Construction Partnership Agreement
A construction partnership agreement is often referred to as a construction alliance. It is also a broad term used to describe a collaborative management approach that encourages openness and trust between parties to a contract. The parties become dependent on one another for success and this requires a change in culture, attitude and procedures throughout the supply chain. It is most commonly used on large, long-term or high-risk contracts.
Partnering became popular largely as a result of Sir Michael Latham’s report, ‘Constructing the Team’ in 1994 which criticized the adversarial approach inherent in traditional construction contracts. This was followed by publication of ‘Partnering in the Team’ by the Construction Industry Board.
A construction partnership agreement can be adopted for a one-off project, or can be a long-term relationship over a number of projects. The longer the contract, the greater the benefit of partnering as there is more opportunity for building working relationships, finding improvements and planning investment. Where a partnering relationship is for a specific project, it is known as ‘project partnering’. Where it is a multi-project relationship it is known as ‘strategic partnering’.
Successful partnering should enable long-term integration of the entire project team for the mutual benefit of all, and so it is crucial that the right partners are selected. Partner’s commercial objectives and culture should be aligned, use of parties’ resources should be optimized and risks should be allocated to those most able to mitigate them.
An effective construction partnership agreement requires both expertise and commitment from the client to set up and manage the process effectively and to act as an adjudicator of disputes. It can be arranged either by use of a traditional contract with a separate partnering agreement, or by use of a contract with an aligned partnering agreement. It can be either a two-party or multi-party arrangement.
The construction partnership agreement is often arranged on a cost-reimbursable, target-cost, open-book basis including both incentives, and penalties. Problem resolution procedures should be based on solutions not blame, and there should be procedures in place to ensure continuous improvement. This requires continual benchmarking, target setting, assessment, feeding back and adaptation.
While there are clear benefits to a construction partnership agreement in certain circumstances, there can be risks. Thus the partnering should become a paper exercise unless there is proper buy-in throughout the supply chain and that ‘cozy’ inefficient relationships develop. There is also some criticism that large partnering contracts can exclude smaller companies and so may hamper innovation.
Purpose of a construction partnership agreement
Small to midsize construction companies can face certain challenges, such as cash flow and staffing, that larger firms typically do not. Generally speaking, larger firms can more easily hire contractors, technicians, and managers mostly because they have the assets to do so, as well as a steady stream of new business to keep the new employees busy and profitable. To address this, as well as the challenge of having to make most of the major business decisions on their own, smaller construction firms often turn to forming construction partnership agreements.
Important aspects regrading a construction partnership agreement
The formation of a construction partnership agreement is a way for contractors to maintain or grow their business or to solve a number of other challenges, including financial concerns and resolving disputes. Used in the architecture, engineering and construction industry, a construction partnership agreement has been used both in the United States and elsewhere since the early 1980s. It has mostly been used as a method to improve productivity and reduce litigation.
For many contractors, the benefits of a construction partnership agreement may include:
- More administrative and business resources
- Access to wider construction knowledge
- Individual overhead and cost reduction
- Increased efficiency
- Increase in new leads
- Financial stability and growth
Elements of a construction partnership agreement
The construction partnering team ought to develop an agreed upon process for resolving disputes should they arise, called a dispute resolution ladder. Most construction partnership agreements and collaborations, regardless of how successful, eventually come to an end, because a project gets completed, a partner retires or changes industry, or disputes arise. An often-overlooked pitfall of a construction partnership agreement or collaboration is entering into one without a strategy in place for transitioning out of it. Transitioning out of the partnership or collaboration can be relatively smooth as long as there is a written contract that clearly and explicitly addresses company ownership, client management, financial issues and associated matters.
Other key elements of a construction partnership agreement
- A good construction partnership agreement should clearly outline the obligations of each partner.
- Duration and termination of the agreement.
- Interests of the partners. The agreement should also highlight that the parties agree to maintain equal interests. Such include claims to property, equipment, liabilities and profits of the partnership.
- Capital contributions. The majority of construction partnerships outline that the parties shall make equal capital contributions for the construction projects. Further, capital contributions may not be withdrawn from joint venture accounts without the consent of the parties. A term should also be included statin that the partners accounts cannot be withdrawn without the prior written consent by both parties.
- Management of records. The agreement should also provide for the partners tasked with keeping and maintain the partnership’s records.
Possible disadvantages of a construction partnership agreement
The most common mistake made by contractors is entering into a partnership without a formal and comprehensive written partnership agreement. Further, the majority of disputes that arise are due to not having a formal agreement, or the agreement not addressing potential points of contention between all parties involved. Before forming a construction partnership agreement, all parties involved should clearly express and address their expectations of each other and their specific goals. Transparency is key to creating a good construction partnership agreement and a strong business relationship. Moreover, each contractor should have a good understanding of what each party is bringing to the table and what each role involves.
Rather than joining forces in a construction partnership agreement, many contractors prefer to collaborate with their colleagues or other firms in their field. Moreover, efforts must be clearly detailed in writing from the initial meetings, all parties stating their expectations and limitations.
While there may not be financial liability concerns, damage to one’s reputation and image, as well as general liability, is always a concern. This makes it critical to establish each party’s workload and the amount of credit that each should expect to take for the project.
Regardless of the size or impact of the construction partnership agreement or collaboration, a written agreement should be prepared, so each party fully understands rights, obligations and limitations. The purpose of construction partnership agreement is to have the builder, contractors, subcontractors, and all union trades, if applicable, to agree to work together on an individual project. Other purposed include to ensure the most efficient work between management and labor, and an improved communication by developing mutually agreed upon project and partnership success goals and by monitoring the achievement of these goals during the project. It also guarantees: the most qualified and skilled labor in the area, no work stoppages and no strikes on the construction project, reduced project costs and schedules, elimination of change orders and claims.
Solutions to the problems of a construction partnership agreement
Having a pre-negotiated exit strategy can simplify the exit of one partner, or dealing with challenges as they arise during the partnership. Still, there are always going to be difficulties, especially when money is involved. That is why it’s essential to have a business lawyer prepare the construction partnership agreement, and an exit strategy or dissolution agreement. Even if the parties decide to create their own Partnership Agreement or collaboration contract, it is wise having an attorney draft the dissolution provisions, as it can save big headaches and a significant amount of money in attorney’s fees in the long run.
Partnerships and collaborative efforts absolutely have positive benefits for small to midsize construction firms, and it is important to focus on all of the variables when embarking on such a venture. An experienced business attorney can provide support with proper preparation and planning, drafting, and writing legal agreements and contracts, and help protect you in case of a dispute.
Further, having legal counsel on your side allows you to focus on other aspects of your business. Partners to a construction partnership agreement should thus take steps to ensure all processes are legally binding and defined in solid. The partners should also ensure that a thorough construction partnership agreement is prepared. This could be by choosing a reputable and experienced business law attorney.
Most proficient business lawyers are well equipped to assist partners with business laws and customs and provide support with legal challenges when planning, structuring, and conducting business transactions.
References
https://www.zapmeta.ws/search/nairobi
https://mysearchexperts.com/nearyou/mysearchexperts
https://en-int/seekweb.com/search
https://search.activebeat.com/family/parenting
https://www.nygpadmin.cce.cornell.edu
https://www.designingbuildings.co.uk
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