
Grey Square a misconception as to what a Partnering contract would provide for in terms of risk management contract mechanisms anyway.
Too much is sometimes read into this Clause 16.4; it does not mean that the risk allocation is considered anew, simply (as Clause 16.3 actually makes clear) that the existing risk allocation under the contract is applied. The Project Manager is therefore not empowered to alter the existing risk allocation under NEC3, it is only the parties to the contract (the Employer and the Contractor) that can do this.

In any event, PPC2000 shows that a proper Partnering contract still provides for robust mechanisms for those parties to the Contract to properly consider and agree to any change. PPC2000 has detailed mechanisms for Risk Management (including Risk Registers) that involve all the Partnering Team members working together to identify risks and share or apportion them according to who is best able to manage them. Under PPC2000, as with similar provisions in NEC3, the Constructor is still responsible for managing all risks associated with the Project and the Site except as otherwise stated in the Partnering Terms or any risk sharing arrangements set out in the Commencement Agreement. To the extent that there are any proposals to amend the sharing or apportionment of risk from what has already been agreed under those PPC2000 arrangements, then approval would still be needed from parties to the contract such as the Client.

PPC2000 shows that Partnering doesn’t therefore mean that there are less detailed or indeed less robust mechanisms for addressing important issues such as risk management tools; far from it and any such misunderstandings are usefully avoided.